What is Recurring Revenue?
The Short Answer
Recurring Revenue explained simply
Recurring revenue is money a business expects to get regularly. Think of it like a monthly subscription for a streaming service or a yearly contract for software. It’s predictable income, which makes a business more stable and valuable. This type of revenue is different from one-time sales because it creates a steady stream of cash flow.
Real-World Example
The Software Company Example
Imagine a software company that sells its product through a monthly subscription. Each customer pays $50 per month. If the company has 1,000 active subscribers, its recurring revenue is $50,000 per month. This predictable income allows the company to plan for future expenses and growth with more certainty.
Why this matters
Recurring revenue is important because it shows a business is stable and has a predictable future. Buyers like businesses with recurring revenue because it means less risk and a more reliable return on their investment. It also makes it easier to forecast future earnings, which can increase the business’s valuation.
Businesses with strong recurring revenue models often sell for higher multiples. It’s a clear sign of customer loyalty and a predictable cash flow, which is very attractive to buyers.
Businesses with strong recurring revenue models often sell for higher multiples. It’s a clear sign of customer loyalty and a predictable cash flow, which is very attractive to buyers.
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