We have had an unpredictable year, to say the least. It was not just COVID-19 but the reaction to it that turned things upside down for businesses small and large. A business trend that had been emerging before 2020 and its happenings but was certainly boosted by them is the recurring income business model. Businesses have been moving away from once of payments and moving towards regular recurring income. App makers for example have moved to a subscription model, the biggest of these being Microsoft who have started the shift from outright Microsoft Office purchases to Office 365 and the annual subscription model. So how can you utilise this thinking in your business?
Why recurring income?
The reason I weaved the surprises that 2020 brought with it into the introduction was to illustrate just how much things can change. 2020 will forever be a great reminder that change is indeed constant. Unpredictable times can be managed through predictable income. Predictable income provides a somewhat known outcome going forward. I used technology examples to illustrate the shift but the industry which best illustrates the advantages of recurring income are insurance companies. From your relatively small monthly insurance payments, they can not only afford to cover when something happens but also own three-quarters of your country in the process. The other advantage of recurring income is that it is pretty much passive income. So let’s look at the different types of recurring income ideas you can employ.
Membership programs can be used in different ways. A traditional application is something like a gym. You simply pay a recurring amount for access to the gym, the product. However, that is not the only application of them. Ride-hailing and food delivery company Uber (and Uber Eats) rolled out a membership plan which for the price of 6 or 7 food deliveries allows the user unlimited free deliveries all month and sweetens the deal by giving 10% discount on all rides. Membership is very effective but must be carefully thought out.
Subscription packs work well with both goods and services but we will focus on goods. The subscription pack is simple, you pay a fixed monthly amount and receive a usually fixed pack of items. This has been applied to groceries, meat, vegetables, alcoholic beverages, sanitary products, cosmetics and so much more. Of course for this to work the deal must be worth it, so the subscription pack works best when you leverage the predictability of customer demand and use that to pass on extra value to the customers. I’ve seen nail parlours employ this concept effectively too.
Software as a Service (SaaS)
This is the reason I excluded services from subscription pack though they fit right in there. While there is a lot of free software out there the applications and programs that really bring joy or productivity require a little bit of money. Application developers moved away from the lifetime purchase to either advert revenue or subscription model. At the end of it’s all about value and enthusiasts will pay for good value in their domains. Do not expect every cousin of yours to want to pay for your video editing app. SaaS has also turned to use the freemium model allowing users to access a bare-bones version and pay extra to access value-added features.
This is really sweet money but depends on the product and your selling ability. Here’s the thing, service plans work best (for you) when they are not needed. For the customer, they offer peace of mind and can be very useful with complex products. A really smart example of one is a web development business that includes support into the initial pricing of the product for the first year. After the first year, they charge a retainer fee. The beauty in this is that unless the websites have glaring errors in them there is little to no trouble for the business but if disaster should ever strike the customer need not ask around or make things worse by attempting to fix it. This idea has been applied to cars where service is more of a certainty than a possibility.
All you can eat
Now the name “all you can eat” suggests food and while it works there too it is a basic subscription model that allows users unlimited access. Netflix, Spotify, Apple Music and DSTv are good examples of this. While DSTv is not quite an on-demand model like the others you can see the thinking here. Pay a reasonable amount of money for a huge library of content but you can only enjoy this content one item at a time. According to www.thetimes.co.uk Netflix has 32600 hours of content and is spending money on adding more (some of it simply buying old classic shows which come cheaper than new content). There are 8760 hours in a year so if for some reason you decided to abandon all other activities including sleep you would need close to 4 years to finish current content and there will be new content by then. Remember how the library worked with books? That’s it!
You can look for ways to apply these ideas to your business or in new businesses altogether. Human beings are creatures of habit and once settled into one it is hard to move them. If that habit is putting extra money in your pocket every month, your future will certainly look bright.