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  • Writer's pictureEric Williams

The impact of recurring vs repeat vs one-time revenue when selling a business.

Companies with strong repeat business tend to be much more attractive to business acquirers than businesses that primarily have one-time sales. What is even more attractive is recurring business. Some people mistakenly use the terms repeat and recurring interchangeably, but there's a distinction between the two: recurring business is when a customer purchases the same product or service on a relatively predictable schedule. For example, a repeat customer to a dairy might be someone who occasionally throws ice cream socials for 100+ people and always returns to the dairy whenever they need large amounts of ice cream (but the business owner doesn't know when that will happen). A business with recurring customers, in contrast, would be a food manufacturer that has a standing automatic weekly re-order for the same type of milk from the dairy.

If you have repeat or one-time customers and you can turn them into recurring customers, it will be a more valuable and marketable business because of the high predictability of recurring income. If you currently have repeat customers who seem to be buying the same products or services on a fairly regular basis, it may be worth exploring whether you can get them to agree to a subscription model with an automatic payment mechanism, or even a contract that provides them slightly better pricing or terms in exchange for doing a certain level of business on a regular basis (i.e. “we’ll deliver products to you rather than requiring you to come to our business to pick up products, if you sign a contract that you’ll buy at least 100 widgets per month”).

If your business does not generate recurring revenue, the extent to which you can demonstrate that sales are from repeat customers will be helpful.

Does your company have a way to track its customers, the products and services they buy, when they do business with your company, and how much money they spend? While most accounting software should make this relatively easy to track, the information must be accurately collected.

It’s not uncommon for businesses, particularly business-to-consumer companies, to record the details of transactions but not the customer’s identity. Being able to measure the level of repeat business from customers is important for demonstrating stability and probability of continuing revenue, as well as client churn. Some business owners are uncomfortable asking customers for identifying information. One solution for this is to set up a frequent buyer card that registers the customer’s information, where some sort of reward is given to frequent repeat customers. Tracking and documenting customer contact information and customer sales history and characteristics adds to the value and marketability of any business. This information offers support to a business seller's representations about customer behavior and provides a buyer with a valuable marketing tool it can use to do targeted marketing and/or promotions as the new owner.

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