Recurring Revenue - The Main Key to Improving the Value of your Company

The recurring revenue of your company is one of the most important factors in the valuation of your company. It allows your potential buyer to have confidence that the revenues you have today will be there every year. This is extremely important to the buyer because a target with strong diversified recurring revenue is far less likely to have a significant decrease in revenues over the typical lifetime of the private equity investment period of three to five years. Instead, it can build on its recurring revenue stream to add more recurring revenue and deepen relationships with clients to add more value-added revenue.  If I had to select three key success factors that are crucial to improving your current lifestyle, the ability to live a life of absolute freedom, and the ability to leave a dynastic legacy for your family, recurring revenue would be on that list. This article will explore the different types of recurring revenue models that the target corporation could use to build or create a recurring revenue base. The more recurring revenue we can create the higher the value of the company. The types of recurring revenue platforms are discussed in their hierarchy of value below.

The first type of recurring revenue and the most attractive to buyers is long term contracts for a fixed term. The long-term nature of the contract essentially guarantees a recurring stream of revenue that you can protect into the future with a high level of certainty if the customer is strong financially and operationally. A perfect example of how long-term contracts can create value is the cellular phone industry where customers sign long -term contracts to pay for their phone incrementally over time and to pay for their service plan. The typical three-year life of the contract essentially guarantees the revenue for the duration of the contract. The value of the long-term contract can further be enhanced by the cell phone providers’ ability to retain customers at the conclusion of the contracts.

The second type of recurring revenue is automatic renewal subscriptions. Automatic renewal contracts are renewed on a periodic basis unless the customer takes the affirmative step of cancelling the contract according to its terms. Think of this in terms of your gym membership. You sign a one year contract with an automatic renewal provision that renews automatically unless you give thirty days’ notice that you are terminating the contract. If you have a low rate of terminations historically, this further strengthens the power of your automatic renewal model for developing recurring revenue.

The third type of recurring revenue is the sunk-money renewable subscription. A sunk-money renewal contract generally involves a significant investment in a product and a subscription for using the information. A good example is the Bloomberg model. Traders must expend significant capital to purchase or lease the terminal. However, the terminal has potentially no value unless you are going to subscribe to the data package which automatically renews each year.

The fourth type of recurring revenue is the renewable subscription. The initial subscription period is designed to create significant interest in the product or service so that the customer will be more likely to renew at the expiration of the initial contract. A good example of renewable subscriptions is the magazine industry. In the magazine industry, the customer prepays for a one or multi-year subscription. Prior to the conclusion of the initial term of the subscription, the magazine company will send numerous letters and emails to encourage the customer to renew their subscription for a one or multi-year subscription. If the magazine has high retention rates, this can be a very strong revenue model for the magazine companies.

The fifth type of recurring revenue is sunk-money consumables. Sunk-money consumables typically involve the purchase of a platform product that has essential elements that must be replaced on a frequent basis. The best example of this is the razor industry. Interactions with the razor company generally involve the purchase of a razor platform and some initial razors. The customer is then motivated to continue purchasing razors that conform to the razor platform because of their initial investment.

The sixth type of recurring revenue is consumables. Consumables are disposable items that customers routinely purchase on a regular basis such as toothpaste or shampoo. There is generally no compelling difference between competitor offerings and the company’s offerings, and brand loyalty is the make-or-break factor in purchasing decisions. Consequently, consumer companies spend large amounts on advertising to build brand loyalty so that they generate recurring revenue from their customer base.

The value of your company is the one metric that business leadership teams should focus on every day because that will have the most impact on your current lifestyle pre-retirement, your lifestyle post-retirement, and your dynastic legacy for your family.  A proper analysis of that metric must include the quality of your recurring revenue streams. A strong analysis, plan, and implementation of your recurring revenue strategies will increase the value of your company exponentially.

More Recurring Revenue, More Project Based Revenues, and More Referrals for Consultants and B to B Professionals

Building a successful consulting practice requires the consultant to develop recurring revenue streams, more project based revenues, and a vibrant referral practice. Co-branded peer advisory boards are a perfect means for achieving these goals. A co-branded peer advisory board is a consultant facilitated group of eight to ten business owners that provides the business owners with the advice, structure, and accountability that they need to grow their business. This blog post will cover the top ten reasons to partner with a company that offers co-branded peer advisory boards.

1.       Co-branded peer advisory boards allow the consultant to develop a recurring revenue stream that they can count on and budget for each month.

2.       Co-branded peer advisory boards allow the consultant to develop a revenue model that is not so heavily dependent upon the billable hour.

3.       Co-branded peer advisory boards allow the consultant to develop a revenue model that can form the basis of a saleable business to fund retirement or a legacy for loved ones.

4.       Co-branded peer advisory boards help the consultant to become the most trusted advisor of the business owner participants and the first person they call when they need business advice.

5.       Co-branded peer advisory board meetings inevitably lead to more project based revenues for the consultant as the business owners formulate their strategic plan, identify their obstacles to success, and establish action items to achieve their goals.

6.       Co-branded peer advisory boards allow the consultant to achieve deeper substantive based relationships with their clients.

7.       Co-branded peer advisory boards establish the consultant as a need to know resource in the business community.

8.       Co-branded peer advisory boards lead to more client referrals because the consultant remains top of mind with their clients.

9.       Co-branded peer advisory boards are a proven method for helping clients become more successful.

10.   Co-branded peer advisory boards provide the consultant with actionable intelligence on the problems that are common to their target clients and this provides actionable intelligence that they can use to support their marketing efforts.

I am on the Board of Directors of a company that offers consultants and B to B professionals the opportunity to establish membership based co-branded peer advisory boards. If you would like to take your practice to the next level of sustainability and viability, please email me at bkerrigan@whcpa.com.

Brian Kerrigan

The Two Page Marketing Plan

Target Market (Psychological and Physical Descriptions)

The first item that I like to address in a simple marketing plan is the psychological characteristics of your target market. The psychological characteristics tend to center on the thoughts, needs, mindset, and feelings of the chief decision maker at your target client. If the chief decision maker feels overwhelmed with running a business, they may need someone to help them with a business plan and time management. If the chief decision maker fears a risk related to their business, they may need someone to help them mitigate or eliminate the risk. If the chief decision maker wants to rapidly grow their business, they may need someone to help them with sales, marketing, and business development. In each case, the thoughts, needs, mindset, and feelings of the chief decision maker are driving the purchasing habits of the business. To establish a psychological profile for your target market, it is generally best to solicit advice and input from your current clients on why they work with you. If your business is new, you will have to perform market research to your establish why your target decision makers will want to work with you. This is also sometimes referred to in the sales genre as your target market’s problems or pain points. If you understand what ails your typical client, you can align your messaging as a solution to their problems or pain points. This will be discussed in fuller detail below.

The second item that I like to address in a simple marketing plan is the tangible characteristics of your target market. The tangible characteristics include the level of sales, the number of employees, the lines of revenue, and the ownership structure. The tangible characteristics of your target market help define your target market in a way that allows you to target your marketing efforts more efficiently. If you work with businesses with less than 5M in revenue and less than twenty employees, you are not going to waste any of your marketing energies on multi-national corporations. If you work with multi-national corporations, you are not going to waste your marketing energies on closely held businesses. In each case, the physical characteristics of your ideal client help define the pool of prospects that should be targeted with marketing resources.

Messaging

The third item that I like to address in a simple marketing plan is the messaging that I am going to convey to existing customers, new prospects, and strategic partners. To build a compelling marketing message, it is generally best to tie the messaging to your methodology for meeting the chief decision makers’ psychological needs. If the chief decision maker wants to rapidly grow their business to build a more affluent lifestyle, it is best to focus on how your product or service will help increase revenues or reduce costs and achieve the stated goal of a more affluence. If the chief decision maker wants to protect the value of their business, it is best to focus on how your product or service will help mitigate or eliminate the risk to protect the value. With respect to most consulting businesses, the goal will generally be to increase sales, reduce costs, or reduce risk to achieve a demonstrated rate of return on the decision makers’ investment with respect to the value of the business. For example, more sales, if serviced or produced efficiently, will generally result in more profit and more business value.

Channels

The fourth item that I like to address in a simple marketing plan is the channels that are going to be used to convey your message. Your choices include, but are not limited to, direct contact with prospects in your target market, networking with strategic partners that work in the same target market as you, writing articles that directly speak to the pains and problems of your target market, and public speaking to members of your target market or your pool of strategic partners. Writing and communication with your target may also take the form of blogs that directly speak to your target audience and strategic partners or social media posts that speak to your target audience and strategic partners. If you want the messaging within each channel to be persuasive, you should seek to provide value with each communication. Value will often take the form of providing the target prospect with information that they can apply to their business to create immediate value. In terms of the hierarchy of the various channels, direct contact is generally the most effective method because it allows you to directly communicate with the target prospect without any middle person. Networking is generally the next most effective method because the act of the referral can help build the know, like, and trust factor before any initial communications commence. Writing and speaking are generally next in the hierarchy and each will be more successful if you are directly communicating with decision makers.

Metrics

The fifth item that I like to address in a simple marketing plan is the establishment of metrics. This is just a fancy way of saying that you should track where your prospects, clients, and referrals come from so that you can focus more time on the most effective resources. If you find that direct contact with clients is the most successful channel for you, you want to analyze how you compiled your prospect list, how you successfully moved the prospect down the value funnel, and how you ultimately closed the sale. If you find that 90% of your business comes from referrals (there is a heavy need to establish know, like, and trust up front), you want to analyze who is referring business to you, how you can find more of your ideal strategic partners, and how you can continue to provide value to your best referral partners.

Conclusion

The primary goal of this post is to help business owners develop a simple marketing plan that they can implement in their business in a short period of time. As the business becomes more complex, there may be additional items that need to be considered. But, this outline provides you with the basic elements of an effective marketing structure. If you would like to discuss how you can incorporate these principles into your business, please email me at bkerrigan@whcpa.com or call me at 774-306-6135.

Brian Kerrigan

Explosive Professional Services Growth

If you want to achieve explosive organic growth in a professional services firm, you need to think outside the box and be creative with your approach. This blog post will provide some recommendations for taking your business development efforts to the next level.

Additional Service Offerings

1.       Provide value added business consulting services for your current client base and prospects to increase value to existing clients, retain existing clients, acquire new clients, and to differentiate yourself from your competitors. At this point, you are most likely providing the services that you have always provided with very little value based consulting. If you stay on this course, your services are likely to become a commodity and the business will go to the low bidder in the competitive marketplace. Incorporating value added business consulting services will help you provide increased value to retain your current clients, out-perform your competitors, and acquire new business.

2.       Provide personalized business coaching services to help your current clients grow the value of their business. Your clients are looking for more than the service that you currently provide. They are looking for true strategic advisors that provide them with advice that will help them grow and protect the profits of their business. Meeting with clients on a monthly basis to help them create sound strategic plans, dynamic marketing plans, and to address business issues will allow them to build the foundation for greater profits.

3.       Provide group seminars focused on increasing sales, profits, and reducing the risks of running the business for your clients and prospects. Clients are sometimes dissuaded by the hourly costs associated with individualized consulting or coaching. One way to make this more economical for clients is to offer group seminars. You can use internal personnel to provide the seminar if the expertise is available or you can draw speakers from the business community that you operate in. In either case, group seminars provide the potential of new revenue streams for you and new value for clients.

4.       Provide an in-sourced or outsourced membership program that provides clients with a package of training, consulting, and business resources. Clients are often reluctant to throw a pile of consulting money at each particular issue that they have because the costs would add up quickly. But, if you are able to package marketing services, webinars, and a business hotline, you could create additional recurring revenue for the firm and additional value for clients.

5.    Provide peer advisory boards for clients and prospects of the firm. Peer advisory boards are a powerful business growth tool because they allow your business owner clients to tap the expertise of the facilitator and all of the business owners in the group to deal with the unique challenges of running a business. From your perspective, peer advisory are a powerful tool because they help you generate more recurring revenue, more project revenue, and they give you a window into the pains and problems of your client base. This intelligence will be extremely beneficial when marketing to current clients and new prospects.

Marketing Communications

1.       Remind your clients and prospects about what makes you different than your competitors. Your competitors will most likely be saying that they are experienced and that they provide high quality services. This only satisfies the bare minimum expectation of the client and it is not very persuasive. You should focus on how you provide differentiated value for your clients and prospects.

2.       Speak in the vocabulary of benefits. A business owner that hires an attorney to draft a contract is not buying the contract. Instead, they are buying protection from lawsuits in the future and an easier path to the collection of a receivable. It is not very persuasive to tell clients that you draft contracts. It is very persuasive to say that you help assure the collectability of receivables and protect the profits of the business.

3.       Fully understand the pains and problems faced by your clients on a daily basis. Every business is established to solve some pain or problem faced by its clients. As you provide more substantive business consulting services, you will have a window into the most pressing issues facing your client base. A thorough understanding of the pains and problems faced by your clients will help you tailor your services and your marketing messaging to your client’s needs.

4.       Speak about your clients instead of yourself. The first mistake that most professionals make in marketing is that they talk about their expertise, their experience, and their qualifications. Clients do not particularly care about your expertise, experience, and qualifications. They are simply looking for positive outcomes related to business issues that they are facing. So, take the focus off you and put it on your clients.

5.       You need to be comfortable with the fact that the client is buying results. There is nothing inherently valuable about providing or receiving a service. The value is in the result that you achieve. A good example is a client that hires an attorney to help him sell his business. The attorney must inform the client of the potential risks of the transaction. But, the client will be more interested in hearing your plans for resolving the risk in their favor as opposed to a list of potential risks. A good business person know that there is risk in every transaction. So, they will take steps (such as hiring an attorney) to reduce their risks to a much lower level.

Marketing Channels

1.       You need a website that is interactive rather than an online brochure. Most professional service firms offer the brochure version of the website. The problem with the brochure version is that once you have read the brochure, there is no reason to visit the website in the future. A dynamic website provides a continuous stream of information that will help clients increase the value of their business. It also provides more continuous exposure for your business through value creating interactions with clients.

2.       You should develop content marketing that speaks to your ideal clients, customers, and prospects. Your content marketing should identify the pains and problems faced by them and it should provide them with enough information to help them begin to identify the pains and problems in their organization and motivate them to seek out solutions.

3.       You should interact with current clients and prospects via email on a regular basis. It is extremely important that you provide timely and relevant information to your clients because they are definitely receiving something from your competitors. With an email campaign, you can control the message and the value that your clients are receiving to buttress the marketing noise in the marketplace. In most cases, the competition will be talking about themselves rather than the clients. You will look all the more desirable if you talk about your clients and demonstrate your benefits through thoughtful content.

4.       Social Selling is probably a misnomer. Social selling seems to imply that you should pick your favorite social platform and start broadcasting your marketing messages to all of your connections. This is the exact opposite of what you should do. Social selling is about establishing relationships through the lens of being viewed as a thought leader in the business community. Your posts and your messages to connections should provide them with some immediate value that they can apply to their business so that you can become known as a person of value.

5.       You need to establish a core network of 15-20 complimentary business professionals and stay in contact with them on a regular basis. Sales people often lament that networking is not working for them. When you press them further, you find that they spit up their value proposition on every person that they meet, they do not follow up to establish true networking relationships, and they do not provide any value that would deepen the relationship. Your goal is to be the polar opposite of this type of networker.

This information may seem a bit overwhelming at first blush. But, we have the ability to help you break it down into workable pieces so that you can establish a world class business development system that hits on all the essential items. If you would like to discuss this post further, please feel free to message me via LinkedIn. I review all emails and I accept all reasonable invitations to connect.

Brian Kerrigan