True Growth: Setting Up Recurring Revenue

This is the first article of the True Growth series. The True Growth series will be a series of articles to help you seriously grow your business. You may find that some of the information in the True Growth articles do not apply to your business. However, my main goal is to empower you to think differently…to help you think at SCALE rather than the here and now.

In this article, I’m going to help you understand how to increase the lifetime value of your customer by setting up a Recurring Revenue stream.

Why is Recurring Revenue Important?

Recurring Revenue sets up your business in a way that you have customers paying you repeatedly for some service or product. This is important because your customer continues to bring value to your business after the initial cost of acquiring them. This will help build your ARPU (Average Revenue Per Unit) and help scale your business.

How Does Recurring Revenue Scale My Business?

Think about how expensive it is to acquire a new customer. The sales process and marketing alone can drain a business of precious funds. Recurring revenue allows your business to scale because you don’t have to invest tons of money to acquire new customers every business cycle (monthly, quarterly, yearly). This is due to the fact that the customers you already acquired (and paid for) are paying you continually. You can now focus your investments towards new product development, new internal tools to cut costs, or anything else your business needs.

Note: Recurring Revenue doesn’t mean you stop investing in acquiring new customers. You will still need to invest in new customers due to customer churn (customers canceling your service). The point here is that acquiring new customers isn’t the fire you need to continually put out.

Well, How Do I Do This?

Your first step is to put your thinking cap on and come up with ideas to turn your one-time purchase into a recurring revenue stream. Here are a few examples:

  1. Does your product/service require maintenance? Create maintenance packages.
  2. Is your product expensive and needs a warranty? Create additional warranties.
  3. Does your product have an education piece that needs to be fulfilled? Create an education/membership subscription.
  4. Can you think of add-ons to your product that you can upsell repeatedly? An example of this concept is needing Toner with your Printer.

Once the idea is thought of, execute! Here are a few tips to keep in mind:

  • MRR (Monthly Recurring Revenue) requires your track Net Churn

    Recurring Revenue can often lead to customers needing support. So you will want to budget time/resources/tools to assist in this effort.

  • Recurring Revenue doesn’t happen over night. You may need to do multiple iterations of your plan to fine tune the machine.
  • Net Churn is a new metric you will want to track. A well-respected mentor of mine says, “This is the hole you need to fill before being profitable”.  Basically, Net Churn tracks “how many customers left my business compared to the amount of customers I acquired during the business cycle”. Negative net churn is what you’re after. If you Net Churn is positive, you have a hole to fill.

I hope this helps! If you are having trouble coming up with ideas or need help creating the functionality, I would love to help! Message me on my contact page to start the conversation!

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