The Magic of Recurring Revenues - Another Strategic Management Tip
Whether you are just starting out or have had your business for years, every business owner should focus on developing recurring revenue streams. Few things have as much impact across so many elements of your business as this.
Recurring revenues streams are the portions of a company’s total revenue which are stable, very likely to continue and can be counted on with a high degree of certainty.
Predictable revenues produce stability, operational efficiencies and enable you to focus your time and energies on growing your business. Not every business can have one, but if you don’t, you should try really really hard to fix that.
Examples of businesses with recurring revenue streams
Examples of recurring revenues are gym memberships, insurance policies, maintenance and support services, telephone, internet and other services. There are many other types of businesses which not only enjoy this type of revenue but which are actually designed and built on this model.
There is a distinct trend right now, particularly with web based businesses to offer services under a subscription model rather than a traditional one time sale and licensing model. In addition to software services being delivered in this manner, most Managed Services Providers of IT services (MSP’s) are setup on a recurring revenue basis.
Benefits of recurring revenues
- Predictable cash flows
- Loyal repeat customers
- Lower sales costs
- More effective sales processes to develop new customers
- More effective sales processes to grow business with existing customers
- Increased revenues
- Increased profitability
- More effective use of everyone’s time
- Business stability
- Enhanced ability to plan, invest, develop, grow, and manage your business
Frequency of recurrence
Revenues can reoccur with any kind of frequency - annually, bi-annually quarterly, monthly or at other regular intervals. Some are longer – others shorter. The key is to evaluate what makes most sense for your business and particular goals and objectives.
Developing recurring revenues
For businesses which don’t currently have recurring revenue streams it is well worth the time and effort to develop these. To do so may take getting several heads in the game to identify areas of your business which can be offered in this manner. It’s very likely that your sales and service staff have ideas about additional services you can provide. It’s also worth asking key customers about services they would like and would consider buying.
Once candidate services have been identified you can evaluate the difficulty of implementation compared against the value of the opportunity of offering these. Weather you choose to implement a new service offering or modify the way in which you sell a current offering, you need to consider how you will sell, service and bill for these services.
In all cases the enhanced revenues and cash flows should easily justify the effort of implementation. The resulting business strength and stability is a bonus your business will enjoy hopefully for years to come.