$10B CEO: "RECURRING REVENUE Trounces One-Time Jobs!"

So for the past four or five years, I've been pounding the drum and telling home service business owners to ensure they have recurring revenue coming into their business. Because one time jobs and projects are great when everything is good in the economy, but when things turn, when we go into a recession, those are the companies that get wiped out. Now, sure enough, let's go ahead and use a different analogy and a different industry because everyone's like, oh no, contracting different and my service business is different and I do lawn care, I do landscaping. Okay, let's use an example outside of that industry so you don't get wrapped up in, in the industry and you knowing type of mowers you use and tires you have and customers and all the rest of it. Let's use Peloton as an example. Peloton's CEO doesn't care the equipment is losing money, sees a path forward in the app. Peloton CEO Barry McCarthy told investors he isn't concerned that it, that it's, it's bikes, treads and rows. These are, you know, workout equipment. That's what Peloton builds. Treadmills, rowing machines, they do fitness bikes. They, those lost money. During its holiday quarter, McCarthy touted the company's mobile app which features on demand fitness classes from Peloton instructors. The pricey exercise machines posted a negative gross margin for the holiday quarter. The fitness equipment makers overall profit margin was positive. Okay, so if you don't know what Peloton is, they were the ones that a few years ago their stock price was literally 30 to 40. What, let me see here, let me make sure I'm correct. It was about 15 times, 15 to 20 times what it is currently today. And what has been that was their share price in the height of 2021. Now why? Well, everyone was working out from home. It was all the rage. People like me, gym owners were freaked out of our mind. Let's all just be honest. We thought it was going to wipe us all out. Now what happened is demand for their vehicle, very expensive bikes, treadmills and rowing machines came collapsing down when gyms opened back up and COVID lockdowns ended. And what kept them alive, what kept them alive was not the fact that they made the best equipment or made these great, very expensive machines. It was their subscription revenue. It was the recurring revenue they built from their app because recurring revenue is sticky. Recurring revenue allows you to get through hard economic times. And despite the fact that what they are known for selling these really expensive pieces of connected equipment for fitness like two, $3,000, pieces of equipment that are just not worth that. Let's be honest. It's literally like a Nordic track bike with a iPad smacked on the front of it and it's like oh, we'll mark it up to like three grand. That's what they were selling for. They've come down way in price and that's what happens during recession when demand, consumer demand comes down. Now your projects, those one time jobs don't sell for what they used to. Your margins aren't as big and juicy as they used to be because that has now been revealed and been unveiled. Their stock price has come down like 80 and 90% because of this fact. And that is why traditionally project based jobs one time jobs are sold to customers. They don't have as good of a valuation and they just don't have the longevity of a recurring based model for business. When you look at any great business they always are trying to get into recurring revenue. You look at Apple, what they've done over the past five years and why their stock price has done so well and Tim Cook is a claim by everyone's great CEO is because he made sure that the revenue that they got no longer was just dependent on iPads, iPhones, Apple watches and computers. Now a massive chunk of their revenue comes from services I.e. iCloud, the App Store, other things that you would buy as a consumer on a subscription base. That is where the money really is at. And if iPhone sales goes to zero tomorrow, yes it'll hurt the company. If they stop selling computers and laptops tomorrow, yes it will hurt the company, but what will keep going and printing money for them is their recurring services. Just let's keep reading here in this in this article. Peloton CEO told Investors Wednesday he doesn't care the company is losing money on its bike tread and row equipment. The businesses path to the promised land, he said, is in its mobile app. Literally that's where all the recurring revenue is at. Peloton posted negative margins during the holiday quarter for its pricey Connected fitness products, but McCarthy said he's more concerned with aggregate margins, which were positive thanks to the company's subscription revenue. Subscription equals recurring revenue. And notice that despite the fact that all of their sales are down on their pricey fitness equipment because no one wants to shell out $2,000 for a fitness bike in a recession, what doesn't go down and over the past three quarters has been stable is their recurring subscription model business. And that's where they're they're building their company around and that's why their stock price has somewhat recovered over the past few months is because it's realized that this is a really sticky something. When people get into this recurring subscription, they don't. And that to me is why I encourage every business owner. Whether you're in home services products like Apple or you're trying to sell things on the Internet like cloud services, guess what? No one's selling discs with software anymore. They're not selling an app that you download for $10,000. They're trying to sell you QuickBooks online, for example. They're not going to sell you QuickBooks desktop. They want to sell you QuickBooks online on a subscription basis. That's why the stock price for Intuit has gone through the roof the past five to 10 years is because they've switched to a subscription model. No longer trying to sell you a one time piece of software for thousands of dollars, but for a subscription based recurring revenue model is where the money is at. And if you are blind to see it in your own industry, look at every other industry that is trying to diversify their business out of project based work. Hey, there's still a massive chunk of revenue at Apple that comes from selling one time things. A computer, a, a phone, hardware. But those things are lower margin. Look here in this, in this, in this article here. If we scroll down, you can see here they had, they lost $42 million in the year. Great business, right? Negative margins of 11.2%. But let's check this out here. Peloton made so the company's overall gross margin of 29.7% was kept afloat by the 277 million peloton made from its subscription basis business at a margin of 67%. Because in a recession, one time jobs, one time pieces of hardware decline in price. Whereas the sticky service that has great customer service has a great product that people love and enjoy, that's only 20, 30, $40, that's much more sticky and is going to keep you through a recession. And I don't care. Like man, I'm not really passionate about doing recurring services. And let's just use landscaping for example. Maybe you're not passionate about mowing, you're not passionate about trimming bushes, but those things have to be done during a recession and they will not be cut out before someone prior to that cuts out the paver patio, the infinity pool that they were going to install and the deck on their back porch. Why are they going to cut those things out? Because they no longer have a whole bunch of equity in their house. They can't get cheap debt on a home equity line of credit. And now they're upside down in their house and they owe more on the house than they do in equity. The actual house is worth. These are the type of things that will happen in a recession. And that's when people get caught with their pants down. If you look at the landscaping issue, just for example, you look at the companies that are doing over $100 million in annual revenue, the vast majority of them, I would say that 90 plus percent of them do some form of recurring service even if they're project based. They are also making it up 30, 40, 50% of their revenue is coming from recurring work and maintenance. And I don't care if you're an H Vac or roofing or fencing or carpet cleaning or home cleaning or whatever service you're in for the home services, you've got to figure out a way to create some sort of stream of revenue that is recurring, that is coming back to the client over and over and over. That maintenance package will sell a whole lot better when you're selling them for a 50 or $100 a month. That will sell a whole lot better than a $5,000 install in the middle of a recession. And the reason why these companies don't get massive is because they don't survive the recessions. Big project based companies that only sell one off jobs in any industry typically in a recession are the ones that have massive cuts. They have to go from, you know, making 200 million, they go down to 40 million, they have to cut everything out, get really lean again. Whereas recurring reven able to sustain itself through the recession because the consumer is much more likely to cut out one time big purchases than subscription based recurring revenue and maintenance on things. Instead of new installation of new products that cost them more and more money.