Logo Andy Sokol
Sticky Revenue

We’re going to talk about stickiness and valuation.  For a business owner, sticky refers to how long customers stay and continue to buy from your business. When your business is being evaluated by an investor for, let’s say for an acquisition, stickiness is everything.   

 

They’ll look first at the business that you have under contract to determine if the contracts can be assigned to them during the change of ownership.  However, not all sticky business is under contract. Some customers just buy again and again and again, even when they’re not bound by any contracts to do so.   

 

To determine how sticky your revenue is, your potential investor will want to see revenue by customer, by period. Usually they’ll look at revenue by customer, by year, for let’s say three to five years, and my month, for the most recent 12 months. This enables them to see how repeatable your revenue is.   

 

Sticky has a bad connotation in some contexts. To be clear, I don’t want you to think about how you feel on a hot day, however, in the context of customers and revenue, sticky is a wonderful thing.   

 

Sticky gives you the value that someone else will pay you for all of those years of your hard work that you’ve done. When a company is looking to buy you out they want to know that they are buying solid, loyal, client relationships, and that’ll be easier and quicker than trying to get those customers on their own. That’s the whole point of it.  

 

Companies are willing to pay a premium for those relationships, which translates to more money for you, as the seller. That’s why an excellent client retention record and plan has everything to do with the future of your business ‐ and of course, your long‐term payout from all your  business efforts.