Early on in my career as a business broker, I discovered that businesses with recurring revenues tended to sell at dramatically higher valuation multiples than comparable businesses without. Let’s take a look at some of the benefits of having all or a substantial portion of your sales coming in as recurring monthly revenue (“RMR”) or repeat sales to the same batch of customers.
The Magic of Recurring or Subscription Revenues
What’s one of the worst things about owning and running a business? It’s the fact that on the first of every single month your revenue resets to zero and you have to restart the process of building sales, reaching break-even, and hopefully realizing some profit by the end of it.
Up until just a few years ago the Recurring Monthly Revenue (aka RMR) model or subscription revenue model, if you prefer, was something associated with large companies and utilities. Think about how your old land telephone company had you locked into sending them a payment on the same day every month. Think about utilities such as the electric company. Then there’s your cable-TV company and your ISP. They all had you paying them on the same date every month.