MOATS is a framework from The Subscription Playbook for judging how well a business is protected from competitors. It stands for Marketing supremacy (cheap acquisition and brand), One (no single point of failure), Audience (low customer concentration, network effects, ongoing usage), Toughness (competitive advantage, high gross margin, scale) and Switching (high switching costs and embedding). Score each out of five.
Key takeaways
- MOATS covers 11 moat factors grouped under five letters: Marketing supremacy, One, Audience, Toughness, Switching.
- You don't need all five. You do need some, and the more you have, the wider the moat.
- No client should be more than 10% of revenue, and your top five no more than 25%.
- Brand is the weakest moat on its own. Network effects and sustainable competitive advantage are the strongest.
- Score yourself out of five on each factor, then work on the lowest score first.
Let's say you sell dog biscuits.
You're smart, so you switch from one-off sales to a monthly subscription. Recurring revenue. Lovely.
Here's the problem. I can find a dog biscuit supplier, set up a template website overnight, and tomorrow we're competitors.
I used that example at the start of The Subscription Playbook because it explains the whole book in one paragraph. Subscription revenue is a great start. But it's not enough. You also need a moat.
In 1995 Warren Buffett was asked at the Berkshire Hathaway annual meeting what he looked for in a business. His answer: "We're trying to find a business with a wide and long-lasting moat around it."
The MOATS framework is my way of turning that idea into something a business owner can actually measure and work on.
What is the MOATS framework?
MOATS is five strategic factors that protect a business from copycats and competitors. Conveniently, they spell the word.
| Letter | Factor | The moat elements inside it | The question to ask |
|---|---|---|---|
| M | Marketing supremacy | 1. Acquiring clients without a high marketing spend; 2. A strong brand | Can we win customers cheaply, and do they seek us out? |
| O | One | 3. No single point of failure | What one thing, if it disappeared, would sink us? |
| A | Audience | 4. Low customer concentration; 5. Network effects and shareability; 6. Ongoing usage | Is our revenue spread wide, growing on its own and used often? |
| T | Toughness | 7. Sustainable competitive advantage; 8. High gross margin; 9. Marginal profitability and scale | What can we do that nobody else can, and do we make more as we grow? |
| S | Switching | 10. High switching costs and lock-in; 11. Embedding | How painful would it be for a customer to replace us? |
One point before we start. Your company doesn't need all of these. You do need some of them. And the more you have, the wider your moat.
M: Marketing supremacy
Marketing supremacy has two parts.
1. Acquiring clients without a high marketing spend
Manuel Suarez runs Attention Grabbing Media, a digital marketing agency. When I wrote the book, it generated about $200,000 a month in recurring revenue, and Manuel spent barely anything acquiring clients. He used Facebook Messenger conversations to qualify prospects at almost no cost.
The channel will change. In 2026 it might be a newsletter, a community, short video or being the answer an AI assistant recommends. The principle doesn't. Referral programs, investing in existing customers and knowing exactly who your customer is all lower your cost of acquisition. And a business that doesn't have to spend millions on marketing every year is extremely attractive to a buyer.
2. A strong brand
When we want to find something, we don't search for it. We Google it. That's a brand.
But here's my honest view: brand is one of the weaker moat elements on its own. Kodak, Yahoo!, Blockbuster and Borders all had powerful brands. All were overtaken by stronger rivals. Dollar Shave Club had one of the most famous launch videos ever made, and its owner sold a majority stake to private equity seven years after paying $1 billion for it. Brand helps most when it's combined with the other factors.
O: One (no single point of failure)
Listen to enough startup coaches and you'll hear the rule of one: one product, one customer type, one marketing channel, one funnel.
It works in the early days. Then it falls apart.
Matt Mickiewicz, co-founder of SitePoint, 99designs and Flippa, built SitePoint on online ads and sponsorships. In 2000 the ad market dried up almost overnight and SitePoint's one source of revenue nearly killed it. It survived by pivoting to paid memberships.
I've felt this myself. I once had a key supplier double its prices on me overnight, which destroyed our margins. It took six months to find a new supplier at the old rate. If I'd had a second supplier in place, I could have saved six months of pain.
The lunch that stuck with me
I once had lunch with a well-known venture capitalist. He told me he wouldn't invest in companies that were too reliant on Facebook or Google advertising. He'd seen too many businesses fall over at the mercy of those platforms. In 2026 I'd add a third: being totally reliant on one AI model provider. Chegg's subscriber base fell 31% in a year after free AI answers and Google's AI Overviews arrived. One channel, one point of failure. Read how Chegg lost half its revenue.
Check every critical dependency: your top salesperson, your one strong engineer, your one supplier, your one traffic source, your one investor. If any of them left tomorrow, what happens?
A: Audience
Audience has three elements.
4. Low customer concentration
The rule of thumb from the book: no single client should be more than 10% of your revenue, and your top five clients no more than 25%.
Netflix doesn't panic when John in Tampa cancels. A supplier with one giant retail customer does. Babylon Health is the brutal example. Contracts with Centene-affiliated health plans made up nearly half its 2022 revenue. They weren't renewed, and by August 2023 its US entities had filed for liquidation.
5. Network effects and shareability
Network effects mean your product becomes more valuable as more people use it. A course on Udemy with thousands of reviews attracts more students than an identical course with none. A marketplace with more buyers attracts more sellers. This is so important I gave it its own chapter: the six types of network effects.
6. Ongoing usage
You don't want to sell something once and never be needed again. A doctor who cures an ear infection loses the patient. Netflix gives you endless reasons to come back, and in early 2021 its monthly churn was about 2.4% against roughly 7% for other premium video services.
In software, watch daily and monthly active users. In e-commerce and physical products, watch purchase frequency. How often do customers come back?
T: Toughness
7. Sustainable competitive advantage
Of all the moat elements, this one is second only to network effects. It's simply something you do that nobody else in your niche can do as well. Your product, your community, your service or your operations.
When I wrote the book, Peloton's community gave it a monthly churn rate of just 0.73%. Here's the update I owe you: by its quarter to June 2026, Peloton's churn averaged 2.2%. Some of that early stickiness was the sunk cost of a $2,000 bike, and that fades as the bike ages. A competitive advantage has to be sustainable, not just strong in a boom.
8. High gross margin
Gross margin % = (Total revenue − Cost of goods sold) ÷ Total revenue × 100
Higher gross margin usually means a higher valuation multiple. WiseTech's CargoWise had a 92% margin and about 1% annual churn when I wrote the book. This factor has become more important in the AI era: many AI products run on far lower margins than traditional software because every customer action costs money to compute. See AI gross margins and moats in the AI era.
9. Marginal profitability and scale
Does each extra dollar of sales cost you less than the last? Microsoft's cost to deliver one more Office subscription is close to nothing. A coach who moves from one-to-one sessions to recorded lessons plus a weekly group call can serve far more clients without costs rising at the same rate.
S: Switching
10 and 11. High switching costs and embedding
How easy is it for your customers to leave? For a strong moat, it should be hard. Not because you trap them, but because you're built into how they work.
TechnologyOne sells enterprise software to government, health and education. In 2020 its churn was under 1%. Its software is so embedded that unhappy customers talk to TechnologyOne before they think about leaving, which gives it the chance to fix the problem. In FY25 its net revenue retention was 115%. Read how TechnologyOne passed $500 million ARR.
Other kinds of lock-in: the learning trap (a new CRM means retraining everyone), data (years of history in your system), integrations, and contracts. Be careful with contracts and penalty fees. Customers hate them, and from 1 July 2027 Australia's new subscription rules require easy ways to cancel. The moat has to come from value, not from barriers.
Score your MOATS in five minutes
The free MOATS Scorecard asks a few questions on each factor and shows where your moat is wide, where it's shallow and what to fix first.
The MOATS self-assessment: score your business
In the book's action exercise I ask you to score yourself out of five on each factor. Here's a rubric to make that easier.
| Factor | 1 (shallow) | 3 (some protection) | 5 (wide moat) |
|---|---|---|---|
| M Marketing supremacy | Paid ads bring in most customers; nobody asks for you by name | A mix of referrals, content and ads; some word of mouth | Most customers come from referrals, community or search; people ask for you by name |
| O One | One person, supplier, channel or client could sink you | Backups exist for some key dependencies | No single person, supplier, channel or investor is critical |
| A Audience | One client is over 10% of revenue; customers buy once; nothing improves as you grow | Top five clients under 25%; customers return a few times a year | Revenue spread widely; customers use you weekly; each new customer adds value for others |
| T Toughness | No clear advantage; thin margins; costs rise with every sale | A recognized strength; healthy margins | Something competitors can't copy; high margins that rise with scale |
| S Switching | Customers could swap you in an afternoon | Switching would take weeks and some retraining | You're embedded in systems, data and habits; leaving would be a project |
Reading your total (out of 25):
- 20 to 25: A wide moat. Protect it and keep re-scoring.
- 13 to 19: A real business with gaps. Work on your lowest two letters.
- 12 or below: A copycat could hurt you. Start with One and Switching, which are often the quickest to improve.
Scoring a physio clinic membership (illustrative)
A two-clinic physio practice sells a monthly membership: two sessions, a group class and online exercise plans.
- M: 3. Most new members come from GP referrals and word of mouth.
- O: 2. One physio sees 40% of patients, and bookings run on one receptionist's knowledge.
- A: 3. No single client dominates, and members visit twice a month. No network effects.
- T: 3. A known specialty in sports injuries and good margins on group classes.
- S: 2. Members could switch clinics easily; only treatment notes create friction.
Total: 13. The quickest wins are One (a second senior physio and documented processes) and Switching (an app with progress tracking members don't want to lose).
For a more detailed, guided version, use the free MOATS Scorecard.
Network Effects ScorecardWhich of the six network effects could you build?Open the free tool →Do you need all five factors?
No. Look at Stripe, the company I used in the book to show the tell-tale signs of a moat.
Stripe has toughness (a better product for developers), low customer concentration (millions of small businesses alongside big clients) and expanding margins from services such as fraud tools. But for a savvy small tech company, switching payment processors isn't that hard. Its switching-cost moat is weaker than the rest.
It didn't matter. Businesses on Stripe processed about $1.9 trillion in 2025. Several strong factors beat five average ones. Read how Stripe's moat got wider, and more competitive moat examples.
How can you tell if a company has a moat?
For a public company, look at five to ten years of financials. If a company has had at least five years of consistent earnings, sales growth and a consistently high gross margin, some moat elements are almost certainly at play. Competitors haven't been able to stop it.
For your own business, look at three numbers: your cost to win a customer, your churn and your gross margin, over time. If acquisition gets cheaper, churn gets lower and margin holds up as you grow, your moat is widening.
Why moats matter when you sell
A moat is what a buyer is really paying for. Recurring revenue that's protected by switching costs, a spread-out customer base and healthy margins is worth a much higher multiple than revenue a competitor could take next year. If you're an Australian owner thinking about value, structure or an eventual sale, it's worth having the numbers looked at properly.
Free Subscription Profit Review
Australian business owners can book a free 30-minute review with a BPAG Accountants adviser. An honest conversation about:
- whether a subscription model could work for your business
- how recurring revenue could cover your fixed costs each month
- how it could lift what your business is worth
No cost, no obligation. General information only until we understand your situation.
What to do next
- Score yourself on all five letters using the table above. Be honest.
- List your top five clients and add up their share of revenue. Over 25%? Make diversifying a priority.
- List your single points of failure: people, suppliers, channels, platforms, investors.
- Pick your lowest letter and choose one action for the next 90 days.
- Re-score in a year, or sooner if a big client, competitor or technology shift arrives.
The full chapter, with every case study and action exercise, is Chapter Five of the book: Dig your moat.
Frequently asked questions
Who created the MOATS framework?
I developed MOATS for The Subscription Playbook (Aviva Publishing, 2022), in the chapter called 'Dig Your Moat.' It pulls together the moat factors I'd seen in buyers' and investors' due diligence, and in my own businesses, into five letters that are easy to remember and score. The book's chapter summaries expand it into 11 individual moat factors.
How is MOATS different from Warren Buffett's economic moat?
Buffett popularized the idea of a 'wide and long-lasting moat' for judging investments in big public companies. MOATS applies the same idea to owners of subscription and small businesses, and turns it into a checklist you can act on: how you acquire customers, where you're exposed to a single point of failure, how concentrated your customers are, your margins and how hard you are to replace.
Can a small local business have a moat?
Yes, although it looks different from Google's. A clinic with members on monthly plans, referrals from local partners, no single staff member everyone depends on and records that make switching a hassle has a real moat. Small businesses usually score best on Audience and Switching and worst on One, because so much depends on the owner.
How often should I re-score my business on MOATS?
Once a year at minimum, and whenever something big changes: a major client wins or leaves, a new competitor arrives, a key supplier changes terms or a new technology appears. AI is a good example. Several moats that looked safe in 2022, like a large content library, have since been weakened by free AI alternatives.
Is having a subscription a moat in itself?
Not on its own. A subscription gives you recurring revenue, but anyone can copy a subscription offer overnight. The moat comes from the factors around it: customers who would struggle to switch, a community, better margins, a brand people seek out. Subscription plus moat is the combination that builds a valuable business.
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Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- Healthcare Dive, Babylon Health Chapter 7 filing (2023)
- CNBC, Chegg to lay off 22% of workforce as AI shakes up ed-tech (May 2025)
- WiseTech Global, 1H26 results briefing (Feb 2026)
- TechnologyOne, FY25 full-year results presentation
- Peloton, Q4 and FY2026 results
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.