BUSINESS VALUATION

One Kind of Revenue Trumps Them All. Here's Why

Just making money isn't the way to build a valuable longterm business. Let me explain.
Advertisement

What do you want your business to do? Make money, of course. To pay for people and supplies, to be able to grow. So whenever a revenue line is growing, you think that's great news. But not all revenue is equal.

This was driven home to me the other day when I was talking to John Warrillow. He's a master of thinking about how to build a business that can be sold. This doesn't mean you have to sell your company--only that you want to be sure that, if you did want to sell, you could do so for a sum that would leave you happy.

What Kind of Revenue Is Best?

Warrillow is very clear that, while revenue can take many shapes, one kind of revenue trumps them all: reliable revenue. Customers who have to come back and spend, or customers who just don't want the hassle of leaving--those are the ones who are most worth attracting. Land one and you have their revenue for life.

"Recurring revenue," Warrillow told me, "acts like a great big pair of binoculars for your business. It allows you to see where your revenue is going to come from months--even years--in the future."

A week after talking to Warrillow, I judged a business plan competition. All the ideas were strong and most of the teams were impressive. But not a single one had asked this question: How do I tie my customers in so that their revenue is reliable?

Reliable Revenue Models

One team had a great idea for providing lunch to big industrial parks in China. Why not, I asked, make your service a membership club? Members get served first at a discount. You have them for a life--or at least a long time.

Another team wanted to entice kids and adults to learn software coding. Why not a gym-style subscription?

Yet another had a great idea for improving pet welfare; a subscription model would have made building this business smoother, faster, and more sociable.

So when you examine your company's revenue and pat yourself on the back because it's growing, ask yourself: Is it getting more reliable? And, if it isn't, could it?

IMAGE: banksimple/Flickr
Last updated: Jul 8, 2013

MARGARET HEFFERNAN

Margaret Heffernan is an entrepreneur and author. She has been chief executive of InfoMation Corporation, ZineZone Corporation, and iCAST Corporation. In 2014, she published her fourth book, A Bigger Prize: How We Can Do Better Than the Competition.




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: