Understanding Revenue Models and How They Impact Valuations

Matt & Ryan take over this Shoot the Moon podcast episode! We’re talking about revenue models in IT Services companies and how each model impacts valuations in an M&A transaction. Oftentimes recurring revenue leads to a higher EBITDA which leads to a higher valuation. The more recurring revenue you have, the more you can bump up that EBITDA range, but there are different types of revenue to consider.

Recurring Revenue: Yearly or monthly contracts that often auto renew with a price increase in place. A leading revenue source when it comes to valuations – having sticky customers!

Re-Occuring Revenue: This is revenue that is generated from customers who make repeat purchases from your business.

Project Based Revenue: High value revenue in the digital transformation space where you are doing a significant project and key to the business progress that is expected to come from the completion of a project.

Hourly Based Revenue: Staffing revenue where simply you are selling time & the services that go along with that time.

Time & Materials Revenue:

Revenue Rocket helps tech-enabled sellers get ready to sell, and sell. Contact us to learn more about how we can help or check out our valuation calculator to get an estimate of what your firm could be worth in 10 minutes.

Even if you have a recurring contract, that contract may not be as valuable as you think – what matters is the demonstration of long term, repeat revenue from customers that trust you that you can show to a buyer.

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