In this Episode About The Power of Recurring Revenue
- Definition and Benefits of Recurring Revenue: Distinct from repeat revenue, involves contractually obliged income over time, providing predictability, easier budgeting, and stability for businesses.
- Growth and Investment: Businesses with high recurring revenue find it easier to grow and attract investors, as these models offer stable and predictable revenue streams, leading to higher valuations.
- Challenges and Strategies: Maintaining high retention rates is crucial; companies may invest heavily in customer acquisition and make strategic decisions, like outsourcing certain services, to preserve a pure recurring revenue model.
Here is a Glimpse of The Power of Recurring Revenue
In this episode, Jim delves into one of his favorite topics: recurring revenue. He emphasizes that a high degree of recurring revenue is a hallmark of a great business, allowing for better sleep, planning, and overall business stability.
Jim defines recurring revenue as contractually obliged over time, distinguishing it from repeat revenue, which lacks contractual commitment. Examples of recurring revenue include cable bills, phone bills, utility bills, and software subscriptions like Salesforce and HubSpot. These services often involve contracts that are hard to exit, ensuring continuous revenue. Recurring revenue provides predictable income, making budgeting and planning easier. Businesses with recurring revenue find it easier to grow as they can rely on a steady income stream and need less aggressive sales and marketing efforts than project-based businesses.
Customer Acquisition Cost (CAC) is crucial here; companies are willing to invest significantly in acquiring customers, knowing they will generate long-term revenue. Recurring revenue models attract investors due to their stability and predictability, unlike project-based models, which require constant new sales. Businesses with high recurring revenue often achieve higher valuations, sometimes trading at multiples of revenue rather than profit.
Resources mentioned in this episode:
- Jim Schleckser on LinkedIn
- The CEO Project
- Great Ceos Are Lazy: How Exceptional Ceos Do More in Less Time by Jim Schleckser
Sponsor for this episode…
This episode is brought to you by The CEO Project. The CEO Project is a business advisory group that brings high-caliber, accomplished CEOs together. Our team of skilled advisors comprises current and former CEOs who have run both public and private sector companies across multiple industries. With our experience and expertise, we guide hundreds of high-performing CEOs through a disciplined approach that resolves constraints and improves critical decisions. The CEO Project has helped high-performing, large enterprise CEOs with annual revenues ranging from $20M to over $2 billion to drive growth and achieve optimal outcomes. If you are an experienced CEO looking to grow your company, visit www.theCEOProject.com.