How would it feel to wake up on the 1st January each year to know that you have already banked 10% of your revenue for the year? Too good to be true? Well a lot of successful businesses do just that, and more.
Smart companies look for the opportunity to create recurring revenue streams. There are a number of reasons why this is so valuable:
- You can budget with certainty every month and so there is less risk
- Your customers will enjoy the ability to spread payments across the year
- You can spend time on the business rather than seeking out new or repeat business
In essence you build an annuity that will boost the value of the business when you sell.
The software industry has been the most proactive to push monthly recurring fees. Most cloud software is sold on a monthly fee basis. This allows them to budget effectively for the long term. Yet there are many examples of recurring fees: insurance, accountancy fees, gym memberships and subscription TV are just some.
Every business has the capacity to build a recurring revenue stream, whether they sell products or services. A product-based business could work around a minimum order quantity. For instance, a stationer could arrange a monthly minimum order quantity of paper and toners for their customers based on previous order quantities. A service-based business should look to package a fee around recurring services.
The key to success is to provide small and regular payments with a choice of packages. Each package should offer more value for an increased fee. This also has the unintended outcome of reinforcing your range of product or services in your customer’s eyes. You could start simple but offering a recurring fee with a range of plans. The next step is to make payment conditional on direct debit or credit card payment. Then you might introduce a contract to bind the customer for a period of time based on guaranteed pricing. The net effect should be to make it inconvenient for the customer to switch to a competitor. You may even consider a free product or service as part of the package.
Not all transactions will lend themselves to recurring fees but every business has the opportunity to consider packaging products or services together as recurring fees for some of their common transactions. Just 10% of your total revenue tied up in recurring fees or packages will significantly increase its attractiveness to a buyer.
So what products or services could you put in a fixed fee package?
If you would like to know more about packaging recurring fees, pick up the phone to discuss it with Angus. He has fifteen years experience in senior sales and marketing roles and would love to talk to you about opportunities to grow your “top line”.