If you are a business owner or are looking to start a business, I’m sure you will have heard about this fantastic business model. In this short article, we will give you a quick rundown of how this model works. We will also provide you with some ideas of how you can create a recurring revenue with software in your business.
What is a Recurring Revenue Business Model?
A Recurring Revenue Business Model is where you have a product or service that generates a regular income. When you attain a client on a recurring revenue product, you will know the exact amount of income you will receive from said client. Plus you will know exactly when it will be received.
Although there will of course by turnover in clientele, generally it’s an extremely stable source of revenue. If your service or product adds real value then you will consistently be able to bring in more new clients than you lose.
What are the Benefits of a Recurring Revenue Business Model
The major Benefits of a Recurring Revenue Business Model are all to do with the fact that the income is consistent, predictable and scalable. That means that once you have set up your product, provided you are adding real value and can generate a steady flow of leads, there will be very little upkeep. You can just sit back and watch the money flow in.
Any business owner employing such a model will reap the following rewards:
- Increased Company Value — any potential investor will give much greater weight to income that is derived from a reoccurring source. If this is in the form of software then you will also be able to show a real asset value on your balance sheet;
- Predictable Forecasting — once you have calculated your churn rate, you will be able to accurately predict your future cash flow. This allows business owners to make much more effective business decisions;
- Save Time — after the initial time outlay to create the product, from there most elements will be automated. This means admin work is significantly reduced, freeing up your time to use as you see fit;
- Builds Brand Loyalty — clients that come onboard typically do so for the long run. This means your client base will be larger and stronger Vs a pay as you go model;
- Greater Upselling Opportunities — you can use your recurring business model as a funnel to upsell your larger one of services, particular after building a loyal customer base.
How do you create a Recurring Revenue with Software?
In my opinion, it’s much more efficient to use software to create a reoccurring source of revenue. That’s because you can leverage the automated nature of software to deliver a product that requires a lot less facetime than non-digital products. This type of service is called Software as a Service (SaaS) and has the following common attributes:
- It is sold on a subscription basis;
- Usually cloud-based, meaning its accessible through your browser;
- Users get instant access (i.e. no download, installation or deployment needed);
- Customisable for each user/account.
To create SaaS software, you must leverage your intellectual property and digitise it. What this means is that you need to harness whatever makes your company unique or sets it apart from competitors and deliver this value through digital means.
I realise this is vague but that’s because every business is different and as such it’s incredibly hard to generalise. Therefore I’d highly recommend that you sit down with partners or a good yech provider and come up with a solid tech strategy. Hopefully, the below will be able to give you some inspiration.
Attributes of a Successful SaaS Product
Not all SaaS products are born equally. That means when you are designing your product you should ensure that they tick most if not all of the boxes below:
- Add Value — this is a mandatory requirement! Your product must add real value to its users beyond what is readily accessible online for free;
- Affordable — the digitised version of your service must be more affordable than the “pay as you go” face to face version;
- Give Users a Trial — you need to lower the barriers to entry and allow users to test your software before purchasing. Some providers will also employ a freemium model, where a slimmed-down version is free for life;
- Easy to Use — another must in my opinion. Using your digitised product must be convenient for your users;
- Update regularly — keep adding value to ensure you have high retention rates;
- Customer Service — at some point something will go wrong so make sure you have a great customer service solution in place (online chat is king);
- Integrations — make sure you integrate with any other software your ideal client will be using;
- Analytics — make sure you remind them of the value you are delivering by showing them analytics of your system working;
- Referral Program — let your raving fans drive new business by building an efficient referral program;
- Affiliate Program — make it easy for partners to onsell your services and ensure you reward them;
- Limited Downtime — finally make sure that the software is stable and reliable!
Ideas for creating a Recurring Revenue with Software?
For the sake of this article, I want to concentrate on ideas that existing businesses could leverage. Remember the idea here is to leverage the skills and expertise that you already possess and turn it into a digital product. Here’s some inspiration:
- DIY Platforms — this is where you already have a consulting or coaching service, where you have created a specialised framework to deliver value to your clients one on one. From there you take this intellectual property and create an online and automated version of your service. Bear in mind it’s more than just a set of educational videos, there needs to be an element of analysis and active guidance built-in;
- Online Tools/Calculators — if you have come up with a set of calculations, formula or a spreadsheet that you deliver to your clients, which in turn gives them a competitive advantage, you can build an online version. Usually, this will involve clients inputting data or linking in analytics and in turn being provided with actionable results;
- Client Portals — this is more about extending your services into another medium for communication. However, these portals are particularly useful if at present you are transferring confidential information via email. Instead, you can build a secure document management system.
- Management Systems — if you core service is managing a project on behalf of a client and you have developed a novel and effective way to do so, you can transform that knowledge into a full SaaS system;
- Education/Support Platforms — this is where you digitise your knowledgebase and create a portal of videos, templates and support services;
- Loyalty Programs — if you have a pay as you go services that customers will repeatedly buy, why not offer them a loyalty program. You can give them discounted services in return for a small monthly retainer, for example.
On top of the above, you could choose to create a completely new digital product or even move into a different industry. There is truly no limit to what a SaaS product could be!