What Is Better Than Income Today?
October 22, 2019
All businesses operate with a goal to increase revenue. The goal might be monthly, annually, or both. With a plan in place and proper execution, the revenue increases can result from better marketing, superior sales efforts, better customer service, higher demand, new or improved products or services, stronger economy, decreased competition, relocation, etc.
Although a business might have revenue projections for the future, the emphasis frequently is about current income...today’s income. In other words, what can be done to make a sale today with currently available products or services without really thinking about tomorrow’s sales until tomorrow actually comes.
Some businesses take a more proactive approach regarding increasing revenue by adding 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 or diversity its line of products or services for the new target market. Finding new market opportunities can be a major factor in the growth of a small business or SME.
Even with the approach of adding an additional income stream, this still narrows the focus of increased revenues to “today’s” sales. Perhaps, instead of one target market or one line of business, the company expands its scope that targets, maybe, two markets with, perhaps, two or more lines of business products or services. The emphasis, however, is still focused on today’s sales.
A different thought process to increase revenue is a more forward-thinking approach that is often overlooked. This is built-in recurring revenue, which is not the same as simply having repeat customers or clients repeat their buying experience at regular or irregular intervals. Built-in recurring revenue 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 monthly or annual warranties, service work, memberships, or product/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 individual sales to either existing customers or new customers. 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 one-time sales of new or repeat business, built-in revenue results from a “business annuity” that is created from both new business and repeat business.
Small business/SME owners who think differently and can create built-in recurring revenue will see monthly and annual revenue increases. Although the increase might be slow at first, eventually sales will show improvement when “today’s” sales are combined with “tomorrow’s” sales.
In business, there will always be a loss of some loyal customers and some recurring income for a variety of reasons, but overall sales to new customers that produce built-in recurring streams of income will continue to offset lost sales. Generally, total revenue will still increase enhancing business growth rather than only growing via 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, in effect, never starts a new period with zero income since a known quantity of income will soon be arriving. What a great business model to have!
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, built-in recurring revenue produces a known amount of revenue.
Higher Business Value
A business that has built-in recurring income is worth more than a business that only relies on one-time transactional revenues. Therefore, a business with built-in recurring income not only produces more revenue but also increases the value of the business for its owner.
What Is Better Than Income Today?
For many small businesses and SMEs, it is not easy to figure out a business model that produces built-in recurring revenue. Businesses, however, that do figure out how to produce built-in recurring revenue reap the rewards. Think about “today’s” income but don’t forget about what “tomorrow’s” income might be.