If you’ve been reading books like Side Hustle or Entrepreneurial You, you’re probably “itching” to get your venture going or growing. These are exciting times to create a new business because with very small investment, you can start selling to the world. Technology has become so cheap and (relatively) easy to use, the barriers are low. However, you still need to achieve the hardest part – create something of value that will interest potential Customers. If you’ve heard the saying “build it and they will come” – well unfortunately, they don’t always come. But that’s a topic for another day…
Leveraging your time is a topic these books talk a little about. However, the topic is important and worth covering more. Why? Because of the first three words in the paragraph – “Leveraging your time”. We all have 24 hours in a day. Creating and growing a venture takes a lot of time. Depending on your ambitions, you may want to be the next Facebook or Google and that’s a great objective. Or you may want to be a solopreneur and have a business that gives you some personal flexibility, i.e. spend time with kids/family, travel more, etc.
One area of your business to seriously look at for leverage is your Customer base. Acquiring Customers takes a lot of time and money. As a rule of thumb, acquiring a Customer cost 5x more than retaining an existing Customer. Of course you need to acquire Customers (no Customers, no revenue). However, you should be looking at how to make it easier for you to capture value from your Customers as part of your business model. Specifically, recurring vs non-recurring revenue.
Non-recurring revenue is simply a single transaction in which you provide something of value to your Customer, and they pay you for it. Done. With recurring revenue, you also provide something of value to your Customer, but they pay you on a periodic basis, i.e. monthly or annually.
With non-recurring revenue, unless you sell a product that needs replenishing (i.e. food items, toiletries, etc), you need to provide a variety of products for your Customer to purchase. And you need to continue creating new products to sell so you can increase those single transaction opportunities. Lots of “one and done” transactions. Lots of work creating new products and also supporting a growing product portfolio.
For recurring revenue, the transactions are not “one and done”. You’re using subscription pricing with your Customer which means you charge them monthly, quarterly or annually. This approach is ideal when the Customer uses the product (or service) being sold on a regular basis over time. Some examples include music/video delivery services, cable/tv services, software applications, etc.
Now a few things to consider with a recurring revenue business model. If you compare a product that is sold using subscription (i.e. recurring) pricing vs an equivalent product being sold with non-subscription (i.e. non-recurring) pricing, the subscription price is most likely going to be lower – for a given period of time. Over time, if you continue providing your Customer value, then the Customer will actually be paying you more money compared to a one-time transaction.
As alluded to above, with a subscription model, you need to continue providing your Customer value so they’ll continue paying for it. If you are providing software, then you need to continue adding features and supporting your Customer or they’ll stop using/paying for your software. If you provide a service that offers industry expertise, then you need to continue investing in developing your expertise or your Customers will stop paying for it.
This post provided you an quick and simple overview of recurring vs non-recurring revenue. It also showed how recurring revenue can provide you leverage by focusing on providing on-going value to existing Customers. Extracting more money over time from existing Customers vs the 5x cost of acquiring new Customers is something you need to seriously consider for long term success. By bringing this awareness to you, you can now think of ways to develop your product/service such that you can create a recurring revenue stream and retain more of your Customers for a long time.