To me, $1 of recurring revenue, paid on any schedule, is worth at least 4x-5x any sort of one-off project revenue. And conversely, because of cash flow, $100k in self-employed dollars is worth a lot less than $100k in W-2 dollars, despite the higher effective tax rate on the W-2 income. Once you take a discount for cash flow volatility, $100k in unsteady self-employed dollars can afford you a lot less lifestyle, savings, etc., since you can afford fewer and smaller recurring costs if you don't want to be eaten alive in late fees, interest, hits to credit, etc. because you get paid tomorrow but the bill is due today—the bane of my particular existence, living the dream. I suppose that goes with "a dollar today is worth more than a dollar tomorrow".
W-2 income is also more valuable, pound for pound, because of specialisation. In our industry, one can earn a steady six-figure paycheck for doing more or less one job in W-2 land, or one can earn an unsteady six-figure paycheck for doing all the jobs in SE land.
Like, money you earn today should get earmarked to expenses you need to pay six months from now. The discount for self-employed dollars should be keeping six months of expenses in cash rather than invested in the market - if that's $30k and you lose out on 4% gains, that's only $1.2k per year.
After a while it can feel Sisyphean. Just when you secure more recurring revenue, you lose an old customer or get slapped with an unexpected large expense. One step forward, two steps back kind of thing. Every day.
So, it's easy to preach very sanctimoniously about the paramount importance of good money management as a self-employed person, but it's another thing to do it, and I find that's true for a lot of self-employed folks. Back when I had W-2 income, I really had it together; great credit, putting away $1k+ every month, all bills always paid on time, etc. Since then, not so much, and it's not because I suddenly got massively profligate. You just give up trying to put the ducks in a row when life keeps sinking them over and over.
I suspect you could get a 20k line with minimal effort.
Banks don't see any assets in a pure service business like software/consulting that can be collateralised, and my personal credit is long-ago shot. Nobody lends or writes credit on prospectus for a business they don't understand.
A credit card with a ~$1000 limit is about the snow-capped summit of what I could reasonably get.
So it's not that the recurring $1 is "worth more", but rather you have more than just $1, you have all the future accumulation of that recurring income. At least that's how people perceive it. Similarly debt is in the same sense future earnings perceived as current earning, and it leads to very poor financial planning.
Even if you have a recurring stream of income you shouldn't spend your future income now, unless of course it's some kind of investment that will put your money to work in some way.
What on earth are you doing, not maintaining a buffer?
There's little point in accumulating assets when they can just be levied by someone you owe a lot of money to. At that point you might as well just cut them off at the pass and give it to them voluntarily.
Congratulations, you have discovered Present Value.
There are often a _lot_ of benefits that come with higher sales beyond simply revenue. For instance, you may reach a higher order threshold with your supplier, unlocking better pricing across the board. Or you may show better growth, attracting investors or other momentum.
There are definitely customers where cost is more important than revenue, which in my experience are companies "run by the accountants". In my years of consulting and being inside growing and dying businesses, I see there's 2 main drivers of a company: sales, or the accountants. One focuses on growing at any expense, the other focuses on cutting costs and minimizing risk. They aren't generally compatible, but they both have their place. Some company heads focus on one or the other, and some can balance it.
There's no way that you can claim cost savings are more valuable than increased revenue, it's just too complex.
This is another great perspective on how not every dollar is equal: unlocking better pricing as your volume increases.
When I wrote this, I was especially thinking about low-margin industries like grocery stores. For a high-margin industry (e.g. 75% margins), it doesn't really matter if you save the customer $1k or help them earn an additional $1k. Those are roughly the same to them in terms of money added to the bottom line. But if the customer's margins are more like 2% or 5%, then the difference between $1k in cost and revenue is much more dramatic to them.
Or do you absolutely disagree with the Cost vs Revenue section?
I understand the author is trying to write creatively but such parallels only create confusion. Of course, money is fungible, no, some dollars are not much more valuable than others. If your dollars come attached to a condition or cost you money to get that is a different story.
This is true not only because the vp of engineering is the one to decide. This is about saturation, he/she can't work another 2 hours, because there is no time.
From the time I studied tournament poker I learned your last dollar is way more valuable than your millionth. There's a similar saturation there. Bill Gates doesn't notice a $1000 added, but some factory worker in India probably will.
A dollar gained would have many costs to gain that dollar.
Or, indeed, if the product creates an extra hour of work for each engineer but saves the VP 30 minutes, it'll be an easy sell. The VP ought to care about his people's time, but that not nearly as common as it ought to be.
* A dollar has different value to a customer depending on where it falls on the customer's financial statements.
* Some dollars require a more effort to earn than other dollars.
* A dollar today is worth more than a dollar next year.
The post is filled with examples of these three principles.
One topic that continues to fascinate me is the question of how to create higher-value software. How can I, as an engineer, ensure that the software I create justifies its production costs? I feel this is a larger question than just how much the software affects the cash flow of its parent company (although that may go into the valuation), and it's a topic that's crucial to our industry but as of yet, mostly unexplored.
..joking about the title aside, this article makes good points.