Most CEO’s look at profits on a monthly, quarterly, and yearly basis. However, profits are not the only critical element to survival. Profitable companies can go bankrupt: If more than 50% of your revenues come from one client or one industry, and that client or industry shuts down, you have the potential to go bankrupt too.
The solution to those customers going out of business and taking your company with them: build wealth in addition to profits. This means building a great cash reserve and building a loyal customer base through recurring revenue, the subject of this article.
Recurring revenue programs tie your customers to your company. You give them reasons to use your company year after year. They give you predictable revenues, expenses, and cash flow. This allows you to budget. Increasing your sales usually means increasing your recurring revenue customer base. And most important, recurring revenue programs build trust between your customer and your company.
You probably have seen many recurring revenue programs, and you may be a member of some. Think about gym memberships, Sam’s Club, Costco, Amazon Prime, Wine Clubs, and other club memberships, your monthly video game subscriptions, Netflix and other movie subscriptions, home maintenance programs, and other things you buy where you pay a monthly fee that is taken out of your checking account or charged to your credit card each month, quarter, or year.
From a business perspective, you pay for many software programs on a monthly basis rather than an annual fee. The more companies that use the software program, the higher the recurring revenue to the software company.
Higher recurring revenue means more value and a higher selling price when your company is sold. Or, if your company acquires other companies, the predictable cash is there to purchase the company and get new customers on your recurring revenue program.
Brad Sugars, who started with nothing and became a billionaire, has a saying, “Work once and get paid forever.” This is how he built his recurring revenue and wealth.
In addition to building cash and other liquid assets, the wealth of your business is in customers who buy from your company year after year. Your recurring revenue customers provide a stable revenue stream for a purchaser. When your recurring revenue customers stay with your company year after year and they provide positive cash flow, the purchaser can be reasonably assured that he is investing in something that will also provide value and wealth to him as he operates the company.
The more recurring revenue your company has, then more wealth is had.
To create your recurring revenue program, answer these questions:
- What are your customers purchasing from you?
- How frequently are they buying?
- Can you incentivize them to buy more frequently?
- What other products and services could they be purchasing from you?
- What special products or benefits can you give your customers?
- Do any of your competitors have a recurring revenue program? If so, what is it?
Almost every business can have a recurring revenue program. The recurring revenue program could be free, (like the restaurant frequent diner’s club mentioned at the beginning of this book). It could have a cost to join or have several tiers (from free to a low investment to a higher investment with higher benefits). You might also create a “buy 10 and your 11th widget is free” or another plan. Just make sure to calculate the costs so that the 11th widget doesn’t put your company out of business.
For product businesses, create a “widget of the month club.” For example, you might have a cake of the month club where you send a different cake each month. I’ve seen these programs with food items, beauty products, coffee, tea, and many more products. Generally these programs have a monthly investment.
For service businesses, create a maintenance program, a paid newsletter, or special customer program. Examples include a heating and air conditioning, plumbing, electrical, generator, chimney, lawn care, pest control, or other type of home maintenance program. These programs usually require an investment by the customer to perform the maintenance work. Just ensure that your company at least breaks even, or better yet, earns a profit on the maintenance work.
You might create a special program where only club members get a discount on purchases. They might get advanced notice of new products in the store, invitations to special events, or any other special things you can do in the store.
Follow these five steps to create your recurring revenue program:
- Make a list of the products and services you will provide.
- Make a list of the benefits of having these products and services.
- Price the program where applicable.
- Name your program.
- Enroll your customers in your program
These five steps answer the question: what value does my recurring revenue program provide to my customers?
All your employees should be involved with the program, even if they are not part of your sales team. All have contact with customers and potential customers. They should believe in the program, its benefits and how it helps the customers. They should be able to talk about it to customers. You might consider a small commission to each employee who enrolls a customer in your recurring revenue program.
Recurring revenue programs are the seeds that you plant “in the spring” to help your company build wealth and have a great harvest for years to come.
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