FA-301g · Module 1

Revenue Durability Assessment

3 min read

Revenue durability measures how likely the current revenue is to persist post-acquisition. Recurring subscription revenue with 95% gross retention is highly durable — it will be there next year. Project-based revenue from 3 clients is fragile — it may not. The revenue durability assessment categorizes every revenue stream by its persistence probability and adjusts the valuation accordingly.

Revenue Durability Assessment — Target Co:
──────────────────────────────────────────────────────
Stream          Amount   Type        Durability  Adj.
──────────────────────────────────────────────────────
SaaS (annual)    $8.2M  Contracted    95%       $7.8M
SaaS (monthly)   $2.4M  Contracted    82%       $2.0M
Prof. services   $2.8M  Project       45%       $1.3M
Managed svc.     $1.1M  Contracted    88%       $1.0M
One-time impl.   $0.5M  Non-recurring  0%       $0.0M
──────────────────────────────────────────────────────
Reported Revenue:                              $15.0M
Durability-Adjusted Revenue:                   $12.1M
Durability Score: 80.4%

The valuation should be based on $12.1M
in durable revenue, not $15.0M in
reported revenue.

Do This

Categorize every revenue stream by contract type, renewal probability, and customer dependency
Apply durability discounts to each stream based on historical retention for that category
Value the business on durability-adjusted revenue, not reported revenue

Avoid This

Treat all revenue equally regardless of contract structure or renewal probability
Accept the seller's retention numbers without verifying against actual cohort data
Include one-time revenue in the multiple — it inflates valuation for revenue that will not recur