ReCurring vs ReOcurring Revenue: What's the Diff (A Lot)

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Remember in sixth grade when you’d write an essay and start with “Webster’s dictionary defines the word Adversity as…” launches into subpar essay on Catcher in the Rye…

Those were always the worst intros. Anytime someone makes an entrance by dusting off the old dictionary, you know you’re in for a snooze fest.

I’m going to tread near that insufferable line here, in an attempt to better understand the nuances in SaaS models, where customers pay an annuity of some sort, in exchange for access to your product.

In the advent of usage based models, there’s been some Tom Foolery going on when it comes to reliably claiming what truly is “Annual Recurring Revenue”. It’s the Wild West - especially on Twitter - where we’ve got everyone and their mother claiming that their dog sitting business or google Chrome plugin store is recurring in nature.

Both happen more than once. But the former is more predictable, and dependable, compared to the later. Let’s translate it to revenue and make it more real:

Speaking of that - Marshaun Lynch loves Recurring revenue, because it happens over, and over, and over, and over, and over, and over, and over again with the same sustained force.

A lot of early stage CFOs try to prove repeatability in their business by jamming ReOccuring into their ReCurring number and hope you don’t see the difference between the two.

There is a difference between:

Not as ideal…

Versus…

ReCurring is the stable foundation. ReOccuring is the added upside.

In other words, ReOcurring sits on top of ReCurring in a hybrid subscription + usage model.

At the risk of being too basic, a typical SaaS business charges you the same amount each month - regardless of the number of days in a month or your product usage. This de-risks performance, and therefore valuation, to a degree.

That’s what scares people away - when you try to jam something into the ReCurring bucket that isn’t ReCurring, it may go away with seasonality or big deal risk.

Ultimately you can define it however you can convince people these things.

CFO of Gladly, Todd Rakow, told me:

Therefore, if you don’t have the ReCurring piece, i.e., something that’s contracted, there’s an inherent level of risk underlying your thesis on what your ARR is.

Every business is different, but the more reliable you are in terms of what is a fact and known and contracted, the better you are. And it can get even better if you can predict incremental behaviors on top of that.

That’s very different than “this customer might go away tomorrow, and we hope they won’t.”

ReCurring

ReOccuring:

Recurring + ReOccuring:

Much of today’s post relies on a discussion I had with Todd Rakow, CFO at Gladly, a leading Customer Support software, and an expert at usage based models.

On this episode we cover:

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