Recurring revenue should be the mantra of every business, large and small. Dollars that come in every month without fail are what keeps a company going through difficult times. Big orders are great and you always want them, but a solid recurring revenue strategy is what sustains companies over the long haul. Cell phone contracts are the best example of a whole industry that is built on recurring revenue. They give you the phone to get your monthly contract.
Where to Find the Opportunities
- Licensing, royalties or franchising – The best way to develop new recurring revenue streams is to look at what other successful companies do. Back in the 80’s and 90’s when computer companies were almost printing money, their primary revenue stream came from licensing software. They did not sell the software, they licensed it and customers paid monthly and annual fees for the right to use proprietary software. What do you have in your portfolio of services and products that can be licensed? Can you collect regular royalties or is franchising a good move?
- Maintenance – Nearly all equipment vendors also periodic maintenance contracts that cover both “break-fix” calls, but also preventive maintenance. If you have good, reliable equipment your PM contracts should be good money makers and keep the revenue flowing on a regular basis.
- Parts, Supplies and Consumables – Legacy examples are Gillette Razors, Eastman Kodak and Polaroid. They almost gave their “equipment” away to create proprietary revenue streams from the consumables and regularly upgrade the equipment to make previous consumables obsolete. How many blades does it take to shave a face? Why does every HP printer you buy have a slightly different form factor? – Recurring revenue.
- Newsletters and Subscriptions – What information can you publish about your products, company or the industry you serve that brings real value to your customers and others. This can begin with posting and giving away basic information followed by eBooks, newsletter subscriptions, how to guides and more. There is a whole online industry where social media and blogging attract “followers” who are later “converted” to paying customers or members.
- Monthly contracts or retainers rather than a one-time sale – Many customers prefer monthly payments vs. lump sum payments. If you are covering expenses and your cash flow supports the strategy, consider selling nearly everything on a monthly payment plan rather than getting all your money up front.
- Seminars and Audio Programs – This is a proven business model that can be incorporated into nearly every kind of business. Think through what you have in your portfolio and how you can package it into a series or training seminars, DVD’s, eBooks and combinations to bring in lots of small ticket items that add up to large monthly revenues.
How to Implement the Ideas
- Licensing – Does your company own any patents? License the use of the products that contain them. Have you developed any proprietary procedures? License the use of them. ”Through licensing of proprietary technology, small firms can earn substantial income from the markets that they could not penetrate on their own, and large firms can have foreign affiliates without high financial and legal risks.” Can you “clone” your business or portions of it and collect licensing fees or royalties. This is a less expensive way of entering the world of franchising.
- Maintenance and support contracts– Create contracts that cover regular preventive maintenance activities and/or software upgrades, how often you will conduct the maintenance and what is not covered. Be careful that you are not expected to replace major components or do major customization under a PM agreement. When you have your model in place to service your equipment or software, ramp up to service the equipment or software of others.
- Parts, supplies and consumables – Build some new products that require proprietary consumables. HP does it. Razor blades and other personal goods manufacturers do it all the time. Why can’t you? Create an “in house store” where you have all the parts and supplies on hand for a monthly fee.
- Newsletters and Subscriptions – One of the key advantages of online marketing is that you can test market ideas very inexpensively. Create a newsletter with some compelling information that appeals to your clients and send it out. Ask for feedback and comments. Ask them what else they want. What do they need to make their jobs easier? Adjust the next issue to incorporate suggestions and make it a regular communication vehicle to your customers and clients. Once you have a following, convert these subscribers into monthly members and eBooks that consolidate all the newsletters.
- Monthly contracts or retainers rather than a one-time sale – Include a monthly payment program that is more attractive than a single payment and see how your prospects react. If you are unable to finance it yourself, set up leasing arrangements. Most companies will opt for the monthly program to conserve their cash for other projects. You create multiple recurring revenue streams to support the long term viability of your business. In the leasing scenario, you are paid up front and the leasing company receives the recurring revenue. If you are a professional services firm, ask for monthly retainers rather than billing by the hour. Make it more attractive than what they currently spend on an hourly basis. You may sacrifice a small amount to gain a recurring revenue stream you can count on. Once it is set up, they rarely change it.
- Ideas for Consulting Companies– If you are a consulting business, here are “12 indisputable ways to bring in recurring revenue.” From eBooks and DVD’s to monthly seminars, they are all proven concepts that have worked for a long time.
There are many ways to develop recurring revenue streams. Adapt these ideas to your business model. Think about what you are doing or could be doing that can be turned into monthly contracts, subscriptions or other monthly revenue streams.
A single $500/month contract may not get anyone’s attention, but when you have 100, 1,000 or more of such contracts it is a revenue base that can cover many expenses and “keep the doors open” well into the future. When you can count on these contracts, it also makes staffing and other planning easier and you sleep better at night knowing you are not ”living from deal to deal.”
Whenever possible, set up your monthly payment as automatic deducts from a client’s credit card. Your accounts receivable is zero and there are no processing costs except the credit card fees.