In the world of entrepreneurship and business ownership, the model of a recurring revenue business is quickly becoming the preferred choice for many entrepreneurs and business owners. This model is not only more scalable, but it also offers many benefits in terms of stability, predictability, and profitability. In this blog post, we will explore the advantages of a recurring revenue business model and why it’s considered a game changer in the business world.
Revenue vs Profit Before Tax
One of the key benefits of a recurring revenue business is that it offers a revenue multiple, which is much higher than the multiple based on profit before tax (EBITDA). For example, in the roofing industry, a business owner might expect to receive two and a half times their EBITDA when selling their business. However, in a recurring revenue business, the revenue multiple can be 10 times the revenue. The reason for this is that a recurring revenue business is more predictable and stable, with money coming in every month, making it a more attractive investment opportunity. In contrast, businesses with inconsistent revenue and profits are less attractive to investors and therefore receive lower valuations.
Scalability and Flexibility
Another advantage of a recurring revenue business model is its scalability and flexibility. This model can work for anyone, whether you’re a seasoned business owner or someone just starting out. It also offers the freedom and flexibility to scale your business in any way you want, whether that’s by outsourcing certain aspects or expanding your team. The model is also profitable for anyone, regardless of their experience level.
The Model of the Future
In conclusion, the recurring revenue business model is the model of the future. It offers a more stable, predictable, and profitable way of running a business, making it a more attractive investment opportunity. Whether you’re a seasoned business owner or just starting out, this model offers the flexibility and scalability to grow your business in any way you want. So, if you’re considering a career in entrepreneurship or business ownership, it’s worth taking a closer look at the recurring revenue business model.