Last month, Darden, the owner of the Olive Garden restaurant chain, announced it was acquiring Ruth’s Chris, the legendary American steakhouse, for $715 million, implying a valuation of around one times last year’s annual revenue, or about ten times their adjusted EBITDA for 2022. 

Not bad for a giant company, but Ruth’s Chris’s value was likely hindered by its lack of recurring revenue. 

Comparing Ruth’s Chris to another traditional business with recurring revenue demonstrates the power of automatic customers. For instance, Waste Management, a private garbage collection company that disposes of trash for clients through long-term contracts, trades at over three times its annual revenue. 

Two companies in traditional industries, have nothing to do with software, yet one trades at one times revenue while the other fetches three.