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.
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.