In the business world, we all have the same basic goal: make money. And then make more of it. While there are a variety of ways to increase your revenue, one that you may not have considered before is to set up a recurring model.
Regardless of whether you offering a product or a service, if you are charging a set price, project fee, or anything that results in just a single payment, you are definitely leaving money on the table.
Picking Up the Cash
To start picking up more of that money off the table, you need to start charging recurring fees. This is a business model that works, for a lot of reasons, including the fact that we all know that the first sale to a customer is the hardest. Once they have your product, or you have performed a service for them, they will have a better understanding of who you are. (Understand that as a trust level.)
So, the first reason to go to a recurring model is that it is much easier to sell. The chase has already been accomplished. People who go to a recurring model already trust you. And when someone goes to a recurring model, the price is immediately cheaper, which helps the customer to feel safer. They also feel good about the purchase, and that they are getting a deal. (After all, who doesn’t love a deal?)
By the Numbers
Take, for example, a product for which you are charging $100, that you then start offering at a recurring price of $10 per month. To the consumer, the first payment is already $90 cheaper! That is a safer and more comfortable amount of money for them to spend. Of course, after 10 months they will have paid $100, and after four years, for example, they will have paid $480. The demand on your service or products actually goes down, with recurring plans.
Still not convinced? Consider gym memberships. At $29 per month, it is a no-brainer to join. But many people are simply in a “set it and forget it” mentality. They join, they pay, and they end up continuing to pay for months and years to come. But they don’t actually use the gym. Gyms actually expect this! Could you imagine if everyone who had a membership actually showed up at the gym? They would never have enough room to accommodate everyone.
But they know, since customers have the comfort of using the resource whenever they want it, that they don’t feel rushed to use it. And, in most cases, a good percentage of people never do end up using it. It is the ultimate mañana syndrome.
Why it Works
There are two main reasons why charging a recurring fee works. The first is that you will end up creating a predictable revenue stream. Sure, some people will cancel or simply stop paying. But, overall, you will know how much money is coming in, each month. And if you know how much you are going to make, you can control your business expenses to make sure you are profitable.
The other main reason is that a recurring fee, especially if you offer a service, encourages efficiency. You are getting paid the same amount every month to do the service you provide, so now your focus is on doing the best job you can, as efficiently as possible. Before, you got paid only for those things that you did, which may have even been on an hourly basis. You were naturally more motivated to find work and maximize your hours. But now your interests are totally aligned with the customer, and you will aim to do it right and to do it quickly.
Any type of business can start a recurring billing program. Shoot, you could have the ultimate consumable – say, ice cream – and turn it into a recurring program. You could charge a monthly fee for premium access to all your new flavors. Only members would get access to the “secret freezer” of new flavors, and they would, of course, be paying you something every month for that privilege.
So get the wheels turning and start working on your recurring model. Meanwhile, I will try to figure out a way to charge you a recurring fee for reading my articles. I kid, I kid (kind of).
Mike Michalowicz is the Author of the business cult-classic, The Toilet Paper Entrepreneur and is a columnist for the Wall Street Journal. Michalowicz has built three multi-million dollar companies, is a frequent expert guest on MSNBC, CNBC, ABC and other television networks, and is a nationally renowned speaker. His website is http://www.ToiletPaperEntrepreneur.comand his book is available at Amazon.com and all major book stores.