small and medium thoughts

Recurring revenue: breakfast of champion smes

• “Would you like to sign up for a course?” the lady asked before giving me my haircut. “Huh? What course? I don’t need to take any lessons in hairdressing surely?” “No, no – not that kind of course lah. You sign up a course of 10 sessions and we give you a special discount rate for your haircuts lah!”
  “Oh I see!”
  
  What had started off as a budget conscious consumer (i.e. yours truly) wanting to take advantage of a RM9.99 haircut, ended up as a lesson in recurring revenue.
  
  It appears everyone is getting into the act, including hairstylists. Recurring revenue, for the uninformed, is simply revenue from a consumer/subscriber that is certain to continue in the future. Our newspaper delivery man is most familiar with it and so are our incumbent telco operators and utility providers who bill us on a monthly basis.

Recurring revenue builds a healthy, dependable income stream into the business and allows companies to operate with a lot more certainty. It’s a direct way to instill customer loyalty, effectively tying people to your company’s services for a longer period of time.

It also impresses the socks off potential investors/lenders when they see a healthy bank of future income in your business.

So how can a business owner build some form of recurring revenue into their service offering?

• If you sell products, offer a 12 month maintenance program which the consumer can opt for (e.g. If you sell aircons, offer a monthly maintenance and cleaning service).
• In a cut-throat, me-too business such as groceries or stationery? Value-add by offering additional services like deliveries for regular customers or doing a fortnightly no-obligations visit to the office and offer to replenish their supplies.
• If you sell services, package them so as to reward frequent visits (e.g. 1 treatment/visit for RM40 but 3 visits for RM90 total etc.)
• Reward loyalty. Minimise one-off deals which only benefit deal seekers who won’t be loyal to you anyway. Invest your money in customers who will give you superior lifetime value.
• Do your maths well and you could even offer your product for free as long as your customer pays a monthly service fee. Drinks dispenser manufacturers offer their units for free as long as you buy the supplies and refills from them. Once you cancel the contract, they take back the product.
  

Look to create long term value and not just one-off deals and you will be able to build a more profitable and secure business.

Technorati: revenue, SMEs, entrepreneurship, business

posted by hew @ 12:15 pm