MRR is great, but so is one-time revenue

Everyone is infatuated with recurring revenue and rightly so: it’s far more valuable than one-time revenue to VC and acquirers.  But, don’t forsake one-time revenue.  Whether it’s for services, onboarding, licensing, or some other one-time event, revenue of this type is incredibly valuable especially to the entrepreneur.   There are three big reasons it’s valuable:

 

-It’s a Source of Cash.  The most obvious reason one-time revenue is valuable is that it’s a source of cash to fund overhead.  Indeed while a VC or acquirer may not ascribe a multiple to that revenue stream, they’ll absolutely look at it as “financing” for the core business. Especially while the business is still burning money, making sure one-time revenue is being earned is just as important as watching recurring revenue. 

 

-It Preserves Founder Equity.  The less obvious reason one-time revenue is valuable is that it prevents a founder from having to raise more cash, and the less cash you raise, the more equity you preserve.  When one-time revenue steps in the place of outside equity, this is when it truly shows its value.  Although VC and acquirers will be less sensitive to equity preservation, as a founder, it’s on the top of your agenda.

 

-It Can Make You Sticky.    Too many companies today focus on building products that are low/no touch.  Their idea is to build a product that’s so good, the customer never has to call you for anything.  On paper that sounds amazing but in practice, these businesses are easily replicable and suffer from high churn, especially as technology gets better and newer competitors build a competing product on better architecture.  For this reason, many VC will look for a company that doesn’t just offer a product, they offer a solution.  Solutions include the product but also encompass a level of touch with the client, and companies that touch their clients often with consulting, services, or ancillary needs tend to have way less churn. 

 

Indeed, some of the best SaaS businesses in the world generate a lot of services/one-time revenue as it’s a valuable source of cash that finances the business.  The list below shows that at the time they went public, the 24 SaaS companies below on median generated 77% of their revenue from SaaS and 23% of their revenue from non-SaaS sources.   It’s material.

 

    Total Revenue from Revenue from % From % From
Name Ticker Revenue Subscriptions Services/Other  Subscriptions Services/Other
Atlassian Corporation TEAM $319,521 $85,891 $233,630 27% 73%
MobileIron, Inc. MOBL $149,298 $48,080 $101,218 32% 68%
BroadSoft, Inc.  BSFT $278,843 $112,836 $166,007 40% 60%
Shopify SHOP $205,233 $111,979 $93,254 55% 45%
Splunk, Inc. SPLK $450,875 $283,191 $167,684 63% 37%
Hortonworks, Inc. HDP $121,944 $77,728 $44,216 64% 36%
Veeva Systems Inc. VEEV $313,222 $233,063 $80,159 74% 26%
Xactly XTLY $61,111 $47,309 $13,802 77% 23%
WorkDay, Inc. WDAY $787,860 $613,328 $174,532 78% 22%
NetSuite Inc. N $741,149 $593,093 $148,056 80% 20%
The Ultimate Software Group, Inc. ULTI $618,081 $516,177 $101,904 84% 16%
ServiceNow, Inc. NOW $1,005,480 $848,278 $157,202 84% 16%
Demandware, Inc. DWRE $237,279 $200,952 $36,327 85% 15%
Instructure INST $73,193 $62,463 $10,730 85% 15%
Medidata Solutions, Inc. MDSO $392,506 $336,195 $56,311 86% 14%
Marketo, Inc. MKTO $209,869 $183,658 $26,211 88% 12%
RingCentral, Inc. RNG $296,228 $271,245 $24,983 92% 8%
Jive Software, Inc. JIVE $195,793 $180,172 $15,621 92% 8%
HubSpot, Inc. HUBS $181,943 $167,920 $14,023 92% 8%
salesforce.com, Inc.  CRM $5,373,586 $5,013,764 $359,822 93% 7%
Castlight Health, Inc.  CSLT $75,315 $70,350 $4,965 93% 7%
Athenahealth, Inc. ATHN $924,728 $886,075 $38,653 96% 4%
RealPage, Inc. RP $468,520 $450,962 $17,558 96% 4%
Proofpoint, Inc. PFPT $265,397 $257,329 $8,068 97% 3%
             
  Mean $572,791 $485,502 $87,289 77% 23%
  Median $287,536 $217,008 $50,264 85% 15%

 

Even though it’s not as sexy as recurring revenue, don’t forsake onetime revenue.  For the reasons above, it can be every bit as important as recurring revenue, especially while you’re burning cash or are in need of growth capital.  

 

Want to be notified any time we put up a new post? Email me at sammy@blossomstreetventures.com to be added to the list.  

Blossom Street Ventures. All Rights Reserved.
Web Site Design by Idealgrowth