## Metadata - Author: [[cj-gustafson|Cj Gustafson]] - Full Title:: Will AI Mess Up Revenue Multiples? - Category:: #🗞️Articles - Document Tags:: [[metrics|Metrics]], - URL:: https://www.mostlymetrics.com/p/will-ai-mess-up-revenue-multiples - Finished date:: [[2024-10-28]] ## Highlights > Kyle pointed out something that’s easy to gloss over—there’s a big difference between **recurring** and **reoccurring** revenue. Let’s break it down: > • **Recurring revenue** is predictable, happening at regular intervals for the same amount. Think about my monthly Spotify subscription of $11.99, billed like clockwork. > • **Reoccurring revenue** happens more than once, but it’s irregular, both in timing and amount. Think Uber rides or payments revenue for a company like Toast—restaurants continue to use the service, but the amounts vary. ([View Highlight](https://read.readwise.io/read/01jb92bzw5xd425ac3w9y76rkg)) > *with AI products, **margins are often worse** than classic SaaS. Some AI products even have negative or highly variable margins. Plus, AI revenue **isn’t as predictable**, with high **churn** from early adopters who might not have a mission-critical use case yet.* > *ARR won’t be the best predictor of valuations for AI companies.* ([View Highlight](https://read.readwise.io/read/01jb92ddep3n56pnvdjbyq8a24)) > If ARR multiples don’t work as well for AI companies, what’s next? Kyle suggests we start thinking about **annual revenue run rate (ARRR)** instead. This would capture all types of revenue—whether it’s from software, AI, or payments—and then assess the quality of that revenue based on mix. We should be asking: what’s the margin? How predictable is it? How sticky is the customer base? ([View Highlight](https://read.readwise.io/read/01jb92ej1mtv7rnteep2jks546))