Danaher (DHR) is a diversified science and technology company that generates revenue across three core business segments: life sciences, diagnostics, and biotechnology. Understanding how Danaher makes money means looking beyond the surface of an industrial conglomerate and into a business model built around recurring revenue, high switching costs, and a proprietary operating system that drives margin expansion across every acquisition it makes.
Key takeaways
- Danaher's revenue comes from three segments: Biotechnology, Life Sciences, and Diagnostics, each with distinct growth profiles and margin structures.
- The Danaher Business System (DBS) is the operational backbone that differentiates DHR from other conglomerates by driving continuous improvement across every business unit.
- A large share of Danaher's revenue is recurring, coming from consumables, reagents, and service contracts rather than one-time equipment sales.
- DHR's acquisition strategy focuses on high-barrier, regulated industries where customers are reluctant to switch providers once embedded.
- Investors researching how DHR makes money should pay close attention to the mix between recurring and non-recurring revenue, as this shapes the durability of cash flows.
How does Danaher make money? A segment-by-segment breakdown
Danaher operates through three reporting segments, each targeting different parts of the science and healthcare ecosystem. The segments are not equally sized, and they don't grow at the same rate. That's worth understanding because it tells you where the company's future earnings power is concentrated.
Biotechnology is the largest segment by revenue and houses brands like Cytiva (formerly GE Healthcare Life Sciences). This segment sells bioprocessing equipment, filtration systems, and the consumables that go with them to pharmaceutical and biotech companies manufacturing biologics, vaccines, and cell and gene therapies. The recurring revenue here is high because once a drug manufacturer validates a production process using Danaher's equipment, switching to a competitor's system is expensive and time-consuming due to regulatory requirements.
Life Sciences includes well-known brands like Beckman Coulter Life Sciences, Leica Microsystems, and SCIEX. This segment sells instruments, reagents, and software used in research labs, clinical testing, and pharmaceutical development. Revenue comes from both upfront instrument sales and the ongoing consumables and service contracts that follow.
Diagnostics is built around Beckman Coulter Diagnostics, Radiometer, and Leica Biosystems. These businesses sell diagnostic instruments and tests to hospitals, reference labs, and physician offices. Similar to the other segments, the model revolves around placing instruments and then generating recurring revenue from test kits, reagents, and service agreements.
Recurring revenue model: A business structure where a significant portion of total revenue comes from ongoing consumable sales, service contracts, or subscriptions rather than one-time product purchases. For investors evaluating Danaher, the recurring revenue mix is a measure of how predictable and defensible the company's cash flows are.
What makes the Danaher business model different from other conglomerates?
If you look at Danaher on the surface, it resembles other diversified industrials. It buys companies, runs them, and tries to grow earnings. But the mechanism underneath is genuinely different, and the difference has a name: the Danaher Business System, or DBS.
DBS is a set of lean management tools and processes inspired by the Toyota Production System. Every Danaher business unit, from Cytiva to Beckman Coulter, operates under DBS. It governs how the company sets strategy, develops products, manages supply chains, and improves margins. The system is not just corporate branding. It functions as a repeatable playbook that Danaher applies to each acquisition. When Danaher buys a company, it deploys DBS to reduce waste, improve quality, and accelerate growth. Over time, this tends to expand margins at the acquired business beyond what the previous owner achieved.
Here's the thing about DBS that often gets overlooked: it creates a compounding advantage. Each acquisition gives Danaher more data and experience refining the system, which makes the next acquisition more productive. That flywheel is hard for competitors to replicate because it's embedded in the company's culture, not just its processes.
Most industrial conglomerates are essentially holding companies. Danaher operates more like a platform that actively transforms the businesses it acquires. That distinction matters when you're evaluating whether the premium investors typically pay for DHR shares is justified.
Danaher revenue streams: recurring vs. non-recurring
One of the most useful lenses for understanding how Danaher makes money is the split between recurring and non-recurring revenue. Danaher has historically reported that roughly two-thirds or more of its total revenue comes from recurring sources. This includes consumables (reagents, filters, test kits), services, and software subscriptions.
Why does this matter? Recurring revenue is more predictable, carries higher margins, and is less sensitive to economic cycles. A hospital running thousands of blood tests per day on Beckman Coulter instruments will keep buying reagents regardless of what the stock market is doing. A biotech manufacturer validated on Cytiva's filtration systems won't rip out its production line because of a recession.
Non-recurring revenue, by contrast, comes from instrument placements and large capital equipment orders. These sales are lumpier and more sensitive to customer budgets and economic conditions. They also tend to carry lower margins than the consumables that follow.
For investors trying to model Danaher's future cash flows, the recurring revenue percentage is arguably more telling than top-line growth. A company growing at a moderate pace but with a high recurring mix can be more valuable than one growing faster with volatile, one-time revenue.
- Consumables and reagents: Test kits, bioprocessing filters, chromatography resins, and lab chemicals that customers reorder regularly.
- Service contracts: Maintenance agreements, calibration services, and technical support tied to installed instruments.
- Software and informatics: Data management platforms, lab information systems, and workflow automation tools increasingly sold on subscription models.
- Instrument sales: The initial placement of diagnostic analyzers, microscopes, mass spectrometers, and bioprocessing equipment.
Which Danaher segments are growing fastest?
Growth rates across Danaher's segments fluctuate depending on end-market dynamics. But structurally, biotechnology has the strongest long-term growth tailwinds. The global shift toward biologic drugs, biosimilars, cell and gene therapies, and mRNA-based treatments all drive demand for the bioprocessing tools and consumables that Cytiva and Pall Biotech provide.
Life sciences tends to grow in line with research and development spending at pharmaceutical companies, academic institutions, and government-funded labs. This segment can be cyclical around instrument purchases but steadier on the consumables side.
Diagnostics is the most stable but typically the slowest-growing segment in normal conditions. Hospital lab volumes are relatively consistent, and diagnostic testing is non-discretionary for most clinical workflows. Growth here comes from market share gains, new test menu expansion, and geographic penetration into emerging markets.
If you want to evaluate which segments are outperforming at any given time, look at Danaher's quarterly earnings disclosures, which break out core revenue growth by segment. You can start by pulling up the Danaher research page on Rallies.ai to see how the company's overall fundamentals are trending.
Core revenue growth: A metric Danaher uses to show organic growth excluding the effects of acquisitions, divestitures, and currency fluctuations. It gives a cleaner picture of how the underlying businesses are performing without noise from deal activity or exchange rates.
How does Danaher's acquisition strategy feed its revenue engine?
Danaher has completed hundreds of acquisitions over its history, and the strategy is not opportunistic dealmaking. The company targets businesses in regulated, high-barrier industries where customers face significant switching costs. Think: a hospital that has standardized its lab on Beckman Coulter analyzers, or a pharma company that has validated its drug manufacturing process on Cytiva equipment. Once embedded, these relationships generate revenue for years.
The acquisition playbook typically follows a pattern:
- Identify a business in a fragmented market with strong recurring revenue characteristics.
- Acquire it at a reasonable price relative to its potential under DBS.
- Deploy DBS to improve operations, expand margins, and accelerate organic growth.
- Use the improved cash flow to fund the next acquisition.
This cycle is how Danaher evolved from a small industrial company in the 1980s into a science and technology leader. The most transformative deal was the acquisition of Pall Corporation, followed by the purchase of GE's biopharma business (now Cytiva). Both moved Danaher deeper into life sciences and away from its legacy industrial roots.
Danaher also uses divestitures strategically. The 2019 spin-off of Fortive (which held the industrial and professional instrumentation businesses) and the 2023 spin-off of Veralto (environmental and water quality businesses) both sharpened the portfolio toward higher-growth, higher-margin life sciences and healthcare end markets.
What are the risks to the Danaher business model?
No business model is bulletproof, and Danaher has real risks worth considering.
Bioprocessing demand volatility: The biotechnology segment saw a significant pull-forward in demand during the pandemic era due to vaccine and therapeutic production. Post-pandemic normalization led to a destocking cycle where customers drew down excess inventory rather than placing new orders. This kind of boom-bust pattern can distort growth rates for several quarters.
Acquisition integration risk: DBS has a strong track record, but there's no guarantee every acquisition will perform as expected. Overpaying for a target or misjudging market dynamics can erode returns.
Customer concentration in pharma: A significant portion of Danaher's revenue depends on pharmaceutical and biotech R&D spending. If drug development pipelines slow or regulatory environments tighten, demand for Danaher's tools could soften.
Competition from larger platforms: Companies like Thermo Fisher Scientific and Agilent Technologies compete directly with Danaher across multiple segments. Competitive dynamics in instrument pricing and consumable market share are ongoing.
These risks don't invalidate the model, but they're worth weighing against the strengths. If you want to explore how Danaher's fundamentals stack up against competitors, the Rallies.ai Vibe Screener lets you filter and compare companies across financial metrics.
How to evaluate how DHR makes money as an investor
If you're researching Danaher as a potential investment, here's a framework for thinking about the business model:
Start with the revenue mix. Look at the breakdown between recurring and non-recurring revenue. A rising recurring percentage generally signals a more defensible business. Check whether consumable and service revenue is growing faster than instrument revenue.
Examine margin trends by segment. DBS is supposed to drive margin expansion over time. If operating margins are stagnant or declining at a segment level, that's a signal worth digging into. Are margins compressing because of pricing pressure, or because of temporary mix effects?
Track acquisition activity and capital allocation. How much is Danaher spending on acquisitions vs. returning to shareholders through buybacks or dividends? The company's long-term value creation has been driven more by M&A than by organic growth alone, so understanding the acquisition pipeline matters.
Compare against peers. Danaher typically trades at a premium to other diversified companies. That premium reflects the DBS advantage and the recurring revenue mix. But premiums can contract if growth disappoints. Use tools like the Rallies AI Research Assistant to ask specific questions about how Danaher's valuation compares to Thermo Fisher or Agilent.
Watch for destocking cycles. In businesses that sell consumables, customers sometimes build up inventory during strong demand periods and then pause orders to work through that inventory. These destocking cycles are temporary but can meaningfully affect reported growth rates for a few quarters.
Try it yourself
Want to run this kind of analysis on your own? Copy any of these prompts and paste them into the Rallies AI Research Assistant:
- Break down how Danaher makes money across its different business segments — what are the main revenue streams, which divisions are growing fastest, and what makes their business model different from other industrial conglomerates?
- Break down how Danaher makes money — what are their biggest revenue streams and what's growing fastest?
- Compare Danaher's recurring revenue model and margin profile to Thermo Fisher Scientific. Which company has a more defensible business model and why?
Frequently asked questions
What are Danaher's main revenue streams?
Danaher generates revenue from three segments: Biotechnology (bioprocessing equipment and consumables), Life Sciences (research instruments, reagents, and software), and Diagnostics (clinical testing instruments and test kits). Across all three, a significant share of revenue comes from recurring consumable and service sales rather than one-time equipment purchases.
How does the Danaher business model differ from other industrial companies?
The primary differentiator is the Danaher Business System (DBS), a proprietary lean operating framework applied to every business unit and acquisition. While many conglomerates act as holding companies, Danaher actively transforms acquired businesses using DBS to improve margins, quality, and growth. This creates a compounding operational advantage over time.
How does DHR make money from acquisitions?
Danaher acquires companies in regulated, high-switching-cost industries, then deploys DBS to expand margins and accelerate organic growth. The improved cash flow from these businesses funds additional acquisitions, creating a self-reinforcing cycle. Danaher also uses divestitures to sharpen its portfolio toward higher-margin opportunities.
What percentage of Danaher's revenue is recurring?
Danaher has historically reported that roughly two-thirds or more of its total revenue is recurring, coming from consumables, reagents, service contracts, and software subscriptions. This mix provides more predictable cash flows and typically carries higher margins than instrument sales.
Which Danaher segment has the strongest growth potential?
The Biotechnology segment generally has the strongest structural growth tailwinds, driven by increasing global demand for biologic drugs, biosimilars, cell and gene therapies, and mRNA-based treatments. However, this segment can also experience short-term volatility from inventory destocking cycles among pharmaceutical customers.
Is Danaher a good stock to research for long-term investing?
Danaher's recurring revenue model, DBS-driven margin expansion, and focus on regulated end markets give it characteristics that many long-term investors find attractive. However, the stock typically trades at a premium valuation, and growth can be uneven due to acquisition timing and destocking cycles. Investors should do their own research and consider consulting a financial advisor before making any investment decisions.
How can I analyze Danaher's revenue segments myself?
Start by reviewing Danaher's earnings reports, which break out revenue and growth by segment. Look at the split between recurring and non-recurring revenue, track operating margins by segment, and compare growth rates against peers. Tools like the Rallies AI Research Assistant can help you ask targeted questions and pull together data for your analysis.
Bottom line
Understanding how Danaher makes money comes down to three things: a portfolio concentrated in science and healthcare end markets, a revenue model weighted toward recurring consumables and services, and an operating system (DBS) that systematically improves every business the company owns. The segments don't all grow at the same rate, and the stock's premium valuation means investors need to understand which parts of the business are driving value.
If you're evaluating DHR or want to compare its business model to peers, explore more stock analysis frameworks and use the research tools on Rallies.ai to dig deeper into the numbers.
Disclaimer: This article is for educational and informational purposes only. It does not constitute investment advice, financial advice, trading advice, or any other type of advice. Rallies.ai does not recommend that any security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. Before making any investment decision, consult with a qualified financial advisor and conduct your own research.
Written by Gav Blaxberg, CEO of WOLF Financial and Co-Founder of Rallies.ai.