With many businesses, on the 1st day of the month, revenue starts at zero.
And then each month to achieve the revenue of the previous month, the business needs to have the same number of transactions at the same average transaction price-point.
For example, if in March you have $20,000 in revenue with an average transaction amount of $200, then you need 100 transactions in April to equal the same amount of revenue that you did in March.
Recurring revenue pricing models are different because they are not a one and done transaction. With recurring revenue pricing, you provide a product or service and then bill the customer, either monthly, quarterly, or yearly until the customer tells you to stop.
Recurring revenue allows you to have predictable revenue month after month that increases over time. Plus, at the beginning of each month, you know how much revenue you are going to earn that month. Plus, any new business increases the revenue for the following months also.
One of the Most Transformative Business Strategies
One of the first businesses to implement recurring revenue pricing was the Book Of The Month Club that started in 1926 and sold books primarily through mail order. Each month the customer received a new book, and they were billed. Harry Scherman, along with Max Sackheim, and Robert Haas started the book of the month club with 4,000 subscribers, within twenty years the Club had more than 550,000 subscribers, each paying monthly for their new book.
Recurring revenue pricing models started primarily because of the expense and cost of acquiring new customers. The price of marketing, printing, sending direct mail, and the fulfillment, was costly even during the 1920s.
Instead of selling one book with a low-profit margin, Harry Sherman and Max Sackheim, decided to select specific books based on the customer’s interests and send a new book each month. This allowed them to bill the customer, as long as they wanted to receive the new book each month.
Profitability with this pricing model was paramount since the cost of acquiring the new customer was eliminated after the first month.
After seeing the success of the Book of the Month Club, many other mail order businesses started using recurring revenue pricing strategies also.
Even today, the most profitable customer is not a onetime customer, but a customer that knows your business and purchases from you on a regular basis.
Loyal customers buy more often, cost less to serve, and are less sensitive to price.
Types of Recurring Revenue Businesses
Recurring revenue can come in all shapes and sizes from paid newsletters, and membership sites, coaching models, tanning salons, spas, software, gym memberships, to more specific niche products like the flower of the month club, olive oil that is sent monthly, associations, ongoing training or classes, or any ongoing monthly services.
Even some doctors are now switching to private care, where you pay a monthly fee to have access to the doctor when you are sick.
Can you think of other businesses where you pay on an ongoing monthly, quarterly or yearly basis?
The sky is limit as to the types of products and services that you can offer that allow you to bill the customer month after month. The only real limitation is your own ingenuity.
But not all businesses lend themselves to recurring revenue pricing models. Some types of businesses struggle to implement this type of pricing. But with some creativity, a lot of businesses can offer products and services that serve a customer on an ongoing monthly basis.
7 Principles For Establish Recurring Revenue
What are some of the things you need to consider
1. Is there a need for ongoing support? – some businesses lend themselves to the customer needing support that lasts longer than one individual session or transaction. So, think of the different ways that you can offer your current product or service to your customers on a monthly basis vs. one a time transaction. Or maybe there is a complementary product or service that you can offer in addition to your core product!
2. Year-Round Business– is your business seasonal or does it offer year-round support? Seasonal businesses are harder to implement recurring revenue pricing because once the season is over, there is no need for any going support.
3. Is your ideal customer reachable online or offline? If you already have a business, chances are you are already reaching your core client. How many different ways can you reach your ideal client? One easy way to check to see if your product or service lends itself to recurring revenue pricing is to see if there are other similar products being sold? How many other products and services do your competitors offer that bills customers on a monthly basis?
4. Rabid/Impulsive/Desperate – Rapid and impulsive simply means that they are passionate about the niche. A lot of hobby markets lend themselves to this concept, but also some B to B businesses lend themselves to having rapid and impulsive clients. As for clients being desperate, if you can help the person solve their problem, then they will have affinity and gratitude towards you and want to be associated with you for a long time.
5. Affinity to the Market– Just means can you relate to the market. Being able to relate helps your customers identify with you and your business. This allows you to create products and services that your customers will value and be willing to pay for on a monthly basis.
6. Proven “membership mentality”– One way to determine if your customers are open to a continuity pricing is to see if there is a magazine about your niche or topic. You can do this by doing a quick search on Amazon. Also, check to see if there are forums and associations online. If your industry has these types of properties, chances are your clients may be interested in a continuity type product or service.
7. High Ticket Opportunities – can you sell higher ticket items such as coaching, events, working with client’s one-on-one, individual training, etc.
In conclusion, implementing recurring pricing models can literally transform a business. You don’t need to sell nearly as many products or services each month to generate substantial results.