Recurring revenue is essentially revenue that is likely to continue in the future. This sort of reliable income increases your company's annual revenue, predictability and sustainability while it heightens its sellability. This can be especially important for a small business. Because it's such a broad concept that entails many methods, there is no one right way to increase recurring revenue. Perhaps most importantly, you must find the revenue-generating methods that work for your company and then discover the best ways to sustain them.
Repeat customers serve as the bread and butter for generating recurring revenue. While some services, such as phone companies or utility companies, generate recurring revenue by their very nature, business that sell products – such as groceries – have a more difficult time, because shoppers can simply opt to go to a different store with no consequence. Implement a business model based on incentive and consequence to prevent this and ensure repeat customers. Offer small rewards programs or points collected on each purchase to promote customer loyalty. Implement automatic credit card or bank account billing and purchasing, which tightens your relationship with regular customers and may cause them to think twice about switching companies.
Ongoing Services and Consumables
Ongoing services, such as subscriptions or renewable membership clubs, also generate recurring revenue. If your company sells one-time purchase products, consider bolstering your revenue stream by adding recurring purchases or consumables, which equal recurring revenue. Consider, for instance, products that require a disposable item -- such as printer toner or vacuum bags -- for regular use. Offer educational components or accessories that can help consumers get the most of their products for a fee. Other examples of recurring revenue streams include spare parts sales and overhaul services.
According to John Warrilow, author of “Built to Sell: Creating a Business That Can Thrive Without You,” long-term contracts -- contracts with terms of one year or longer -- serve as the best way to generate future revenue streams. You can turn a one-time purchase into a recurring revenue stream by offering an optional -- and renewable -- service contract to the deal. Fees that penalize switching contracts to another provider or offering rewards for contract renewal really drive this method home. Consider selling high-priced items by means of financing contracts, which ultimately result in higher per-product profits and regular incoming payments.
Sequential revenue blends the concepts of contracts and services to create a one-two punch of recurring revenue. Products, such as software or devices, that come out with yearly or bi-yearly new versions serve as an efficient way to generate sequential revenue. By building a loyal consumer base with the 2012 version of a product and offering an upgraded version in 2014, you cater to a built-in base of repeat customers. You can generate sequential revenue by offering yearly software upgrades, downloadable content, regular device revisions or upgrades to basic contract service plans that add ancillary services with nominal fees.
- Inc.: The Importance of Recurring Revenue
- American Express Open Forum: How Any Business Can Generate Recurring Revenues
- M & A Market Update: Recurring Revenue Adds Value to Your Business
- Poised: How to Use Recurring Revenue to Grow Your Small Business
- Inc. CEO Project: The Power of Recurring Revenue: Building a Better Business Model
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