Recurring Revenue. Holy Grail or Third Rail?

EAG, February 27, 2017

The recurring kind is the holy grail of revenue for many businesses. It is predictable, stable and can be counted on to continue in the future with a relatively high degree of certainty.

Recurring revenue is paying monthly for a company to monitor and provide preventative maintenance for your computers. A service is calling that company to fix your computers when they go down.

The old marketing adage was to give away the razor, but then sell razor blades to those same customers. Again, that is recurring revenue. Come to think of it, it may be old, but still works given the success of online razor companies like Dollar Shave Club and Harry’s.

Selling an ongoing monthly service (like IT maintenance) or making it your entire business model (like Dollar Shave Club or Netflix) can make sense. It guarantees a certain level of predictable income and can greatly improve your relationship with customers, if done with a service-oriented mindset.

Recurring revenue, for businesses that have implemented successful programs of value, is indeed the holy grail of small business income.

But for some, the holy grail can become the third rail, and when grabbed can give you a deadly shock. Not a literal electrical shock like the third rail in most subway systems, but an equally deadly shock to customer value should recurring revenue cause a decline in satisfaction.

Think about companies, like your cable company or internet service provider, that are notorious for only sending a bill. When all you see is the bill, or worse yet, your checking account debited, you begin to question the value of the service because the only time you hear from them is at billing. On the flip side, you only contact them when something is wrong with the service. They want money. You’re reporting a service problem. Communication is negative at best.

Recurring revenue is a great asset for business, and also a tremendous convenience for customers. However, without careful thought and action, this holy grail can become a third rail.

Companies can enhance the value of their recurring revenue models in some pretty quick and easy ways, such as:

  • Sending an itemized bill or statement with detail. Customers like to know you are working hard on their behalf all month long
  • Creating other communication channels with customers other than monthly bills. A printed or e-newsletter keeps customers connected with features and benefits of services.
  • Providing periodic updates when unusual services are performed. Cable services down? Be proactive and let customers know you are working on it and when it will be fixed.
  • Picking up the phone. Let customers know you are thinking of them and that everything is running fine, as expected.
  • Inserting thank you notices and other updates in your bill. Have fun with them. Take a painful moment (a bill) and turn it into neutral or positive one. Make a customer smile.
  • Not getting the bill wrong. When your services are on autopilot, the least you can do is get it right the first time.
  • Creating interim reports for long-term projects billed monthly, especially on large projects. Never let a customer sit in the dark between invoices. When projects last months, status reports instill confidence.

This year, EAG Advertising & Marketing heeded our own advice. We began sending monthly status reports to clients whose websites we monitor and host. These reports detail uptime, downtime, backups and updates. Though we don’t actually provide the hosting service, we feel it important to show our clients the proactive nature of our website hosting service.

View a sample of EAG’s website status report.

Choose one or several of these ideas to keep your holy grail revenue recurring. This is how to add value to recurring revenue services that can quickly become a third rail of customer-perceived value.

 

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