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What is the difference between repeat and recurring customers?

Question

Question

What is the difference between repeat and recurring customers?


 

Answer

When you are planning to sell your business, one thing you need to consider is the type of customer you have. Does your business have one-time, repeat, or recurring customers? You may be surprised to know that the type of customer you have can have a dramatic impact on the value of your business.


One-Time Customers

As the name implies, one-time customers are those who find your business, make a purchase, and are never heard from again. One-time customers have no loyalty to your business.

Further, it takes a lot of money to acquire a customer, and getting one in the door or your website only for them to make a one-time purchase means a lot of advertising dollars down the drain. This means a high acquisition cost for each customer, which equates to a lower overall investment in marketing. Less marketing in your business usually means less revenue.

When you are looking to sell your business, a business will sell for a lower price if its customers are only one-time customers. To maximize the value of your business, you want to have repeat and recurring customers. These customers are those who are not only loyal to your business but also are more likely to refer customers. Businesses with one-time customers often result in the lowest valuation for a company.

To maximize the value of your business, you want to have repeat and recurring customers.


Repeat Customers

Repeat customers are those who return to your business and buy products time and time again. Think about a grocery store, for example. While customers of a grocery store can certainly be one-time customers, customers of a grocery store are usually repeat customers.

This repeat customer may go every Sunday morning for weekly shopping or may stop in on a Tuesday evening to grab a gallon of milk. Despite the fact that these customers repeat, there is no predictability with this kind of customer — they buy items or services when the need arises and you never know for certain if and when they will make the next purchase. Businesses with repeat customers result in a higher valuation than businesses with one-time customers but a lower valuation than businesses with recurring customers.

Businesses with repeat customers result in a higher valuation than those with one-time customers.


Recurring Customers

Recurring customers purchase your products and services on a regular schedule — mainly on a subscription basis. A recurring customer is predictable. This is the person who will buy, and continue to buy, from your business consistently.

A great example of a business with recurring customers is a cell phone service provider. Cell phone service providers operate on a contract basis, and each month the customer pays for service until the contract expires or the customer cancels the service. Other examples are Netflix, Amazon Prime, gym Memberships, Dropbox, or any other subscription-based product or service.

The revenue received from recurring customers is steady and predictable.

This type of customer base results in the highest valuation with long-term contracts on a recurring basis being the holy grail.


Summary

When you are preparing to sell your business, creating a recurring customer base is one way to increase the value of your business. While repeat and recurring buyers are better than one-time customers, recurring customers will be the most beneficial to your business as you prepare to sell.

The stability and predictability of revenue from recurring customers are attractive to potential buyers and will help you stand out among competitors. If possible, find ways to create recurring customers. In doing so, you will make your business stand out, draw in more buyers, increase the value of your business, and get it sold faster.

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