The Value of Recurring Revenue

It’s the holy grail of business – generating revenue without having to ‘resell’ the product or service.  
 
Recurring monthly revenue provides cash flow, overhead coverage, value acceleration and peace of mind. This is a driver of business value that can provide a considerable advantage to growth, yet many businesses fail to capitalize on it
 
Remember, when a buyer – whether a family member or a 3rd party – buys your business, they want to know how it is going to run without you.  Having some percentage of recurring revenue reduces risk (the more recurring revenue, the lower the risk), and increases the likelihood of a higher multiple on the business at the time of transition. 
 
As I shared in my video on the topic, there are six tiers of reoccurring revenue that buyers look for – similar to rungs on a ladder: 
 
FIRST rung at the bottom is what's called consumables.  I'm a coffee drinker, and when I run out of coffee, I go buy more.  That's a consumable and there's some predictability that I will purchase again.  
 
SECOND rung is the sunk money consumable. So I told you I was a coffee drinker, and we have a Keurig, for which we need to buy K-cups.  That’s a sunk money consumable.  
 
THIRD rung is what's called a subscription model. We're all used to that. That's like a magazine subscription. It has a beginning and an end, so there's recurring revenue as long as consumers like what they are getting.  
 
FOURTH rung is what's called a sunk money subscription. If you own a PC, you must buy a subscription to Office 365 for your applications (Word, Excel, etc…) to work.  
 
FIFTH rung is what's called an auto-renewal. This is a subscription or a service that's provided, but there is no beginning or no end. It just automatically renews until you actually call and cancel.  
 
At the very top of the ladder is the SIXTH Rung called contractual recurring revenue. This is monthly recurring revenue that is going to happen because you have a signed contract for a stated period of time – could be for 12 months or several years. 
 
If you want to increase the value of your business, where could you start on the ladder of recurring revenue? Or if you have one of those recurring revenue models, how can you move to the next rung?
 
Don't get hung up on trying to achieve the highest rung or think the goal must be 100% recurring revenue. Just get started. It will make a big impact on the value of your business.  
 
And you’ll sleep better at night.