Cast your mind back to the last time you felt valued as a customer.
Hopefully you don’t need to think too hard. Whether it was due to unbelievable efficiency or incredible service, you probably won’t hesitate to return to that business again. And I’d be willing to bet you passed a glowing review onto others, too.
With this experience in mind, now consider that this may be a good time to think about adding recurring revenue to your business model. You likely already know the benefits of recurring revenue streams over one-off sales: predictable income, financial stability, brand loyalty. But maybe you don’t think it’s right for your business. People used to say the same thing about tech companies.
In fact, I remember the days when clients would buy software on a CD-ROM, which you’d send in the post. A few years later, if they wanted an update, they’d buy another CD-ROM. Download time was the speed of a first-class stamp.
The move to recurring revenue models, often in the form of subscriptions or software as a service (SaaS), helped tech businesses to radically change this approach by giving them the freedom to invest in innovation. Today, customers expect — and are willing to pay for — the latest offering at the click of a button. To cut a long story short, I think it’s what made Netflix a billion-dollar company and Blockbuster a distant memory.
What are the drawbacks?
Obviously not every business is Netflix, and migrating to a recurring revenue model isn’t without its downsides. You’ll need to undergo significant changes to the way you market, sell and deliver your services — which comes with a price tag. And unlike when you launch a new product or service, you’ll no longer be able to rely on sales alone to recoup that cost. Instead, you’ll need to be confident that clients are willing to adopt your new business model and that they’ll stay with you for the months it takes for their subscription to break even. If you have major upfront implementation costs for each new client, it can take a long time.
So, how do you make recurring revenue work for your business and your customers?
First, start with your customers.
Think about what value your customers get from you and what barriers they face in accessing your products or services. In some cases, it’s simple. Your most loyal customers would buy more from you but not above a certain price point. Recurring revenue models give you the chance to overcome this by offering more for less. For example, cinema chain Odeon offers “unlimited passes” for a fixed monthly fee, while Pret a Manger offers a coffee subscription for five coffees a day for a monthly fee.
Elsewhere, recurring revenue can help you adapt your services to changing consumer behavior. Take the rise of car subscription services. You’ll notice that the businesses mentioned above (cinemas, coffees and cars) have a number of things in common: First, they’re not tech companies, although all three deploy software to make the client experience seamless. Second, they haven’t abandoned their core client base. You can still watch a movie, buy a cappuccino and hire a rental car without committing to a monthly fee.
This is the approach I’d recommend for most businesses: Augment your existing offering with subscription style products, rather than force an immediate transition that could alienate existing clients. And remember the golden rule: Put the customer first.
Provide an exceptional experience.
Once you’ve found your niche or unique selling proposition (USP), the next step is to focus on the golden rule for building a successful recurring revenue business model: Deliver exceptional client experience. Every time.
This isn’t an overnight task. You may need to overhaul your systems and processes to give your customers what they need, when they need it. If you don’t, you’ll pay the price. For every example I’ve given in this article, there are dozens of businesses that saw recurring revenue as an easy path to boost profit rather than a way to add value to their customers. And they failed as a result.
If it sounds like I’m passionate about this approach, it’s because of the impact recurring revenue has had on my business and my clients. Forty years ago, I founded Peninsula on the belief that we could offer a better service by throwing out the old transactional business model that was (and still is) typical in my industry. Instead, we embraced the concept of long-term client support. And it worked, but only because we made client satisfaction our number one KPI.
When done right, a reliable recurring revenue model can help futureproof your income for the new year and beyond, which can give you the freedom to deliver outstanding customer service. And with two rocky years now behind us, that’s something you can’t afford to ignore.