Income Now, Income Later, or Both
October 22, 2015
All businesses operate with a goal to increase revenues monthly or annually. This can result from better marketing, superior sales efforts, better customer service, new or improved products or services, better economy, decreased competition, move to a new location, etc.
Additional Income Stream
Some businesses increase revenues by adding completely new income streams. This might be finding an underserved market, researching the needs of that market, and determining how to satisfy those needs. These new markets might use the same products or services that a business already sells, or the business might expand its line of products or services for the new target. Finding new market opportunities can be a major factor in the growth of a small business.
Recurring Revenue Stream
Another type of revenue that is often overlooked is built-in recurring revenue. Built-in recurring revenue is not the same as simply having repeat customers or clients that return to a business year after year. Built-in recurring revenue in the context of this article is selling a product or service that not only produces instant, one-time revenue (transactional revenue) but has predictable revenue in the future as a result of the original product or service sold. Examples might be recurring revenue from annual warranties, customer service, memberships, or product or service updates.
A built-in recurring revenue stream for a business is similar to creating a business annuity. Revenue continues to come in monthly or annually rather than relying on only new sales to either existing customers or new customers. This type of built-in recurring revenue has a compound effect on total revenue since new business is added to recurring streams of previously sold products or services. Rather than growing only through new or repeat business, built-in revenue increases results from new business, repeat business, and monthly or annual recurring business.
Small business owners who can think out-of-the box and create built-in recurring revenue in their businesses will have more time and energy to grow the business as opposed to spending all efforts trying to acquire revenue through new or repeat business just to maintain the same levels of monthly or annual revenue.
Of course, there will always be a loss of some loyal customers and some recurring income, but sales to new customers that produce built-in recurring streams of income will continue to offset lost sales. Overall revenue will still increase enhancing business growth rather than growing only through one-time transactional sales.
Starting at Zero
Most businesses start a new month or new year with zero revenue. A business, however, that has a model that produces built-in recurring income never starts a new period with zero income. What a great business model!
Predicting revenue with a certain degree of accuracy because of the built-in recurring revenue makes forecasting cash flow for a small business much easier. In addition to anticipated amounts of new revenue that may or may not meet expectations, built-in recurring revenue produces a known amount of revenue (all or a portion being cash) less any cancellations.
Higher Business Value
A business that has built-in recurring income is worth more than a business that only relies on transactional revenue. So, a business with built-in recurring income not only produces more revenue but also increases the value of the business for its owner, thus making it easier to borrow money or acquire new investors.
A Great Business Model
For many small businesses it is not easy to figure out a business model that produces built-in recurring revenue. Those businesses that do figure out how to produce built-in recurring revenue, however, reap the rewards.