Recurring Revenue

Hewlett Packard’s latest printers all come with the offer of ‘Instant Ink’, a subscription service through which Ink Cartridges are ordered by your printer itself so that you never run out of ink. The service is sold on the basis that ink bought this way is 70% cheaper than buying cartridges as you need them. Great recurring revenue!

Hewlett Packard also make it difficult to use third party cartridges as the printer can detect whether the cartridge in use is genuine or not. The warning is clear, you printer may not work properly if it doesn’t have genuine Hewlett Packard.

This is a great example of how to generate recurring revenue. Hewlett Packard are effectively a printer ink business that happens to also sell the means of deploying the ink.

Generating recurring revenue is one of the most important ways of adding value to a business and of securing it’s future; it is ‘magic’ revenue that doesn’t need selling.

Recurring revenue is predictable, sustainable and reduces the stress on a business. The good news is that it is accessible to all businesses even those where, at first glance, it might appear unlikely.

With a little understanding of the different types of recurring revenue and a bit of creative thinking, all businesses can secure an element of recurring revenue.

Recurring revenue models are all about creating situations where customers have to actively decide to buy elsewhere. If your product is the type of thing that is only bought once think about how it is serviced or the consumables it requires. Make it easy, as Hewlett Packard do, for your customers to keep coming back for servicing and consumables and they will.

Consider how sales might be converted into subscriptions. Even though these models might delay cash receipts the predictability of revenue and the likelihood of repeat sales is very valuable, particularly if the subscription is automatically renewed.

Long-term supply contracts can create predictability from the nature of the customer’s business and essentially transfer the sales burden to the customer. For example, we were recently involved in a niche, window replacement and repair business selling to home owners. People only replace windows once or twice in a lifetime. Builders on the other hand replace and install windows every week so a contract to supply a builder creates a recurring revenue stream where perhaps it initially seems impossible.

Many businesses spend a lot of time starting from £Nil sales at the beginning of each month and consider it to be the way of their world. Businesses that build recurring revenue streams build a platform for the future and the good news is that everyone can do it!

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