As a business owner, you know the work that can go into landing a first-time customer. There’s the initial outreach, emails back and forth, phone calls, meetings, paperwork and so-on. It can cost up to five times as much to attract a new customer than to keep an existing one. However, 44% of companies focus more of their marketing efforts on attracting new business, compared to only 18% that put more effort into customer retention, which doesn’t make sense! With customer retention comes recurring revenue - the portion of a company's revenue that is highly likely to continue month to month, or year to year.
Here are four reasons why recurring revenue is more beneficial:
A recurring revenue model creates a sales team (or business owner) who is naturally inclined to be more relational in their interactions with customers, rather than transactional. In transactional sales, the sales-person or business owner only thinks in terms of a one time sale, whereas, with relational selling, the owner or employees get to know their customers, understand their challenges, and know how they can make a difference. This type of relational selling not only keeps customers happy - and coming back - but it builds a better brand, and a better business reputation in the market.
Monthly recurring revenue is a more predictable, stable business model than one based on stand-alone projects. Fluctuating project-based models mean future cash projection is less certain, which makes planning and budgeting, and even acquiring investment or loans for growth more tricky.
This model is highly scalable. Once the initial effort of winning the customer’s business has been successful, much less time and effort is needed to keep the customer, therefore you can invest in winning new customers in order to grow your business. To reiterate, new business must not come at the expense of losing your existing customers. Remember, it’s much more cost effective to keep your current customers than win new ones.
Eventually, you may decide that you want to sell your business, and its value is usually based on a calculation of revenue or profit. The multiplier for recurring revenue is more than a business that relies on a one time sale therefore it will be valued higher and will be worth more.
Digital service based businesses like GetintheLoop operate on a monthly recurring revenue model. Think of the fixed monthly fee you might pay for a Squarespace website, or Hootsuite account. When a new customer comes on board with GetintheLoop, they pay by credit card, and this is charged every month, in advance until the customer cancels (which isn’t likely as they will be so wowed by GITL, the ROI, and the service they receive!)
The recurring revenue strategy also makes collecting revenue much easier - there are no invoices to be sent and no payments to chase. Say goodbye to awkward debt collection calls!
GetintheLoop isn’t a sell-it-and-forget-it service, however, it also doesn’t need to be “resold” each month because you will have worked hard to overcome the initial barriers that exist in all first time purchases of a new service. E.g. Can I trust this brand? Will I get a return on my investment? Once this has been proven to the customer, it’s much easier to make a second, third, and one hundredth sale to the same customer. It’s not guaranteed, because, well, nothing in life is ever guaranteed, but with much less effort than the initial sell, you’ll be receiving the recurring revenue on a regular basis in no time.