Recurring or Reoccurring Revenue | This blog the first in a series on How to increase your business value with strategic concepts:
Strategic –Recurring or Reoccurring Revenue – Part I
Reoccurring Revenue vs. One Time Sales
Reoccurring or Recurring revenue occurs when a company is able to resell products or services repeatedly to the same customer. If you sell an asset try to sell a consumable product or maintenance contract along with the asset.
Financial projections with a large reoccurring revenue base are more stable and increase the confidence and surety that the revenue will happen.
Who has a Hewlett Packard (HP) printer? How much did you pay for the all-in-one version? (About $150-$200) This printer has many functions: black and white or color copies, shrink or magnify, fax, photo printing, scan, computer Bluetooth interfaces and more. It is a great deal.
About fifteen years ago I paid $10,000 for a laser printer that just printed black and white copies. Compared to this case and price today’s printers are a great deal.
However, how much is an ink cartridge? (About $30-$50) The reoccurring revenue is large and the reason why printer companies do not charge a large amount for the printer itself because they receive the reoccurring revenue.
Another example, how much did you pay for your last cell phone upgrade? ($0 to a few dollars) Why? Because the phone company ties you into a two-year contract and the contracts are like an annuity which provide high-value multiplies for value and a projectable revenue stream.
One CEO of a fitness center explained that she did not have any reoccurring revenue because her customers had to renew a contract every year. Normally the turnover in this industry is 40%-60% per year. Many people join in January as part of a New Year’s Goal, only to quit after a few months.
In contrast to the normal fitness center, her business had a customer renewal rate of 95%!!!! Wow, this is a high-value business that would command a large value multiplier increase over her competitors because of her much better than market reoccurring revenue.
Therefore, work to obtain automatically renewing contracts, consumable products and create a proactive customer service program (Explained later) to raise the customer retention and renewal levels which increase the business revenue, profits and value significantly.
Dale S. Richards specializes in management, marketing, operation optimization & business valuation consulting and is a 25+-year turnaround expert. He has implemented success concepts into results in 150+ companies. Dale is a Certified Valuation Analyst (CVA) with NACVA, a Vistage International CEO-Board Chair in Utah and a World and Vistage International Speaker. Visit www.successbiznow.com to learn more about Dale and business valuation services.
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