In some of our prior articles, we talked about the power of having a recurring revenue business. As a reminder, the more recurring revenue your business has, the faster it can grow, the more predictable your expenses become, and the more valuable your business becomes overall.
But what happens if you didn't have the foresight to build that kind of revenue into your business model from the beginning? Don't sweat it--here are four ways you can add in recurring revenue to your business tomorrow:
Shift Your Pricing Model
One way to add recurring revenue into your business is to shift away from the traditional model of charging your customers a single one-time fee for your product or service and embrace a more recurring model of payment. Let's say you run a software company and you're used to customers paying you a large fee when you close a deal. Why not shift that model and allow them to pay you a monthly fee instead? Yes, it takes willpower to make such a change--and plenty of cash on hand to pay your bills as you work through the transition--but the switch will pay off big time over the long run.
Create a Support and Maintenance Plan
Let's face it--your customers would love it if you could make their support and maintenance expenses for your product or service more predictable. So why not make it easy on them by charging them a monthly fee that will cover any breakages or fixes that might result? This is what happens when you purchase a car and all the maintenance is included in the lease payment. In terms of pricing, an annual contract should be worth about 15 percent to 20 percent of the original purchase price, which you can then bill out monthly.
The more complex your product is, the harder it becomes for your clients to keep their staff current on how to use it. That's where you can offer them a monthly training contract that will ensure their staff is always up to date. That can be especially valuable if they are in fast-growth mode and are always adding new people in need of learning new skills. We know of one company, for example, that built its entire business on such a model--it trains companies on how to use SAP's complex ERP systems. The irony is that this training company is built 100 percent on a recurring revenue business model, but SAP has very little in their base business.
If your business sells large expensive items, like capital equipment that costs $1 million or more, than it can be quite painful for your customers to come up with that kind of money to pay for it. It can force them to turn to a bank or other creditor to get the money. But if you can shift that purchase into a recurring revenue model--say by charging your customer $25,000 a month for five years--you can create a win-win scenario for both your business and your customer's. This means you are becoming a bank, but it allows you to shift your revenue to the more powerful recurring revenue type. There are also banks that will take your contract and give you the funds immediately, meaning your income is paid in a lump sum if you need the cash.
While there are certainly other options you can consider for building more recurring revenue into your business, these are four ways you can do it fairly easily and quickly. Ideally, you'll find a way to turn 100 percent of your revenue into recurring revenue. But anything is better than 0 percent, so even if you're just taking it one step at a time, the value of your business will improve as a result.