2017-03-08 00:00:00 Sales English Maximize the long-term success of your small business by understanding the recurring revenue model and getting ideas on how to implement... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/Surf-Shop-Owner-Poses-For-An-Annual-Subscription-Campaign.jpg https://quickbooks.intuit.com/ca/resources/sales/tips-on-securing-recurring-revenue/ Over and Over Again: Tips on Securing Recurring Revenue

Over and Over Again: Tips on Securing Recurring Revenue

4 min read

One of the best ways for your small business to have long-term success is to develop recurring revenue streams. A recurring revenue stream occurs when you receive money from a customer on a consistent basis over time. These revenue streams come from the products you sell, the services you provide, and how you decide to offer these to your customers. Developing recurring streams of revenue is not just about what you sell but also how you approach your customers. For many businesses, a customer may simply buy a product and never return. It is in your best interest to develop a sales strategy that results with you receiving multiple sales from a single customer over time.

Benefits of Recurring Revenue Streams

Having recurring revenue streams makes it easier to forecast future revenue. You are able to plan better because you have a sense of what business will look like in the future. A bank is more likely to give you a loan because your company is more likely to have consistent results, and your company is more likely to be able to handle large cash outflows because you have enough time in advance to plan for them. By retaining customers, you have less administrative work in setting up vendors. Having customers purchase your goods or services multiple times is also a great way to develop customer loyalty. People have a harder time leaving you if they know exactly what they’ll get, especially if you’ve consistently delivered in the past. In general, there is more certainty and less risk involved in your company if you are able to successfully find ways to have business continually repeat with the same customer.

Examples of Recurring Revenue for Service Companies

Some recurring revenue streams are made because of a service agreement between you and your customers. A customer may agree to purchase your accounting services for five hours each month, or you might enter into an agreement for your landscaping business that automatically renews each month unless your customers opt out. You could also charge a flat recurring fee for the customer to have an option to use your business. For example, a customer would pay $100 per month even if he or she doesn’t use your accounting services. In these cases, you perpetually agree to dedicate some of your time to your customers over a period of time.

Examples of Recurring Revenue for Product Sellers

Some of your customers may simply buy your product once and never return. You can overcome this challenge by introducing terms or conditions. If your goods are in high demand, you can tell a business it must buy $1,000 of goods over a three-month period. You can offer ongoing maintenance services for products you sell or collect a monthly warranty fee for ensuring your products will work. You can also develop accessories to supplement your products such as software that require upgrading or replacement. In these examples, your customers return to your business and provide you with a steady stream of income.

Recurring Revenue by Industry

Certain industries have more options for you to explore recurring revenue. Any product or service you sell that incorporates software or technology can offer a subscription. Personal health companies such as gyms or health clubs offer natural membership opportunities. If you have a website or blog, you can attempt to earn revenue by directing traffic to affiliate sites. For certain industries, you can tie two products together and make them both required at the same time. If you sell coffee makers, you can also sell the coffee pods that are required to be used with it. Although there are more options to recurring revenue models for companies that sell goods, service industries still have their fair share of sales strategy possibilities.

Tips for Implementing

For your recurring revenue streams to be successful, you want to set them up appropriately. Think about what your main products are and how additional products or services can be attached. Consider ways of developing a subscription-based service to accompany your products, and automatically send invoices to your customers when it is time to renew subscriptions. This not only increases the chance of acceptance but speeds up your receipt of cash. Offer promotions by discounting a monthly fee or giving one month of service free to increase your customer retention.

Emphasizing Customer Relationships

The first step in developing recurring revenue streams is to connect with your customers. Your customers will be more likely to repeat business with you if you have their trust. Always get long-term agreements in writing so you can refer to the conditions and agreement at any time, and be upfront about commitments including how much you will bill, how often your customer will be charged, and when the customer can end the agreement. Be very clear about your termination rules and what your customer must do to end a long-term service. Although securing recurring business is in your best interest, you want to make sure your customers are comfortable with what you’re offering and are receiving benefits for their payment. By ensuring your customers are taken care of, you begin building a recurring revenue model that increases your chance at finding long-term success.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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