Buyers are discounting our recurring revenue because we do not have multi-year software-style contracts. How do we prove our repeat transactional revenue is just as sticky and valuable?

Question

Tyler Smith · Accepted Answer

While many buyers might initially prioritize businesses with multi-year, software-style contracts, savvy investors understand that customer lifetime value and retention metrics are the true indicators of sticky recurring revenue. You can effectively demonstrate the value of your repeat transactional revenue by focusing on several key areas.

Proving Stickiness with Data

To prove your repeat transactional revenue is just as sticky and valuable, you must present compelling historical data that illustrates consistent customer behavior.

• Historical Cohort Data: Showcase data that tracks customer purchasing behavior over multiple years. This demonstrates that once a customer is acquired, they consistently buy from you without requiring significant additional marketing spend.
• Capitalization of Earnings Method: Formalize this predictable behavior using the Capitalization of Earnings Method. Your historical consistency acts as a proxy for future performance, providing a quantifiable measure of value.

Highlighting Operational Excellence

Your operational systems play a crucial role in customer retention and can significantly increase switching costs, even without formal contracts.

• High Switching Costs: If your customers are integrated into your proprietary workflow or logistics, highlight this. These integrations create natural barriers to switching, making your services inherently "sticky."
• Systemized Customer Experience: Use your EOS® process documentation to show how your team delivers a consistent customer experience. This level of systemization proves to the buyer that your customer relationships are tied to the business's processes, not solely to individual salespeople. This also relates to how a [business owner should use Thinking Time to design the next iteration of the Accountability Chart for an exit](/qa/thinking-time-accountability-chart-exit-prep).
• Customer Relationship Ownership: Emphasize that your systems ensure customer relationships belong to the business, rather than being dependent on specific individuals. This can be crucial in situations where you might need to address issues like a [long-tenured leader lacking capacity for a growing business](/qa/long-tenured-leader-lacks-capacity-gwc).

By demonstrating low customer churn, stable margins, and a reliable, systemized delivery model, you can effectively position your transactional revenue as a highly valuable, recurring stream that warrants a premium multiple. This approach underscores the inherent strength and predictability of your business, regardless of contract length. Understanding the [difference between corporate titles and Accountability Chart seats](/qa/seat-vs-job-title-accountability-chart) can also help in clearly defining roles that contribute to this systemization.

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