Recurring vs One-Time Revenue: What’s Actually More Valuable?
Matt reacts to a popular clip explaining how companies built on subscriptions are seen as massively more valuable — but is it always true? He unpacks the logic behind recurring revenue, challenges the “8x valuation” claim, and offers real-world advice for entrepreneurs thinking about starting (or pivoting) a business.
There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!
Video Transcript:
Business Advice Video:
This company’s worth 220 billion dollars. This one worth 6 billion dollars. This one only after two years worth 680 million dollars. Why and how? It’s called the subscription economy. According to a Forbes article that said two companies same top-line revenue 100 million, 100 million. This one has to go chase for its revenue every single month they got to go sell again. But this one, it’s subscription. Every month people are paying 49.99. According to this Forbes article, this one could be worth 8 times more just because it’s reoccurring versus this one.
Matt’s Review:
Yes, recurring revenue is worth more. Eight times is kind of an arbitrary number that I wouldn’t put a lot of faith in, but it certainly makes sense that if you have customers locked in on a recurring subscription, that is much more predictable cash flow and it’s a base you can build on than if every sale that you make is a one-off sale. There’s no reason for people to come back and buy from you again, or no setup for them to do so. So yes, all things being equal, a company with $16 million a month of recurring revenue that you get to a million dollars a year with is better than a company that does $16 million in one-time sales each month, and every month they have to find all new customers to sell another $16 million worth of stuff to. That makes sense. Eight times, that may be one rare case where it was that big of a difference, but certainly there is more value in recurring revenue that doesn’t mean go out and figure out how to turn your business into a subscription, if that just doesn’t make sense for who your customers are. But if you’re starting something from scratch, then something with recurring revenue is generally going to be a better bet than something that’s one time, everything else being equal, which it never is.
