Why Recurring Revenue makes more Cents
With the membership economy growing more then ever in the last couple of years, there are few things more important then implementing a recurring revenue strategy into your business plan. Recurring revenue models not only give greater foresight into annuity cash flows as opposed to lump sum sales, which in turn makes it easier to model and predict future revenue growth and profit margins; but it's also creating customer loyalty and ensuring future lump sum sales with those clients.
My first career in marketing was at an HVAC company in sunny San Diego, now I know what you’re thinking… “How can an HVAC company possibly be successful when weather doesn’t even exist in San Diego”? Well folks, two words: Service Agreements. We created, executed and maintained a system to gain a customer for life. Since all recurring revenue streams aren’t created equal, I’ve developed a list of 5 different ways to implement a strategy that will work, no matter what your industry because an ideal recurring revenue stream serves both the business and the customer.
Service Plans or Retainers
If you’re like me and work in the service industry, then a “service plan” or monthly retainer will be your best bet. Rather than approaching a customer each time they need help with something or their products need maintenance/ repair, offer service packages where they invest either on an annual term or monthly with a signed agreement. Going back to the HVAC company, we offered maintenance two times a year at a discounted rate, with additional discounts on upgrades, filters or additional service. For the company this allowed quality control to limit the amount of “emergency repairs” and also maintained client loyalty because we were guaranteed two face-to-face interactions in a year… that’s more then some people even visit with distant relatives in a year!
Paid membership sites typically work on a monthly fee, but you can also offer an annual membership at a discounted rate or offer to unlock content on a one-time fee basis, and just host your premium content inside a member only area (ooooh VIP!) Paid memberships also tend to keep out people who aren’t genuinely interested in the product you’re offering, which means that you have better odds of maintaining a quality community. Obviously, the key benefit of paid membership sites is that you aren’t limited on how many memberships you have to physically maintain. However, in order to retain your memberships, you have to make sure you are constantly providing content that is valuable to them. It may be easy to get people to sign up, but KEEPING them signed up is where hard work pays off.
It's all the rage right now! I mean, who hasn’t heard of Birch Box, Bark Box, Dollar Shave Club or Graze? (if you haven’t, lets get you out from under that rock.) The product sampling model they’re built on is arguably the hottest trend in ecommerce right now; they deliver cool new stuff to subscribers to test before they decide to invest in a “family size” option and they deliver revenue to your company at relatively low costs. Because the products that are placed in these boxes are typically from 3rd party vendors, 9 out of 10 times you can receive co-op, or generous discounts. You are essentially promoting their business as well, so it’s a win-win for everyone.
Lets talk B2B here…Affiliate sales are essentially referral bonuses that recur every month as long as the customer stays a subscriber. As an affiliate you can direct your customers or network towards the products that make your own business run more efficiently. They’ll appreciate hearing from someone they trust and are more likely to invest in these same products or software to make their own business run more efficiently too. Take Constant Contact for instance, a wonderful email marketing platform. If you are an agency like us, and are constantly setting up businesses for success with different marketing platforms, you can become an affiliate and get paid for every business you set up using their services. Just make sure you are being honest about the products you are referring, don’t get greedy and only refer products you can make a quick buck off of, it's not a good look and will be detrimental to your reputation.
Slightly similar to Service Plans, you can generate additional income by offering tangential services or products. For instance, are you a web designer? Offer hosting at an annual fee. Interior decorator? Offer cleaning services. Marketing agency? Offer sales coaching! Supplemental services provide a high added value to your business and customers, plus it sets you apart from competitors. Think outside the box on this one, what do your clients also need when they decide to work with you?
Now that you have ideas to create recurring revenue streams, how do you implement them? Start with the right values! All of these ideas are providing something of value to your customer that increases the quality of your business. How you treat your customers is a direct reflection of the type of business you’re running. Remember the goal is to help your customers, not just find a way to increase your income and get regular paydays. Whatever method you use, focus on giving customers better service and support because after all, a happy customer, is a repeat customer and you’re biggest referral source.