Recently, Darden, the company that owns Olive Garden, announced it was buying Ruth’s Chris Steakhouse for $715 million. This deal valued Ruth’s Chris at about the same as its annual revenue or 10 times their profit in 2022. While this seems like a good deal, Ruth’s Chris could have been worth more if it had recurring revenue.
But, despite its strong brand, Ruth’s Chris’s valuation was likely held back by its lack of recurring revenue.
To see how recurring revenue makes a difference, let’s compare Ruth’s Chris to Waste Management, a company that handles garbage collection through long-term contracts. Waste Management is valued at more than three times its annual revenue—much higher than Ruth’s Chris. Both companies are in traditional industries, but one’s recurring revenue makes it more valuable.
Many people think only software companies can benefit from recurring revenue, but that’s not true. Take Fresh Heritage, a men’s grooming brand founded by Gamal Codner. He was using Facebook ads to get customers, spending about $15 to bring in each new customer. However, with each customer only spending around $30, the profit wasn’t enough to grow his business.
To fix this, Gamal expanded his product line and launched a subscription program. This way, customers could receive Fresh Heritage products regularly without having to re-order.
Instead of just offering discounts to get customers to join the subscription program, Gamal did something different. He surveyed 500 customers and learned that his target audience wasn’t just looking for savings—they wanted to feel confident and successful. So, he positioned the subscription program as a VIP club for men focused on self-improvement. He even hosted local meetups, creating a community for his subscribers.
This approach turned one-time customers into loyal subscribers. As a result, the average order value went up to over $60, and the subscription program grew to 3,000 members. This helped Fresh Heritage’s profit margins reach 40%.
Fresh Heritage’s success grabbed the attention of BRANDED, a company that buys direct-to-consumer brands, which acquired Gamal’s business in 2022.
The takeaway is simple: You don’t need to be a tech company to create recurring revenue. If you can find something your customers need regularly, you can build a predictable, reliable revenue stream. As Waste Management and Fresh Heritage show, this can make your business more valuable, regardless of industry.
Take Your Business to the Next Level with Breaking the Mould Consulting
At Breaking the Mould Consulting, we specialize in helping businesses like yours unlock new revenue opportunities and increase their value. Whether it’s setting up a subscription model or exploring other growth strategies, we’re here to guide you every step of the way. Get in touch with us today to discover how we can help you create long-lasting, profitable growth for your business.