• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer
  • Home
  • About
  • Contact

Daily Business Magazine

A magazine complement to the Daily Business website

  • Life, Arts & Leisure
    • Creative
    • Festival
      • Festival Reviews
    • Film
    • Food & Drink
    • Stage Shows
    • Life
    • Leisure
      • Rio Recommends – dog walks and cafes
    • Homes
    • Style
    • Travel
  • Opinion
    • Bill Magee
    • Craig Alexander Rattray
    • Karen Harvie
    • Keith Anderson
    • Russell Dalgleish
    • Terry Murden
  • Interviews
  • Notebook
  • Working Life
    • Careers & Management
    • Finance and legal
    • Technology
      • Tech Talk
    • Well Being
  • Daily Business News
    • All Content

Recurring revenue gives visibility to sales

June 21, 2021 by Craig Alexander Rattray Leave a Comment

Craig Alexander Rattray

There are numerous benefits from a predictable monthly income, says CRAIG ALEXANDER RATTRAY


As a business owner, do you start every month with no clear visibility of your sales? Do you start every month at zero? If so, you are not alone as many businesses operate amidst that uncertainty. In my last article I wrote about the eight key drivers of business value and one of the most overlooked, yet easiest to implement, is recurring revenue.

What is recurring revenue? Investopedia defines it as “the portion of a company’s revenue that is expected to continue in the future.  Unlike one-off sales, these revenues are predictable, stable and can be counted on to occur at regular intervals going forward with a relatively high degree of certainty.”

Basically, think of it as a regular and consistent stream of revenue from ongoing customers who pay weekly, monthly or annually.  Most of us as consumers have a variety of regular payments that come out of our bank account every month without us giving much thought to it.

The attraction of recurring revenue is that it not only provides greater certainty of trading, performance and cash flow, but because of this, it increases the value of a company.

Why? One of the biggest factors in determining the value of a company is the extent to which visibility of future sales can be seen.

The attraction of recurring revenue to acquirers and investors is this predictability and stability both from an operational and financial perspective. 

This reduces risk too and clearly makes a company more desirable due to the quality of these earnings.

Many businesses believe that it does not apply to them, but I can guarantee that any business should be able to find one of the six types of recurring revenue models that they can implement in their business.

The six types of recurring revenue are listed below from least valuable to most valuable:

No. 6: Consumables (e.g., shampoo, toothpaste)

These are disposable items that customers purchase regularly, but they often are not motivated to repurchase from one seller or to be brand loyal.

No. 5: Sunk-money consumables (e.g., razor blades or printer cartridges)

This is where the customer first makes an investment in a platform.  For example, once you buy a razor or a printer you are generally locked into buying compatible blades and cartridges.

No. 4: Renewable subscriptions (e.g., Netflix, Office365)

Typically, subscriptions are paid for in advance, creating a positive cash-flow cycle.  This can have huge advantages for a company’s cash flow especially where annual subscriptions are paid in advance.

No. 3: Sunk-money renewable subscriptions (e.g., the Bloomberg Terminal)

Many traders and money managers use a Bloomberg Terminal throughout every working day, and they must first buy or lease the terminal in order to subscribe to Bloomberg’s financial information.

No. 2: Automatic-renewal subscriptions (e.g., document storage)

When you store documents, you are automatically charged a fee each month as long as you continue to use the service.

No. 1: Contracts (e.g., mobile phones)

As much as we may despise being tied to them, mobile telephone companies have mastered the art of recurring revenue.  Most provide customers with free phones in an attempt to lock them into a two or three-year contract.  We know this works well.

So, how do you find a recurring revenue stream for your business?

Review the six types of recurring revenue and think of the products and services you provide.  Think of your customer base and how regularly they buy from you.

Create an offer and a model that encourages and incentives customers to stay with you, purchase regularly and never think twice about your competitors.

Make it seamless so that the customer does not even think about the payment coming out of their bank account every month as they receive so much value or something they need every month.

As I said, I can guarantee that every business can implement one of these.

Do it today.

Not only will it increase your certainty, cash flow and company value, it will mean that you don’t start next month at zero.

Craig Alexander Rattray’s column on issues affecting owner managers appears on alternate Mondays

References:

Craig Alexander Rattray

CR Corporate Solutions

excolo33.com


> Latest Daily Business news

Share this:

  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)

Related

Filed Under: Craig Alexander Rattray, Working Life Tagged With: Craig Alexander Rattray, recurring revenue

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Primary Sidebar



Editor’s Pick

Angus Grossart

Obituary: Sir Angus Grossart

Terry Murden

… [More...] about Obituary: Sir Angus Grossart

Terry Murden

Late call to replace Lord Smith | SNIB and the bottle bank

Terry Murden

… [More...] about Late call to replace Lord Smith | SNIB and the bottle bank

Edinburgh-Park-Tapestry-with-Celia-Joicey-Director-Dovecot-Studios

Weaving culture into Edinburgh’s office life

Julena Drumi

… [More...] about Weaving culture into Edinburgh’s office life

Bill Magee

Tech beasts unlikely to be tamed by safety crackdown

Bill Magee

… [More...] about Tech beasts unlikely to be tamed by safety crackdown

Advertising



Footer

  • All Content
  • Site Map
  • Privacy Policy
  • Facebook
  • Twitter
  • Instagram
  • Email
  • LinkedIn
  • WordPress

Copyright © 2022 · Design by jPAD Consulting · Magazine Pro · Genesis Framework

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT
 

Loading Comments...