Recurring Revenue via Diversification and Raving Customers
Posted on 17th August 2022 at 11:33
If we want a scalable business that has built-in resilience then the higher the proportion of recurring revenue that we have, the better. And before you dismiss this with a ‘no s#it Sherlock’ there is a big difference between knowing this and really prioritising it.
Firstly let’s clear up a common misunderstanding – there is a big difference between repeat revenue and recurring revenue. Repeat is income that may re-occur at some point, sometimes predictably, sometimes not. Whereas recurring revenue is income that can be relied upon with almost certainty – strictly speaking a model whereby the customer is signed up to regular payments for a product or service that will continue automaticallyunless they actively decide to stop it.
A great way to improve your recurring revenue is through diversification, specifically horizontal diversification. Adding new products or services that are complimentary to your current ones will have a good chance of instantly becoming appealing to your current clients and will give your new clients improved longevity.
In order to create a recurring revenue model it really helps if there is something about the way you do business that is different from your competitors and that customers want. In other words, you have a degree of leverage in the buying decision – you have something in short supply that someone wants. Without this it is much harder to persuade people to sign up to some kind of retainer, whatever it might be.
Also, if we have a really high customer loyalty score, the chances are they will come back for more. Therefore increasing recurring revenue. Increasingly customer satisfaction is not good enough; we need to develop raving fans. This is all about delighting our customers. The degree to which your customers rave about what you do. There is a strong correlation between customer delight and future growth rate – so in other words, customer delight is a good predictor of the likelihood of growth.
Intuitively this makes sense; if we have a really high customer loyalty score, the chances are they will come back for more and are also more likely to refer us to somebody else. So do you really know what your customers think of you?
In our experience most of us do not have a process or habit within the business to regularly track customer experience – we tend to base our views on the occasional testimonial or review. This is backed up by our recent research which highlighted that ‘customer service’ measures only made up 10% of the top reported Key Performance Indicators. Think of it in a way as your customer ‘balance sheet’!
So what do you do, or what can you do, in your business to make customer delight measurement a habit?
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