Skip to content

Cookies on Loupe

Essential cookies keep Loupe working and are always on. With your agreement, Loupe also loads analytics to count visits and see which pages and tools are used. There is no advertising tracking. You can change your choice at any time from cookie settings. Read the cookie policy

Loupe home

Recurring revenue

Recurring revenue comes back without being won again each time, through subscriptions, retainers or service contracts. Contracted revenue is the part committed for a fixed term.

Also called contracted revenue

Last updated
Author
Loupe editorial
Reviewer
Not yet reviewed

Definition

Recurring revenue is income that repeats without the business having to win it again each time, such as subscriptions, retainers, maintenance plans and service contracts. Contracted revenue is the part that customers are committed to for a fixed term. Other recurring revenue repeats out of habit, like a regular customer who reorders every month, but can stop at any time. Buyers give more weight to revenue that is contracted and documented.

Worked example

Bramblecote Facilities is a fictional South African cleaning business with annual revenue of R20,000,000.

  • R12,000,000 comes from multi-year cleaning contracts with offices.
  • R3,000,000 comes from regular clients who book weekly but have no contract.
  • R5,000,000 comes from one-off deep cleans.

Contracted revenue is 60% of the total. Counting the regular clients too, recurring revenue is 75%, but that extra 15% could leave with a phone call.

Why buyers care

Revenue that repeats is easier to forecast, easier to lend against and less exposed to a change of owner. That is why it tends to support a higher multiple.

Loupe's valuation tool asks what share of revenue is recurring or contracted. Under its starting rules, a share from 25% to 60% adds 5% to the adjustment applied to the multiple, and a share above 60% adds 10%. That sits alongside the other quality adjustments, which are added together and capped, and the result is an indicative range, not a formal valuation. Answer on the evidence, not the seller's description.

Before you rely on it, read the contracts. Check their length, notice periods, renewal history and any change of control terms, and confirm the contracts are with the business rather than with the owner personally.

Change of control clause

A change of control clause gives the other party to a contract rights if the business changes owner, such as the right to terminate, renegotiate or refuse consent.

Related terms

  • Annual recurring revenue (ARR)

    Annual recurring revenue is the yearly value of subscription or contracted revenue expected to repeat, measured at a point in time. Software businesses are often priced as a multiple of it.

  • Monthly recurring revenue (MRR)

    Monthly recurring revenue is the subscription revenue a business expects to bill in a normal month. Its monthly movements show where growth comes from and where it leaks away.

  • Churn

    Churn is the rate at which a business loses customers or recurring revenue over a period. Customer churn and revenue churn can tell very different stories.

  • Net revenue retention

    Net revenue retention compares the recurring revenue from existing customers now with the same customers a year earlier, including upgrades, downgrades and cancellations.

  • Deferred revenue

    Deferred revenue is money customers have already paid for goods or services the business has not yet delivered. It is a liability until the work is done.

  • Change of control clause

    A change of control clause gives the other party to a contract rights if the business changes owner, such as the right to terminate, renegotiate or refuse consent.

  • Customer concentration

    Customer concentration describes how much of a business's revenue comes from a small number of customers. The higher it is, the more the business depends on decisions it does not control.

Guides

  • How small businesses are valued

    Most small businesses are valued as a multiple of their earnings. This guide explains how the earnings basis is chosen, why size and quality move the multiple, and why an asking price is not a sale price.

    11 minutes to read

  • Customer concentration and why buyers discount for it

    When a few customers account for much of a business's revenue, the earnings you are buying are less certain. This guide explains how to measure concentration, why it lowers the price and how to shape a deal around a dominant customer.

    9 minutes to read

  • Buying an online business: SaaS, ecommerce and content compared

    SaaS, ecommerce and content businesses are sold on the same marketplaces, but they earn money differently, fail differently and are valued differently. This guide compares the metrics, risks and diligence for each.

    9 minutes to read

Red flags

  • Contracts that end on a change of control

    Some customer, supplier and licence contracts let the other side walk away or renegotiate when the business is sold. Find them early and make consent part of the deal.

    Severity: fixableCustomers and revenue

  • Rising churn, refunds or chargebacks

    Customers leaving faster, asking for their money back or disputing payments are early signs that revenue will shrink, often before the headline numbers show it.

    Severity: price it inCustomers and revenue

  • Customer prepayments already spent

    When customers have paid in advance and the seller has spent the cash, you inherit the work of delivering without the money that paid for it.

    Severity: price it inCustomers and revenue

Free tools

  • See a low, likely and high value from the figures you have, and whether the asking price holds up.

Back to the glossary, A to Z