Why You Need Recurring Revenue

Volvo recently announced they will make their cars available on a subscription model where consumers will pay one fixed fee per month for access to a car which includes insurance and maintenance. Everything from razor blades to flowers are available with subscription billing.

“Could you offer some sort of recurring plan to your customers?”

Could you offer some sort of recurring plan for your customers? The answer is yes, and you should. It adds more value to your business, keeps your company top of mind with your customers, and builds a level of cash flow you can count on.

Here are six reasons to consider offering your customers a subscription.

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1. Predictability: When you have subscribers, you can plan your business needs for the future. For example, the average flower store in America throws out more than half of its inventory each month because it’s too rotten to sell.  H.Bloom, a subscription-based flower company that sells flowers to hotels and spas, says they throw out less than 2% of their flowers because they can perfectly predict how many flowers are needed to fulfill their orders. Who wouldn’t want better profit and steady cash flow?

2. Eliminate Seasonality: Many businesses suffer through seasonal highs and lows. In fact, a whopping 30% of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November. By contrast, H.Bloom has a steady stream of subscribers that pay each month. At Mister Car Wash – where they offer a subscription for unlimited car washes – they receive revenue from customers in November and April even though very few people in the northeast wash their cars in rainy months.

3. Improved Valuation: Recurring revenue boosts the value of your business. Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue. This is one of the Eight Drivers that the Value Builder System focuses on and I’ll tell you how to get your score later.

4. The Trojan Horse Effect: Once you subscribe to a service, you become much more likely to buy other things from the same company. That’s one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.

5. The Sale That Keeps On Giving: Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription-based model, you sell one subscription and it keeps giving month after month.

6. Data & Market Research: When you get a customer to subscribe, you can start to see their spending and consumption habits. This data is the ultimate in market research. It’s how Netflix knows which new shows to produce and which to kibosh.

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The Value Builder System helps business owners focus on the eight key drivers (like Recurring Revenue) that add the most value to their business. If you want to take the Value Builder Assessment and get your score, let me know and I’ll send you the link. I can answer any questions you have before taking the assessment and then help you understand your results.

Make plans to attend our next CEO Learning Session on the topic of how to Increase the Value of Your Business. We will focus on the Value Builder System at that event. Click here for more information: CEO Learning Sessions.

Robert Hunt

Renaissance Executive Forums Dallas

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