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Increase your business's value with a repeatable income stream

Last week I met John Warrillow, author of the book Built to Sell, which has inspired many of my recent blog posts.

John was speaking at a corporate finance conference about the key messages in his book, and in particular the little-understood area of repeatable income.

As John explained, anyone looking to buy a business will value a company that has a regular, repeatable revenue stream higher than a company that only does one-off work.

Accountancy firms are a good example of businesses with repeatable revenue – e.g. the annual accounts preparation fee.

But there is a hierarchy of different levels of repeatability (with the most desirable first):

1.  Long-term contracts – e.g. mobile phone contracts

2.  Automatically renewing subscription-based supplies – e.g. insurances with companies such as Direct Line

3.  Closed architecture* subscription-based supplies – e.g. software updates

4.  Other subscription-based supplies – e.g. magazines

5.  Closed architecture* supplies – e.g. razor blades

6.  Consumables – e.g. toothpaste

*i.e. where you need to keep paying to benefit from a large initial up-front investment.

When K&H switched to using fixed price agreements a few years ago, we were (without realising it) moving ourselves up this hierarchy, probably from 6 to 4 (?). If you have a business with repeatable income, how can you change the way that you charge for your services so that you can rise up the hierarchy and as a result increase the value of your business? Can you think of any businesses that can’t do this?

Please post a comment or call/email me with your thoughts.

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