3. "Recurring Revenue”
Firms love predictability. Similar to the note on consistent earnings in last week's post, if your revenue numbers make for easy Excel model creation, firms notice.
The question is the relative stability and growth potential of revenue. In private equity’s mind, one type of revenue stream is clearly more valuable. I refer to recurring revenue versus project-driven non-recurring revenue streams.
Typical recurring-revenue-stream companies include:
- Phone, utility and water companies
- Manufacturing companies with targeted niches
- Call centers
- Internet-based subscription service companies
- Software companies with annual licenses
Typical project or non-recurring-revenue-stream companies include:
- Engineering firms
- Contract manufacturing ; which characterizes most printing companies
- Construction firms
The recurring revenue model offers a high degree of revenue stability; however, revenues are generally harder to grow. On the other hand, project-driven revenue is generated by one’s ability to win projects – with an emphasis on pricing and quality. Sound familiar? Project driven revenue by its very nature results in revenue fluctuations from month to month and year to year. Nevertheless, it offers more of an opportunity to capture large chunks of business in a shorter time horizon.




