How to Take the Very First Step Toward a Recurring Revenue Model

How to start offering ‘worry-free’ services like extended warranties, service calls, system upgrades and tune-ups … for a non-optional annual fee.

Rich Riehl

Running a business can be a wild ride. One year you’re up, one year you’re down. This year you hire great employees, next year your best guy leaves and starts competing against you. Last year you leased more trucks and space, this year you had to go into more debt to keep the lights on.

Wouldn’t it be great if you could minimize those risks?

The best business advice I ever received came from my CPA in 2008. I had sold off my installation firm and was in the process of launching my new business, BidMagic proposal software. It was an exciting time with lots of new business rolling in.

The future was wide open. As I sat with my CPA he looked up from my financials and surprised me with his firm admonition, “Your new business is off to a good start, but if you want to be successful, you need to establish a recurring revenue model.”

Back then, annual fees for software were not the norm. People expected to simply purchase software once. My initial response was negative. I was worried that sales would suffer at the mention of recurring fees.

The good news is my CPA stood his ground on this. So, I began brainstorming on how I could fit his advice to my type of business. Since my software users needed ongoing tech support and often wanted new features added to the software, I made these the core benefits of the program. For just $199 a year, we would provide unlimited tech support and software updates without additional charge.

Then the kicker: This annual fee is not an option.

It is required to make sure we can deliver these services to you. I began to see this software assurance in a new light, a win-win solution. It became our way of ‘partnering’ with our users to deliver a better experience.

The following month we launched the program and were amazed that only about two percent of our prospects balked at the annual fee requirement. The vast majority understood that we were spending this fee on their behalf to provide quality support and a stream of ongoing new features.

Fast forward to 2016… recurring revenue is now very common for lots of purchases. Adobe and others sell software by the month. Heck, we even pay monthly fees for DVR’s in our home. Now, when our CPA looks at our financials, he smiles when he sees that recurring revenue represents over 30 percent of our total annual income.

Without that simple step of adding recurring revenue, we might have gone out of business. None of our customers would have wanted that.


RELATED: Position your company to take advantage of the cloud service opportunity.


How can you incorporate recurring revenue for your company?

First, create several programs that include ‘worry free’ services like extended warranties, service calls, system upgrades, tune-ups and more. You certainly can offer these as options with most sales like the Best Buy checkout person who always asks, “Do you want to include the extended warranty with your purchase?”

I would recommend a more gutsy approach. Have your contract state that you include a one year warranty with the sale and require an annual fee starting on the year anniversary. How and where you place this info in your proposal is important.

Clearly label all recurring fees. Be confident and realize that your clients already plan to rely on you for these future services. Now, your worry free agreement has that all covered for the next five years and can be extended beyond that.

It’s calming, like owning a timeshare so you don’t have to worry about where you will go for your annual vacations.

If you bill annually, it will not require the burden of processing monthly charges. It is great if you can automatically charge the fee to the client’s credit card. No worries, just email the annual receipt with a thank you.

BidMagic software includes a Tech Calendar that is ideal for recurring service requirements. Techs use iPhones or Android phones to view their assignments, see maps to jobsites and clock in remotely. That makes it easy to schedule regular service a year or more in advance.

Speaking of calendars, don’t wait. Get started today. Your annual revenue income stream can turn even your flat years or bad years into great years!

Author Rich Riehl is the creator of BidMagic Proposal & Project Management software. He has over 30 years of experience with AV systems design and installation. He is a respected columnist and works with integrators daily to assist them with innovative workflow solutions for their businesses. You can reach him at rich@bidmagic.com.