Your Business Benefits In More Than One Way From Recurring RevenueOutside Contributor
As everyone knows, repeat customers are fabulous in any business…especially the landscape business! They give us predictability and peace of mind by providing recurring revenue and a steady cash flow.
In fact, this is why so many of you zero in on customers like builders, property managers and real estate professionals and why you offer services like maintenance and lawn care.
As we go into 2016 and beyond, challenge yourself to really think about recurring revenue and its impact on your business. It helps improve your company’s overall value in the long term. Whether you want to pass it down the line to a family member or sell it, if you’re in a business that starts from scratch each month, it is just not as valuable or inviting to others. A recurring revenue stream acts like a powerful pair of binoculars for you – and your successor or potential acquirer – to see months or years into the future; creating an annuity stream is the best way to increase the desirability and value of your company.
The surer your future revenue, the higher the value of your business. So here is a crash on the hierarchy of recurring revenue presented from least to most valuable. Some fits our industry today and some doesn’t but we’ll run through each. The idea and opportunity here is to get creative and find ways.
No. 6: Consumables
These are disposable items that customers purchase regularly, but they have no particular motivation to repurchase from one seller or to be brand loyal. You actually use a lot of consumables in getting your work done for customers , i.e. fertilizer, mulch, but tend to be more brand loyal for good reason.
No. 5: Sunk-money consumables
This is where the customer first makes an investment in a platform and then buys consumables to use. For example, once you buy a razor you have a vested interest in buying compatible blades or once your customer installs a raised hardscape planter bed in the front yard, they will want annuals and color. A small fertigation system with refill cartridges is another example.
No. 4: Renewable subscriptions
Typically, subscriptions are paid for in advance, creating a positive cash-flow cycle. What could you do in this area, service or extended warranties?
No. 3: Sunk-money renewable subscriptions
Traders and money managers swear by their Bloomberg Terminal; and they have to first buy or lease the terminal in order to subscribe to Bloomberg’s financial information. What could you do here? What about systems like mistaway spray system or higher end fertigation systems…what else?
No. 2: Automatic-renewal subscriptions
When you store documents with Iron Mountain, you are automatically charged a fee each month as long as you continue to use the service. What can you do? Ongoing service contracts, warranties, maintenance, lawn care contracts with auto renewal features. What else?
No. 1: Contracts
As much as we may despise being tied to them, wireless companies have mastered the art of recurring revenue. Many give customers free phones if they lock into a two or three-year contract. This is also the heart and soul of many maintenance and lawn care companies.
Again, the challenge is to think about what you could do improve your recurring revenue stream. It doesn’t have to be 100% but some base percentage would be nice and help.
Less stress, more predictability and a future revenue stream for generations to come is the ultimate way to drive value. What you can do to help yourself here?