THE HIDDEN POWER OF RECURRING REVENUE (EVEN IN NON-SUBSCRIPTION BUSINESSES) 3 SIMPLE FORMULAS

When valuing a business, one question stands out more than almost any other: “How predictable is the future income?”

Revenue is the headline, recurrence is the story behind it, and it’s one of the strongest drivers of business value.

Most owners assume recurring revenue means a subscription model—software,  or gyms. But in reality, any business can build recurring value, even if it doesn’t have a subscription plan in sight.

Accountants are perfectly placed to help their clients uncover it.

Why Recurring Revenue Matters

A company with a reliable, recurring customer base is perceived as stronger and more sustainable than one that relies on one-time transactions, even if its total annual revenue remains the same.

Recurring revenue means:

• Cash flow is smoother.

• Forecasts are more reliable.

• Staffing and inventory planning become easier.

• Future sales are less dependent on constant marketing spend.

It signals that tomorrow’s revenue looks a lot like today’s, perhaps even better.

The Myth: “We’re Not a Subscription Business”

Many owners dismiss the idea because they don’t sell memberships or software. But recurring revenue isn’t necessarily about the billing model; it’s about customer behaviour.

Several types of recurrence can be built into almost any business:

1. Contractual Recurrence: Multi-year supply or service agreements, maintenance plans, or retainers.

2. Behavioural Recurrence: Customers who naturally repurchase on a cycle, like annual inspections, quarterly orders, or seasonal replenishment.

3. Embedded Recurrence: When your product or service becomes integral to a client’s operations, creating “stickiness” that results in ongoing use.

4. Relationship Recurrence: High-trust, high-service relationships that generate repeat projects or referrals year after year.

Even if there’s no formal subscription, these patterns create recurring income streams and therefore recurring value.

Create your advantage with 3 simple formulas

Here’s how to find and strengthen your recurring base with 3 simple formulas:

1. Segment Revenue by Customer Type: Break total sales into repeat vs. one-off customers.→ What percentage of revenue is driven by clients who purchased in the last 12 months and the prior year?

2. Calculate Starting Recurring Revenue Ratio:

Starting Recurring Revenue % =

 (Revenue from Repeat Customers ÷ Total Revenue) x 100 

This single metric tells a big story. If 60% or more of sales come from recurring sources, the business has strong value stability.

3. Identify Conversion Opportunities: Look for one-off revenue that could be turned into repeat income. E.G.,. turning after-sales support into maintenance plans, or packaging ongoing services into a retainer model.

4. Track Retention Rate: Now with the starting recurring revenue number, a small increase in customer retention year on year can have a huge compounding effect.

Here’s a useful formula to indicate Customer Retention Rate:

Customer Retention rate % = 

(Customers at end of period – New customers acquired during period) ÷ Customers at start of period.

Consistent retention over 70% signals strong recurring performance and significantly increases underlying value.

Looking at the Net Revenue Retention is also a great formula to indicate upsell/cross-sell performance to identify and track clear opportunities. This formula is:

Net Revenue Retention % = 

(Starting Recurring Reven – Churned Recurring Rev + Expansion Rev)

 ÷ Starting Recurring Rev

The Value Multiplier Effect

Recurring revenue doesn’t just stabilise income, it multiplies valuations.

Consider two businesses with the same $5 million in revenue and $1 million in EBITDA:

• Business A: Project-based, one-off sales, low customer retention.

  → Likely valued at 3–4× EBITDA.
  

• Business B: 70% recurring customer revenue with multi-year contracts or repeat cycles.

  → Often valued at 5–6× EBITDA.

That’s a $2–3 million difference in sale price, purely from predictability.

Tip

Run a “recurring revenue audit.”

• Identify what % of your revenue repeats automatically or predictably.

• Highlight what could be turned into a recurring model.

• Track it quarterly.

You’ll not only help stabilise cash flow, but also lift the business’s exit multiple — because buyers pay for the certainty of tomorrow’s sales, not just the size of today’s.

Recurring revenue is the quiet engine of business value. It’s not about subscriptions, it’s about building consistency, loyalty, and predictability into the income stream.

Every business has the potential to build it.