There are many factors, beyond pure financial performance, that impact the salability and value of a business. Some factors have a bigger impact than others. Perhaps none is bigger than the presence of recurring revenue in the business model. Developing recurring revenue is crucial because it helps in stabilizing cash flow, creating customer loyalty, and improves the predictability of growth. All of these give prospective buyers confidence which should translate into a higher valuation.
Here are six ways to that can tweak your business model to provide a recurring revenue stream in your business:
- Subscription services: Offer a product or service that people pay for on a recurring basis, such as a monthly subscription to a meal delivery service or a subscription to an online course. Your existing products/services can probably also be modified to have a recurring element.
- Membership programs: Create a membership program that offers exclusive access to content, services, or discounts.
- Upgrades and add-ons: Offer customers the option to upgrade their current products or services, or add additional features or services for a fee.
- Incentivize Renewals: Encourage customers to renew their subscriptions or contracts by offering incentives or discounts.
- Bundling: Bundle multiple products or services together and offer them at a discounted rate.
- Licensing: License your product or service to other companies or individuals for a recurring fee.
A Great Example – HP Instant Ink
For an example of an organization that turned reoccurring sales into recurring revenue, let’s look at the “HP Instant Ink” program. HP had been in the business of selling printers for decades before launching their toner replacement subscription.
HP would sell you a printer in the old days and hope you would come back and buy your toner cartridges from HP. As cheaper replacement options became available, HP started to lose reoccurring revenue from people who owned HP printers but chose a more affordable alternative to refill their cartridge.
In response, they launched the HP Instant Ink program to solve this problem by offering a toner subscription. HP sends subscribers new toner for their printer each month. You can sign up for a plan based on how many pages you print. If you exceed your page allotment one month, you can top up your account. If you fall short, HP offers to carry over your unused pages. Pricing plans start at $0.99 per month.
How does HP ensure you never run out of toner? They have embedded a reader in their printer’s hardware that sends a message to HP fulfillment when your cartridge dips below a predetermined threshold. Hence, you never run out.
It’s a brilliant little program and gives HP some recurring revenue while driving loyalty to HP printers.
Repeat customers are the lifeblood of any business. If you want to jack up your company’s value, consider ripping a page from HP’s playbook, and turn your reoccurring customers into subscribers.