6d • General discussion
Recurring Revenue? Not All Recurring Is Durable.
A seller said the business had strong recurring revenue.
The buyer liked that phrase.
Everyone likes that phrase.
Then we reviewed the contracts.
Some customers were technically recurring but could cancel with 30 days’ notice. Some had not signed updated agreements in years. Some were loyal because of the seller personally. Some were recurring only because nobody had tried to raise prices.
That is not the same as durable recurring revenue.
Recurring revenue has layers.
Contractual.
Behavioral.
Relationship-based.
Mission-critical.
Price-insensitive.
Transferable.
A buyer should not simply ask, “Is the revenue recurring?”
A buyer should ask, “Why does it recur, what would cause it to stop, and will it still recur when the seller is gone?”
That is where the truth is.
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Recurring Revenue? Not All Recurring Is Durable.
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