Turn customers into subscribers to drive company value
In month five of our Value Builder Mastermind, we will work on strategies for creating “automatic customers” — increasing the number and quality of recurring revenue streams flowing into your business.
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Many people confuse re-occurring and recurring revenue, but one is far more valuable than the other. The first is transactional, the second … automatic.
Re-occurring Revenue
Re-occurring revenue comes from customers with a consistent need for your products, but their purchases are unpredictable. For instance, a family-owned bakery sees customers returning for fresh bread and pastries whenever they run low.
Recurring Revenue
In contrast, recurring revenue is generated from customers who buy on a predictable, automatic schedule, such as through subscriptions. The same bakery might recognize that some customers come in every weekend for sourdough. By offering a subscription service for weekly deliveries, the bakery ensures repeat sales without requiring customers to make a special trip.
While both re-occurring and recurring revenue positively impact your business's value, recurring revenue is significantly more beneficial. Consider the Amazon Prime subscription that the majority of US consumers enjoy. While we save on shipping costs, it is estimated that we spend double the amount with Amazon that non-members spend annually.
Third Generation Smith Family Florist
Here’s a fictional case study to illustrate the point. For three generations, the Smith Family Florist, a small family-owned business operating in the heart of a busy city, relied on re-occurring revenue from customers purchasing flowers for special occasions, like Mother’s Day. When the next generation took over, they introduced a subscription service for premium floral arrangements that are highly desired by hospitality businesses—specifically hotels and restaurants—in their delivery area. This shift transformed their revenue model, leading to increased predictable income and enhanced customer loyalty. They could also now accurately predict the quantity of premium blooms needed, and could adjust their buying practices to minimize spoilage, creating cost savings.
To convert re-occurring revenue into recurring revenue:
Start by segmenting your customers that buy on a re-occurring basis. Group them by what they have in common (ie: by industry, demographics, psychographics, etc.) Niche down as far as you can.
Look for a niche whose buying cycle is relatively predictable. Explore why they buy so frequently—what is their underlying need?
Design an offer for that group that makes it more convenient for them to buy on a subscription or service contract rather than on a transactional business model.
Develop three compelling reasons for them to subscribe and turn your marketing team loose.
For example, the Smith Family Florist could highlight that subscribing means 1) convenience–no need for busy hotel or restaurant managers to personally visit the shop, 2) access to premium blooms that are exclusive to subscribers, and 3) expense management–guaranteed pricing for the length of the subscription.
Our Value Builder Mastermind Groups provide monthly small group workshops on topics just like these. Designed specifically for exiting business owners and those who will succeed them, Value Builder ensures your family business is growing and stable as that next generation takes over. The workshops build confidence as new leaders begin to think strategically while growing a network of family business peers who face similar challenges.
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John Warrillow, the founder of The Value Builder System and the author of Built to Sell: Creating a Business That Can Thrive Without You, discusses Recurring Revenue, one of the eight key drivers of company value. BossCoach is a certified Value Builder company, applying its principles to family businesses anticipating a generational transition.
