In these grim economic times, small businesspeople are forced to come up with new ideas for their businesses.
One idea that interested me was that of a small catering business supplying industrial and commercial canteens and restaurants. With income cut off, the owner repurposed her business to cater for consumers and quickly got on radio to promote her new offering.
When you look at it you think that this is very innovative. It is but take a deeper look and you can see that it provides a bigger business-to-consumer market with many small transactions compared to the business-to-business market she had before (and will regain after things improve).
The most powerful idea that is allowing businesspeople to live like kings during this period is an old one. No, it’s not compound interest, which Einstein described in this way, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” It is something that has also been around for a long time and is so basic that it is not lauded enough for its power.
During lockdowns businesses who have this business model are virtually unscathed.
These are just a few of the areas that have the business model – health insurance, car insurance, banking, property management, internet services, data providers, web hosting, vehicle tracking and even security.
Digital services suppliers got into it early in the game, providing software rental. Cellphone app businesses now use it as the preferred revenue model. Even the smallest app outfits. So do internet storage companies, some so big they are listed on the New York stock exchange.
Small businesses benefit too from the revenue model. Think of home schooling, personal trainers and coaches, art teachers, sewing teachers, garden maintenance service operators, newsletter publishers (you may think print newsletters are dead but some sharp marketers are selling monthly subscriptions at high prices), second property owners and even restaurants who have contracts to supply hotels, for instance.
Recurring revenue whether in the form of a monthly, quarterly or annual contract, is essentially annuity income. In essence, recurring revenue from service agreements amounts to a fixed sum of money coming into your banking account every month, quarter or year.
Customer acquisition costs go down because you only need to secure a relatively small number of customers and you have a sizeable revenue. In other words, unlike product suppliers, you don’t have to keep attracting new customers every day of the year.
How do you find sources of recurring income for your business no matter how small?
Think of any service you can offer on a fixed term agreement. It doesn’t matter if you are a product supplier. Take time to consider how you can give people a service that will help them to have peace of mind, grow as individuals, equip them for work, show them how to do things they want to do.
For example a small computer shop can offer customers a service contract for a certain number of call-outs per month (these “call outs” if it’s about software, can be done online), a personal coach can offer a fixed number of hours coaching per month and even a small home baker can provide a monthly supply of products to a retail confectionery outlet.
For small businesses recurring sources of income can come from a membership program, Software as a Service (SaaS), service retainers or sunk money subscriptions (access to a platform or for consumables (eg. when a customer buys a printer or even a fancy coffee machine they need consumables).
As a parting thought I came across a small business owner who started out buying properties to rent and slowly built up 19 properties. Now with all that recurring income, he is developing and building other businesses.
Recurring income is democratic – it’s open to all. Anyone who can offer value in whatever form to other people can participate.