Recurring revenue vs. project-based revenue in agency businesses – we're led to believe recurring revenue is superior, but is that always the case?

Recurring revenue gets its vaunted reputation because it can provide a sense of revenue predictability and an ever-increasing client lifetime value.

The best agencies with mostly recurring revenues are able to retain all or most of their clients, increase the annual spend across their existing clients, and also add additional clients. A really powerful growth engine.

Project-based revenue is often seen as a "lesser" kind of revenue. There's a start and end date to the work and payments. It's harder to predict what future revenue will be. There's the pressure to keep winning more deals to replace projects that are ending.

But is there a case where having predominantly project-based revenue can still produce great outcomes for agencies? Absolutely.

First, it's important to understand that not all project-based revenues are created equal.

For example, with our Webflow agency BX Studio, which does mainly project-based work, they have a few different client profiles:

• The small business client that comes for a low-cost project and is on their way, unlikely to engage with us again.

• An agency, holding company, or investment group that has multiple projects per year across their portfolio and continues to engage us.

• A large corporate client that starts with a small initial project but introduces us to other business units and departments, leading to multiple projects throughout the year.
  
  

The small business client is the less desirable project-based revenue – we really need to rely on sales & marketing to replace them once they're done.

The other two types, however, end up having lots of re-occurring projects. As long as we continue doing a great job & being good value for them, they're likely to keep feeding us new projects.

BX Studio, in its 3rd year, had clients from year 1 that have continually grown their spend with us year over year. We're a project-based agency, but there are some qualities not too dissimilar to a recurring revenue business.

And it's not all roses for recurring revenue agencies – they, too, face pricing pressures and the threat of client churn. Even with long-term contracts, it's never a 100% guarantee that a client will stick around.

Once again, so much of the agency business boils down to execution and being smart about who your clients are. Just because you offer recurring revenue services doesn't mean you'll have an easier time. A project-based agency can very well be designed and grown to have a strong base of loyal clients, leading to lower client acquisition costs and greater lifetime value.