What Impacts the Quality of Revenue?

Not all revenue is the same.

Investors look at the characteristics of the business which impacts the quality of revenue.

Revenue that comes from a source that will sustain longer will have a higher value to investors.

Here’s a list of characteristics investors use to assess the value of a revenue stream: 

Sustainable advantage — if the business has a sustainable advantage then the revenue will have a high quality because it will reoccur longer.

Network effects — if the business has network effects then the revenue has a higher value because of the competitive advantage that network effects bring.

Predictability — if the business can predict its revenue stream then it will have a higher value as it gives the business visibility on their forecasts.

Switching costs — if the business’s product has high switching costs then its revenue will be valued more as customers will stay longer.

Low customer concentration — if the business has high customer concentration then it will be at greater risk since the revenue relies on a small number of customers.

High marketing spend — if the company has a high marketing spend then it will reduce the value of the revenue as it’s considered costly compared to revenue generated by organic demand.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.