Do you remember the days when you used to go to Staples and Office Depot to buy software like MSWord? You got a box with a CD, went home and installed it on your computer and kept it for years until eventually the company stopped supporting that version and you had to trundle back to the store. Several years later you could download it from the internet—no box, no CD.
Today, many people have a monthly subscription to the software they use which entitles them to regular software updates and a bunch of other ongoing benefits and support. This is called SaaS (Software as a Service). Note the terminology; software providers have transformed a product into a service by making it a monthly subscription and adding a number of benefits.
In case you didn’t notice, the big thing that changed was that with this new model you no longer keep using a version of the software for several years, it is always up to date. And, you pay for that. For the software supplier they transformed their sales model from customers upgrading every few years to effectively upgrading every year. As a business owner, welcome to the world of recurring revenue.
And, it’s not just software companies. Businesses across almost every sector are finding ways to become subscription-based and turn their companies into revenue-recurring businesses.
For example, the new food and meal boxes we can have delivered to our door several times a week containing a recipe and just the right amount of food to cook a delicious and nutritious meal for our family are revenue-recurring. If you take the time to look, you’ll find examples of subscription-based, revenue recurring businesses everywhere.
The old sales model was to sell a customer once, deliver excellent service and hope he or she comes back to you when they need the product again, or should they need something else you sell. Take Cabernet’s wine store; Fred and Jennifer are wine lovers and regularly visit the store to stock up their wine fridge.
They have a great relationship with the owner but have recently came across another local store who also offers an online, subscription-based service whereby they get a dozen bottles of wine a month, delivered to their door, selected by a sommelier based on their specific preferences. If they don’t like any of the choices made for them in any given month they can go online and make substitutions. They still visit Cabernet’s occasionally to buy something special, but now the store is only getting about 10 percent of their business.
A revenue-recurring business allows you to more accurately predict future income. In revenue-recurring businesses, firms use certain metrics to calculate future growth, taking into account things like attrition (customers cancelling their service), and new customers signing onto the service. The ability to be able to predict revenues accurately is extremely value in terms of being able to borrow money, manage cashflow, and plan growth.
The key to having a successful revenue-recurring business is to offer something of real value to customers that is not readily available elsewhere; it has to be worth their while to commit to a subscription or membership service. In the example above Fred and Jennifer were attracted by the fact they would have a sommelier choosing different wines for them each month while having security in the fact they could swap wines out if they wanted to; the timesaving of home delivery was an added bonus.
The keys to any subscription-based service is to ensure customers are constantly satisfied and continually build the relationship. You need to provide great customer service, make it easy to use, make payments manageable, continually offer bonuses or special discounts, provide education, and upsell effectively. That last point is important; as you build trust and loyalty with your subscribers, they will be open to buying subsidiary products and services from you.
Companies can be completely or partially revenue-recurring or subscription based, so consider what opportunities are open to your business. Almost any business can become, at least in part, a revenue recurring business, all it takes is a little imagination.