What is the "razor and blade" business model?

The razor and blade business model (sometimes called "razor-razor blade" or "hook-consumable") is a strategy where companies sell a primary product (the "razor") at a low cost to attract customers, then generate their real profits from the ongoing sale of necessary add-ons, consumables, or services (the "blades") that work with that initial product. Classic examples include selling printers cheaply but making money on ink cartridges, or video game consoles that lead to game purchases.

Why do investors find recurring revenue business models attractive?

Recurring revenue creates predictability that investors love. When a company can reliably forecast its future income streams from consumables or subscriptions, it typically leads to more stable valuation and potentially lower volatility. These businesses often have strong customer retention, high margins on their recurring products, and significant pricing power, which can provide both defensive characteristics and growth potential.

What risks should I consider with razor & blade model companies?

While this model can be extremely profitable, these companies face several risks. They're vulnerable to third-party competitors creating compatible alternatives to their consumables (like generic printer ink). They also risk consumer backlash if the pricing of their consumables seems exploitative. Additionally, technology disruption can make their entire ecosystem obsolete if they don't continually innovate and adapt to changing market conditions.

What is market capitalization?

Market capitalization (or "market cap") is the total dollar value of a company's outstanding shares of stock. It's calculated by multiplying the current share price by the number of shares outstanding. Market cap helps investors understand a company's size - companies are typically classified as large-cap (over $10 billion), mid-cap ($2-10 billion), or small-cap (under $2 billion). Larger companies tend to be more stable but may grow more slowly, while smaller companies often have more growth potential but can be riskier investments.

What are dividend yields and why do they matter?

Dividend yield is the annual dividend payment divided by the current stock price, expressed as a percentage. It shows how much a company pays out in dividends each year relative to its share price. For investors, higher dividend yields can provide regular income regardless of stock price fluctuations. Some companies in the Razor & Blade Cartel may offer attractive dividends from their steady recurring revenue streams, potentially making them appealing to income-focused investors.

15 handpicked stocks

Razor & Blade Cartel

This carefully selected group of stocks represents companies that have mastered the art of customer lock-in. These businesses offer attractive initial products to secure customers, then generate predictable, high-margin revenue from necessary add-ons and consumables. Each company has been chosen by expert analysts for their successful execution of this powerful business strategy.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17