In business you really don’t want to spend more time or money to get new clients than you’ll end up making from them. Although you need a marketing and advertising budget to keep customers coming through your door, you want a good bang for your buck.

Who wouldn’t want to have customers coming through the door more than once or twice in a year? What if they called on your services regularly to give you recurring revenue that you can rely on, without you needing to lift a ‘marketing finger’? It sure would take a bit of the pressure off you, the business owner.

So what is recurring revenue? It’s the revenue you can depend on generating, year after year, with a high degree of certainty. It’s the repeat business or long-term contracts you’ve established with clients who know and trust your business.
For example, you might bundle offers into a monthly or quarterly subscription, or launch a points system that incentivizes loyalty with free gifts or special discounts. Recurring revenue comes in many forms and is considered the gold standard of business models.

Here are the top three reasons it’s a good idea to build recurring revenue into your business model.

1. Frees up more time to grow your business

Consider this: if your business generates $100,000 in revenue a year, and 50% of that total is recurring revenue, you’ll start each year knowing you can count on at least $50,000.

This immediately frees up time and energy for new product development, expanded marketing, and attracting new customers. Plus, the added financial certainty can help alleviate stress, which goes a long way to improving productivity and your overall wellbeing.

Tradies could generate recurring revenue by offering maintenance and service subscription packages. For example maintenance packages that offer priority service and job scheduling advantages, in exchange for a fee charged to the customer to receive this priority service, could be one way to do it.

Let me give you another example of generating recurring business: You have a successful plumbing business, and while your work is built to last, you also know that there are a lot of DIY customers out there who need reliable information on all matters plumbing.

One of your recurring revenue generators could be a subscription product to the ‘Secret Vault of DYI Plumbing Tips and Tricks’ which could be highly attractive to owner builders and renovators. To create this as a recurring revenue stream, you can sell your expertise and offer it on a membership site for a monthly subscription fee. Given the regulatory constraints around particular trades, because the subscriber already trusts you, you could also be first cab off the rank to do the work that can only be done by a licensed operator.

2. Helps maintain positive cash flow

How many business owners are paying a subscription fee of one kind or another? It could be for your software licenses, your website hosting, they come in all shapes and sizes nowadays, not just online businesses.

What they all have in common though is they generate recurring revenue which helps those businesses to develop and stick to a budget. Knowing you can expect to earn a certain amount each month makes it easier to cover both routine and unexpected costs – like accounts payable, employee salaries, last-minute repairs, loan payments, etc.

With recurring revenue it’s also easier to stay in positive cash flow territory, especially at seasonally slow times for business. Depending on the industry you’re in, it will cost you a certain amount in your marketing budget to attract a new customer. When you can rely on repeat customers, it’s possible to adjust your marketing budget to the cyclical nature of the need for attracting new customers.

It’s also worth noting that for a potential buyer businesses with recurring revenue are more attractive because they’re less prone to insolvency. The same applies to a bank or potential new business partner. Having recurring revenue streams as part of your business model can also help strengthen your negotiation position.

3. Opens the door to valuable customer insights

When you’re in business every opportunity to get an insight into what your customers think of the service or work you are delivering is incredibly precious. In order to generate repeat business you will need to satisfy your customers’ needs to their utmost satisfaction. The thing with customers is they will generally not tell you to your face if they were not happy with aspects of your work. Instead, they may just go to the competition.

So when you want to generate recurring revenue streams you’ll need to be looking closely at the particular wants, needs, and behaviors of your target market.

In order to build the long-term relationships necessary for repeat business, you must understand what matters most to your customers and how to meet those needs (in ways your competitors do not).

As you research your market and talk with your clients, deeper insights will emerge about their particular preferences and pain-points – knowledge that will directly inform your marketing and further refine your product or service offers. Enhanced customization leads to more competitive offers, which in turn supports recurring revenue.

The bottom line? Business owners should focus on building long-term customer relationships, rather than focussing exclusively on one-off transactions. While lucrative one-time deals are definitely a bonus, recurring contracts are the gifts that keeps on giving!

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