Think Big, Buy Small Climbing the Revenue Ladder: Understanding Quality in Business Acquisitions
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Oct 13, 2025 
A.J. Wasserstein, a Senior Lecturer at Yale School of Management, dives into the pivotal role of revenue quality in small business acquisitions. He discusses the five revenue buckets, highlighting the gold standard of contractually recurring revenue. Learn how to differentiate between repeat and recurring revenue, and the importance of customer stickiness. A.J. shares insights on retention metrics and the challenges in evaluating revenue quality post-acquisition, making this discussion essential for aspiring entrepreneurs seeking to mitigate risks.
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Contracts Are The Revenue Gold Standard
- Contractually recurring revenue is the gold standard because contracts commit customers to multiple periods and reduce attrition.
- CEOs can focus on growth rather than constantly replenishing lost revenue when contracts backstop cash flows.
Stickiness Without A Written Contract
- Non-contractual recurring revenue feels sticky because customers must act to cancel and face behavioral or system frictions.
- It ranks just below contracts in quality and still provides strong predictability.
Verify Contract Terms, Not Just Labels
- Don't confuse short cancelable service agreements with true contractual recurring revenue.
- Treat 30-day cancelable arrangements as pricing or service deals, not annuities.