Why Recurring Revenue is Vital to Your Business
Recurring revenue is important because to make a necessary, sellable company, you need to demonstrate how the business will continue to thrive once you’re gone. Long-term contracts are the best way to guarantee a stream of revenue in the future, but you can also make recurring revenue through a subscription service or membership club or even just by adding a line of consumables to what you sell.
First, brainstorm how you might evolve your one-time-buy into a recurring revenue model. For example, consider the following questions:
- Would customers pay a monthly or annual fee for the latest version of your product?
- Is there an educational component of your product that you could sell a monthly subscription to?
- Similar to the way printers need toner, is there a “consumable” that customers need to buy regularly to save your product working well?
You might be amazed at the range of businesses that can be turned into a subscription model. For example, Snowboard Addiction is a Whistler, British Columbia-based business that creates and distributes freestyle snowboarding tutorials. Snowboarders download tips upon how to pull off the latest moves upon the hill.
Recurring Revenue Case Study
When Nev Lapwood, Snowboard Addiction’s founder, wanted to make a recurring revenue stream, he started offering a subscription. For one annual fee, customers can now download all new tutorials released in the year (Nev and his team make a new video a month or so). With a subscription model in place, Nev’s revenue is now more predictable, which is allowing him more time to travel (this month, Nev and his girlfriend are leaving for a five-month trip to southeast Asia while his business continues to churn out subscription renewals).
If there are no opportunities to create recurring revenue, the next best thing is to demonstrate to an acquirer that you have a systematic and predictable way to profit a customer. For example, if you sell diamond engagement rings, document and track your process for getting a groom-to-be as a customer. If you have a predictable sales model, you may still have a indispensable business provided you can teach others to sell as predictably and systematically as you can.
Recurring Revenue Acquirers
Most acquirers would yet pick to buy a recurring revenue stream over a one-time-buy with a predictable model for finding customers, so spend 90 percent of your time thinking about how to create a tail to what you sell.
