5 reasons why you need a recurring revenue model in your business

This edition should take around 4-5 minutes to read

Subscriptions, memberships, retainers... all of these are recurring revenue models.

You are probably familiar with them aleady. Think Netflix, Spotify & Amazon for starters...

But do you have any in place in your own business?

If not, then you could be missing out. If having more predictable cashflow, being more attractive to investors, and getting yourself a higher valuation sounds like music to your ears... then you might want to consider using a recurring revenue model.

Five main advantages?off recurring revenue

There are 5 key advantages of a recurring revenue model, when compared to a standard transactional business.

Predictable Cashflow

A recurring revenue model makes your cashflow more predictable. Knowing your customers are going to be paying the same fee weekly monthly or yearly means your ability to forecast cashflow?is far greater.?So you can?plan associated expenses over longer periods.

Better Valuation???

Long-term cashflow is very attractive to investors and buyers. If you ever wonder why?tech companies command such big valuations,?its because?fundamentally they can forecast their revenues with far greater accuracy than the?typical transactional business. This reduces the risk?of a drop in revenue, so they can be sure next year won't drop off compared to this year. Which is far more attractive to investors than?a transactional, one-off interaction style business.

Scalability

Because of the predictability of a consistent amount of revenue and expenses to provide a service, it's easier to figure out how to scale. You know?exactly how much cost to take on because it's a base that builds and builds, and?you can be less concerned about over-investing because you know what to expect

Easier to sell

Its a lot easier for?for people to get their heads around?a business?when it's set and forget. With recurring revenue you don't have to deal with lumpy revenue, which?saves a lot of time in proposals,?and avoids scope creep, which is super?common in services businesses.

Expands customer lifetime value

The issue with traditional transactional business?is that they don't have a relationship with you that continues over the long-term.

You end up spending all your time on replacing this year's revenue next year,?and?you're constantly trying to find new customers, which means you often have high customer acquisition costs. This can make you?overly reliant on marketing to attract customers as you don't get long-term revenue from each customer you acquire.

With a recurring model?you constantly have a reason to engage with?your?customer and build a relationship?with?them. You can spend more time understanding their needs,?and?evolving?your strategy to suit them.

4 great examples of recurring revenue

If you're still not sure what you can do to integrate recurring revenue into your own business, then you should check out these 3 great examples.

Subscription-based software

One of the most commonly seen examples of a recurring revenue model is subscription-based software. Many SaaS businesses see exceedingly high revenue year-by year, and command extremely high valuations when the time comes to sell. Subscription-based software takes advantage of a recurring revenue model by offering their software to customers, as a service, and charging customers a monthly or yearly fee to access it.

However, this model requires constant maintenance to sustain, in order keep up to date with any other technology it is reliant on. As well as a lot of time devoted to understanding and supporting customers, as you are taking a fee from them every month, and you want to ensure that they feel it is justified.

Virtual CFOs, Accountants, content developers, designers, marketing agencies

Over the last few years?many of these types of service providers?have moved from a monthly time and materials model, where your bills change all the time, to a productised service. Using a payment plan where you get a specific set of services in a package deal.

A great example is my?book-keeper,?who does payroll, prepares BAS's, does the data entry, reconciles the accounts, prepares the P&Ls/balance sheets, etc.?Rather than getting lumpy bills each month, I get an exact price, and know how much it is going to cost me.

These recurring revenue models don't only make your own cashflow predictable. If you are providing a service to another business, you will help them manage their own expenses too, and be more helpful as a service provider.

Maintenance Services

Maybe something you might not have thought about, but maintenance services can use a recurring revenue model by offering ongoing maintenance for products or equipment. For example,?companies that provide HVAC maintenance, pool cleaning services, or pest control services can charge a monthly fee for ongoing service and maintenance.

This extends the customer lifetime from a single transaction, to an ongoing monthly payment. Instead of relying on having huge turnover and generating new customers every day, you can have a stable cash flow from a recurring revenue model like this.

Membership Programs

Service businesses can charge a monthly or yearly fee for membership,? this model is super scalable, and makes up the building blocks of massive companies such as Amazon or Netflix.?You offer a premium to your customers, things such as exclusive discounts, access to special events or content, or free shipping. In return, they pay a monthly fee.

Now this can be taken further, adding levels to memberships, where they can pay extra to get a premium or more specialised service. If you take the time to understand what your most loyal customers need, you can tailor your high-ticket memberships to them, taking your customer lifetime value to another level.

Want to introduce your own recurring revenue model?

If you are thinking about making your own recurring revenue model, then you need to consider these 3 important questions??

• What service are you offering that you could make recurring?
• Or?what software could you build, license, or acquire that your customers would get value from?
• What can you build (and charge for ideally) that your customers would create a long-term, deeper relationship with over time?

Need more help?

Recurring revenue is just one aspect you need to make your business more scalable.??

If you're interested in building a kick-arse growth strategy for your business, you should?consider joining us for the next ScaleUps Roadmap course?where we help 7-figure founders build a plan to get to 8 figures and beyond. Jump on the waitlist?here for more info,?the?first intakes will be launching soon?for self-paced or cohort versions.