I have some bad news: chances are, you’re not a psychic. Even so – can you accurately predict your small business’ cash flow for the next month? The next six months? You’d be surprised – even with good sales forecasting and inventory management, many small business models essentially go from sale to sale, vulnerable to swings in customer attitudes, market conditions, and the like. This is what makes access to flexible merchant financing so important for many businesses – as your sales cycle changes, you can retain the cash you need for inventory, operating expenses and improvements. However, a recurring revenue model will go a long way to easing the unpredictability of your business as well.
What is recurring revenue? Put simply, it is the ability to generate value repeatedly and periodically over the mid- to long-term from a single sale.
Here’s an example: I’m a small batch coffee roaster. I could sell my customer a bag of coffee and make a certain profit from that sale, but there’s no guarantee that they will come back for another bag once they’ve exhausted their supply – something I depend on, given the relatively tight margins my business operates under. But now, being a savvy businessperson, I offer my customers the chance to subscribe to a monthly delivery of fresh coffee in their mailbox at home, at a rate that offers a discount relative to the equivalent individual purchases. Bam! I have now established a recurring revenue stream. I can now count on moving a certain amount of inventory and earning a certain revenue each month.
Recurring revenue streams take a bit of extra time and investment to set up, but they can be worth it for many small businesses in the long run. Predictability of cash flow will allow you to focus more of your time and energy on optimizing your quality and customer service, the “intangibles” that make you attractive and generate word of mouth about your business.
Aside from ever-popular subscription models, there are other ways to create recurring revenue for your small business. If you sell products, add a service component to your model. Create a value-add, like access to unique resources, on-demand support, or supplemental maintenance. The only limit is your creativity and your desire to go “above and beyond” in the eyes of your customers!
That last point is crucial: a successful recurring revenue model isn’t about repeatedly pushing products at your customers, it’s about offering them something that they can get from you and you alone, making their experience better, and make their lives easier through an ingenious solution to a problem they might have. Recurring revenue is not a ticket to set-and-forget profitmaking: it requires attention and care, but it will likely be worth its weight in gold if you can create it.