Not All Revenue is Equal

In the world of business, not all revenue is created equal. Some revenue models build empires, while others leave you constantly chasing the next deal. Knowing the difference—and optimizing for the right one—can transform your business.

In this post, I’ll break down the three main types of revenue: Recurring, Repeat, and One-Time Revenue. Plus, I’ll share tips on how to upgrade the quality of your business’s revenue. That way, you can make more with less headache.

Companies with recurring revenue are often valued at higher multiples. That means that investors value a dollar of recurring revenue more than a dollar of other types of revenues. The table below is illustrative of this.

Note: Software businesses are typically highly valued because of recurring revenues and lower operational drag (they require less labor and capex and can serve a larger user base)- so the high revenue multiple isn’t solely because of recurring revenue.

1. Recurring Revenue: The Gold Standard

Recurring revenue is the gold standard of business models. Think of companies like Netflix, Shopify, and Salesforce—they’ve built their empires on this model.

Why is recurring revenue so powerful?

i. Marketing and sales are not easy (or cheap)

Why put all the effort into acquiring a customer only to let them go after one transaction?

Recurring revenue means: Acquire a customer once and benefit for the long run.

With recurring revenue, you can make so much more money for each dollar spent to acquire a customer.

ii. Predictability = peace of mind

With recurring revenue, you know what’s coming next month…and the months after that. It makes financial planning and growth easier because your cash flow is steady.

iii. Loyalty and long-term relationships

Recurring revenue creates loyalty. Customers stay with you, month after month. You can then serve your customers better as you get better.

This also means that you can sell more things to existing customers to help them achieve their goals (instead of having to acquire new customers to sell to). It’s a win-win: they get ongoing value, and you get consistent, and growing, income.

iv. It Stacks up over time

Each month, you’re building on your previous success. Think of it as filling a bucket that keeps growing, without having to refill it from scratch.

Recurring revenue works best with specific types of businesses:

Services: Such as gym memberships or pool maintenance.
Software: Like Microsoft Office.
Regularly Used Products: Consumables like coffee capsules or supplements.

Risks of Recurring Revenue

When it comes to recurring revenue, churn is your biggest enemy. A leaky bucket (customers leaving) can undo all the benefits of recurring revenue. Churn usually happens because of a bad product or service experience. Prioritize customer service and customer success to keep the recurring revenue engine running smoothly.

2. Repeat (or Re-Occurring) Revenue: Predictable, But Not Perfect

Repeat revenue is like recurring revenue’s more casual cousin. Customers keep coming back, but not because of a contract but out of habit or need.

Coca-Cola can predict how many bottles its customers will buy annually based on purchasing habits.

Customers aren’t contractually forced to drink Coke, yet they consistently do

Why does it work?

i. Predictability without contracts
Even without a subscription, repeat purchases can be surprisingly consistent.
When it comes to certain consumables, human beings have predictable consumption patterns.

ii. Loyalty through quality and brand

Customers return when your product or service delivers every single time. Build a reputation for quality, and they’ll come back for more. This is especially true with things you put in your mouth – why risk it with Shasta Cola when you can have Coca-Cola instead?

Where Does Repeat Revenue Work?

Everyday Products: Think daily consumables like beverages, snacks, or pet food. 
Seasonal Services: Holiday decorations, cleaning services, or other home services like plumbing.

Repeat revenue doesn’t come without risks.

There are no guarantees with repeat revenue. Customers aren’t locked in, so you need to keep them engaged. Neglecting marketing can hurt. Consistent outreach and relationship-building are critical. You have to put in effort to keep your brand at the top of customers’ minds.

3. One-Time Revenue: High Effort, High Risk

One-time revenue is transactional. It’s the most traditional revenue model. It’s also the riskiest.

The issue with one-time revenue is that it requires constant customer acquisition and sales just to maintain revenue. Customers may only need this type of product/service once (or a few times) in their lives.

It is hard to build a compounding vehicle solely on one-time transactions.

Businesses in this space need to constantly grow (and train) their marketing sales teams. A few months of underperformance from marketing and sales can cause the business to go under.

There are several risks associated with one-time revenue:

1. It’s unpredictable. You’re starting from scratch every month. 

2. High customer acquisition costs (CAC) can eat into profits. And ad costs only go up with time.

3. It’s hard to plan for the future without a steady revenue stream. Forecasting and budgeting look more like guesswork. 

How to Upgrade Your Revenue Model and Boost Your Businesses Top line revenue.

No matter where you are now, there are ways to improve and stabilize your revenue model. There are strategies that businesses can use to make more money using less effort.

This exercise starts by thinking about your ideal customer’s needs in a holistic way. Ask yourself: “What adjacent needs or wants can I solve for my ideal customers?”

Force yourself to come up with at least 6 answers. You can then apply the strategies below when trying to solve the needs or wants your customers may have.

1. Add Complimentary Products or Services as a Subscription

i. Sell replenishment or consumable products

You can sell products that customers regularly need. If you’re selling coffee machines, you can sell coffee pod subscriptions as well. If you sell wellness courses, then you can add supplement subscriptions.

ii. Offer ongoing or complimentary services:

Your customers may need additional services that are related to whatever it is you already sell. For example, financial advisors who typically sell one-time advisory engagements can also sell bookkeeping services.

2. Provide Access to Content or Software

Some businesses can offer valuable content, like paid newsletters or video newsletters, to their customers. This is especially the case with knowledge-based businesses. Other businesses can build software that adds value for their customers.

A consulting firm that sells one-time projects can also sell paid newsletters, webinars or workshops. A niche consulting firm focused on RevOps can sell CRM software or CRM analytics tool as a subscription to its clients. A personal trainer can also launch a fitness app that helps productize his services.

3. Build Loyalty via Programs and Memberships

Creating rewards or membership programs can keep customers coming back. For a retailer, this can take the form of ‘VIP’ memberships, free shipping, exclusive deals, and loyalty programs.

4. Use Partnerships

Partnering with other companies in a mutually beneficial way can create a lot of value for your customers. An electronics retailer or contractor can sell extended subscription-based warranties that are then fulfilled by a third party. Car dealerships who only sell cars can also sell maintenance packages on behalf of mechanics who they’ve partnered with.

5. Go Upmarket with One-Time Revenue

The most successful one-time revenue businesses sell expensive products or services. Think about McKinsey or Volvo. They sell very expensive things. This means the cost of acquiring a customer is small compared to the revenue generated from the sale.

Super high-ticket items reduce the number of customers you need to reach your revenue and profit goals. There is less operational drag when you have to service 3 customers to reach $1,000,000 in revenue instead of 300 customers. To do this, increase the value of your product or service by adjusting your offer. Then, adjust your prices accordingly.

6. Use Affiliates to Sell Your One-Time Offer For You

Having an army of people (affiliates) who sell your products for you makes one-time sales businesses much easier to manage. To do this, you need to incentivize your affiliates by giving them a commission off of every sale they help you make. This will only make much more sense once you’ve increased the price of your product so there’s enough profit to go around for everyone.

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I hope you found this post insightful and valuable.

If you’re running a business, I’d love to hear about how you’re serving your customers and the strategies you’re using to monetize your offerings. Let’s connect!

Feel free to reach out to me on LinkedIn or drop me a message at [email protected].