While some of us derive great satisfaction from the role our business plays in the community, the services we offer our clients, and the rewards of having built a successful business from scratch, we’re all – at the end of the day – concerned about growing our company’s revenue. In order to keep the lights on and pay the staff, we have to bring in money, and it seems like we need a little more if it each year. One of the most effective methods I’ve found for managing and increasing revenue is by converting customers to a recurring fee plan.
Here’s how it works:
Say you’re in the office equipment repair business. Your average visit costs $200, and you visit each of your customers an average of twice per year, for a total of about $400 annual revenue per client per year. If you were to offer an annual service plan, billed at $40 per month, you would be providing a solution that benefits both your company and your clients. You give your clients predictable expenses, alleviating the stress of funding the entire cost of a repair all at once. You get the benefit of predictable revenue. You can count on the monthly payment and bridge the gap that slow months can create, and at the end of the year, you’ve brought in $480 per client, increasing your overall revenue.
Makes sense, right? Now here’s why it works:
In addition to establishing consistent expenses and income, there’s another key benefit. Once you’re no longer billing for the service itself, you have new motivation to operate as efficiently as possible. Your new goal won’t be increasing billable hours, but will be doing every job quickly and properly. You know that poor quality work will end up costing you more in the long run, so you provide the best service possible the first time.
Skeptical about your customers’ willingness to commit to a contract? Think about gym memberships. Millions of people pay $29 monthly for a gym membership they seldom use. They sign up (usually in January,) go regularly for a little while, and by the time they stop using the gym, they’re so used to the monthly debit that they don’t even notice it. Sure, some members will cancel, but others will not. Once your clients are used to the monthly premium, they will cease to think about it. You’ve gotten them accustomed to a steady-as-she-goes expense that lands in your bank account each month.
Think that your business won’t support a recurring fee structure? Think again! Nearly every business has an aspect that can be transformed into a regular fee cycle. If you own a candy shop, you can sell monthly subscriptions with seasonal offerings available exclusively to your subscribers. They get special treats, and you get regular revenue. Own a bookstore? Offer an annual reader rewards card with a modest fee that entitles customers to exclusive events and special discounts. Challenging yourself to find ways to reward customers for committing to you in the form of a recurring fee can – if managed properly – yield both steady income and consumer loyalty: a magical combination.Tags: Accounting, Customer service, Finance, Growth, Mondays with Mike, Money Management