Early in my entrepreneurial career I sat down with one of the most successful entrepreneurs in town and he said something I’ll never forget: figure out how to build a recurring revenue-based business as it’s the best model. Ever since then, I’ve kept that in mind and focused my efforts on Software-as-a-Service (SaaS) and other types of recurring revenue businesses.
Here are a few benefits of recurring revenue:
- Cash flow is predictable and timely
- Critical metrics like cost of customer acquisition, lifetime value of the customer, and renewal rates are well understood
- Every year starts with a base of recurring revenue making it much easier to grow indefinitely
- Banks have credit lines specific to recurring revenue businesses that are much more favorable than standard business credit lines
- Recurring revenue businesses are significantly more valuable than non-recurring revenue businesses, on average, when comparing ones with similar revenue amounts
The next time you’re analyzing potential business models, consider the power of recurring revenue. While recurring revenue is harder to get started, it’s an amazing business model once running.
What else? What are some more thoughts on the power of recurring revenue?