A few weeks ago I was talking to an entrepreneur that has a couple different product lines with one product being installed software and the other product being Software-as-a-Service (SaaS). Naturally, the strategic focus is on the SaaS product but the installed product is still doing well replacing more expensive incumbents. The entrepreneur then said something that really stuck with me:
A one-time sale is a sugar high for the business.
Think about it for a minute. Selling an installed product that has a one-time fee is great for short-term revenue but, like a sugar high, it’s only temporary. The following year you have to sell the same amount as the previous year just to get back to the same level of annual revenue. Now, with recurring revenue, each new customer adds more revenue that layers on to the existing revenue making it much easier to grow and making cash flow more predictable (assuming a sticky product with a high renewal rate).
Businesses with one-time sales aren’t bad, but, if possible, recurring revenue is a much more desirable business model.
What else? What are your thoughts on the saying that a one-time sale is a sugar high for the business?
2 thoughts on “Sugar High with One-Time Sales”
This becomes a major derailment.
I’ve seen teams build new features for the incumbent client because they may be paying. The product gets bloated next thing you’re too committed to a significant source of revenue without broad appeal/adoption.
Now when to say no…
I think this is a spot on analogy, and oddly enough, a topic I had just been contemplating a few minutes ago. As I prepare to start up my own business, I was just calculating all of the initial one time sales I am hoping to get that I would then work on making recurring sales. I was actually thinking about how I would need to get a sale to give the company a sugar high (My term is, “a shot in the arm”). That boost would then begin to wane as I used the revenue for profit and income. A second sale would give me a second boost (or sugar high), and the process would continue until I am able to get some traction. So, in reality, I see my company surviving on these sugar highs initially, until the recurring sales kick in and I can finally start eating some meat.