The Six Steps of Subscription Based Recurring Revenue
Recurring Revenue, or subscriptions are an attractive source of secure income to a prospective buyer. It allows them to see the future potential of the company. It’s important to keep your company competitive and incorporate trends that are tried and tested, in order to increase value.
The likelihood is you do already have some form of recurring revenue within your company, but if you don’t, it’s time to start climbing the ladder!
The Lucrative Ladder
There are six sub categories to this key value driver, each one more lucrative than the last. Simply put, recurring revenue works by using a subscription-based business model. This is revenue that is guaranteed either monthly or annuity-based. Increasing the amount of subscription-based services or products that you offer will also help to maximize customer lifetime value. This is because customers will be returning to you regularly.
This driver looks at not only the proportion of automatic revenue that you have within your business but also the quality. The six revenue streams below should get you thinking about how you could add or increase recurring revenue streams in to your company.
The Six Subscription Revenue Streams
The Simple Consumable
You have a product that people want and that needs continuous replenishment. Think coffee. Consumers have the need or desire to purchase frequently, but they also have brand loyalty to choose whether that comes from Costa, Starbucks, Nero or somewhere else. But once you’ve got them hooked into your particular brand, they are more likely to be receptive to cross selling new products. Again, coffee is a great example. You might have a latte all year round but be tempted to a Christmas style gingerbread version during December at a price premium.
The Sunk Money Consumable
You’ve ‘sunk’ money into a product that you now need to purchase additional products for, from that same brand, in order to use. For example, you’ve got an electric toothbrush, but now you need the replacement brush heads. And perhaps you need a flosser. Oh and don’t forget to buy their branded toothpaste and mouthwash…
The Subscription Service
The kind that you subscribe to on a finite basis. For example a monthly or a yearly magazine subscription that you’d need to re-opt in to when the subscription expires. Perhaps a membership of the National Trust or English Heritage.
The Sunk Money Subscription
Think of this one as gateway that needs several keys for you to unlock it. Key number one unlocks to provide you with a product or service that you pay for initially. However, in order to maintain and update the product/service or access additional information, you need key number two. Meaning, further purchases are required for you to get the most out of the subscription. A good example would be an app or computer game that’s been paid for outright but requires further payments to unlock additional content.
The Evergreen Subscription
Auto-rebilling – it’s the ‘secret’ to big brand success and huge growth. Spotify and Netflix fuel our need to be entertained. Amazon Prime and Uber Ride Pass make life that little bit easier. Subscription based revenue is booming. Research has found that more than 226 million of us have some form of subscription.
The Hard Contract
Contract Revenue is a solid form income. Your customers are contractually obligated to continue working with you. Think of your mobile phone contract. The standard contract length is now a minimum of two years so you’re tied in to one provider.
What kind of revenue model do you have in your company?
Could you adapt any of your current payment plans to include a subscription or membership-based product? If customers are reluctant to commit to a subscription, think about enticing them with an offer like 12 months for the price of 10, but price it carefully.
Prospective buyers are looking at how sustainable your current business is, and how they can continue this growth once they acquire. Aside from putting you in a better position to sell, in the interim establishing a solid recurring revenue model will add value.
If you are interested in finding out more about how to improve your business model to incorporate recurring revenue streams and in turn, how you can create a more autonomous business, please contact us today in the strictest of confidence. Call 01606 535020. You can also keep up to date with the latest from Uscita on our Twitter page.