If you are considering selling your business, you undoubtedly need to understand its value. Unfortunately, arriving at that answer can entail many different methodologies, and it often involves the familiar valuation formula of applying a multiple of Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA).

For example, if a company boasts EBITDA of $1 million, and a five times EBITDA multiple is applied, the company’s estimated value is $5 million. But how do we know what multiple applies to your business? And how do we know if the EBITDA number is even accurate? After all, EBITDA will not be the same for every business.

If you are considering selling your business, you will need to have a clear understanding of its type of customer revenue because it can significantly impact the value of your business. Sometimes people confuse recurring revenue with repeat revenue, but it is essential to understand how they are not the same thing.

Recurring Revenue
Recurring revenue stems from a contractually bound legal agreement for a solution delivered over time. It is usually contractual over one or multiple years, and because it may carry penalties or fees if the customer leaves, it can be counted on into the future. This makes it highly valued by prospective acquirers because of its predictability and lower risk.

However, recurring revenue does not have to be contractual to be valuable. Depending on the business and the services offered, it can be too costly or too much of a hassle for a customer to leave or switch providers. An excellent example of this is customer relationship marketing companies that collect large amounts of valued data over time, making it more beneficial for clients to stick with their services. Below is a list of the different types of recurring revenue.