The Quest for Recurring Revenue

Recurring revenue is the current Holy Grail of business. Barriers to Entry, a traditional way of assessing your differentiation against competition, have been replaced by Barriers to Exit, how to make it at least inconvenient or at most excruciatingly painful for your customer to leave you.

In John Warrillow’s new book The Automatic Customer, he describes nine methods for converting almost any business to a subscription model. His logic (and it is very sound) is that recurring revenue is more attractive to any business buyer, and garners higher valuations for the company.

Some of these have been around for a long time. His Consumables Model example is Dollar Shave Club. That’s clearly an Internet updating of the strategy Proctor and Gamble’s Gillette has employed for over 100 years. Sell a customer a razor at low margin, and make it up on the long-term blade purchases. (In fact, you can now join the Gillette Shave Club.)

We probably were most awakened to the possibilities of web subscription by the conversion to Software As A Service (SAAS). When was the last time you went to Best Buy or Office Depot to buy a box of software?

Also, Millennials (now about half the workforce) and GenXers have been raised on the concept of “buy now, pay as you use it.”  Their college educations, cars, furnishings, electronics, vacations and clothing are bought on credit and paid for in installments. There is a certain logic in applying the concept almost universally. A pay check today is valued by the number of payments it can cover.

John’s other models all lean, in part or entirely, on using the World Wide Web to collect and serve customers. Some of his models are “pure” web plays, and some use web-based subscription to improve service, offer a special deal, or move a customer into a select group. Amazon Prime is probably the best-know example of a retailer who has successfully implemented subscription selling.

What if you are a business owner who doesn’t see a web-based subscription opportunity? Commercial contractors, restaurants and grocery stores all come to mind. Each could probably devise some recurring revenue model (follow up inspection of buildings, dinner reservation priority, milk/bread/eggs delivered regularly) but there is a real question as to whether the cost of implementation would produce a return.

Every business should consider a strategy for creating recurring customers. If one doesn’t occur to you, however, repeat customers are the next best thing. Doing the job right, charging fairly and standing behind your product still counts. That’s true whether they buy via subscription or not.