An increasing number of businesses are adopting a recurring revenue model. Software as a service (SaaS) has become the norm and almost every product category is now available via a subscription box service. For a monthly fee, you can have everything from wine to clothing delivered right to your door. The trend is no surprise considering the many benefits that recurring revenue brings. The time to convert your business is now.
BENEFITS OF A RECURRING REVENUE MODEL
Predictability – Recurring revenue takes much of the guess work out of sales. Once a customer signs on for your service or product, you know exactly what to expect going forward, providing better insight into the future.
Stable Cashflow – Managing cash is one of the common challenges for small business owners.Business expenses such as rent, payroll and utilities are recurring in nature. Aligning your revenue stream allows for consistency and clarity when managing cashflow.
Increased Customer Lifetime Value (CLV) – One-time purchases require additional marketing effort and expense to re-acquire customers multiple times. In a recurring model, customers are more likely to engage with your company for a longer period of time shifting the focus to customer retention.
Scalable Income – A packaged product or service allows for easier distribution. Fewer contracts, SKUs and customization mean that you can more readily and efficiently distribute your product or service to the masses.
Freedom of time – Recurring revenue models allow you to systematize your business. A product or service that can be replicated is more efficient and requires less time to deliver.
Increased Enterprise Value – Perhaps the greatest benefit, a recurring revenue model makes a business more attractive to potential buyers. The benefits highlighted above will be recognized by acquirers, making your business more transferable, attractive and ultimately more valuable.
Consider the following examples of recurring revenue models.
SUBSCRIPTION MODEL
A subscription business comes in a number of varieties.
- Retainer – service-based or professional services firms like attorneys and financial planners have historically charged project-based fees for specific engagements although their clients typically have evolving needs over a long course of time. A retainer allows clients to retain access to professionals on-demand in exchange for a reasonable monthly or annual fee.
- Simplifier – This variety of subscription model aims to make life easier for customers. Take time-consuming or undesirable tasks off the plates of customers for a monthly fee.
- Software as a Service (SaaS) – SaaS provides a technology solution in exchange for a recurring fee. While the upfront cost to convert a business into a software or technology solution can be daunting, the resulting product can be incredibly rewarding.
MEMBERSHIP MODEL
A membership model is similar to a subscription model but with the added benefit of a devoted and supportive peer network. Members gain access to the many benefits of a like-minded peer group in addition to company-offered services. Mastermind groups are well known membership-based organizations.
AFFILIATE MARKETING MODEL
The business world is built around a network of referrals. Everyone has a list of contacts that they would readily offer up if asked. So why not support each other financially as well?
Affiliate marketing provides a venue for complementary businesses to formally refer one another, usually through links on their respective websites. When a visitor clicks through the affiliate link and makes a purchase from the affiliate, the source company earns a small fee.
Affiliate marketing is not without reputational risk, however. Representing too many affiliates or endorsing services and products without personal experience can leave a bad impression. Acting with integrity is absolutely necessary if you want to be successful in the long run. Begin with a list of partners, providers and products that you have used and love.
LIBRARY MODEL
A library model is best for content-rich businesses. Our society is driven by immediate access to content. When you have a question or a solution to a challenge, a google search has become the norm. Businesses with relevant and reliable knowledge have an opportunity to package their intellectual capital into programs that can be offered for a subscription-based access fee. Master classes are a terrific example.
If you could use a partner in your recurring revenue adoption or more ways to increase the value of your company, contact us for a consultation.