The Trick to Massive Recurring Revenue

Jun 29, 2018

We are often asked about the best way to create a sustainable business; one that keeps cash flowing in despite market changes and economic pressures. While there is no easy answer to this question and every situation is unique, perhaps the most important thing a business can do to ensure long-term success is to center its business model around massive recurring revenue. But recurring revenue can mean many different things, and there are some tricks that can further maximize your recurring revenue.

To illustrate this point, take a look at some of the world’s most successful, billion-dollar corporations. Amazon, for instance, has seen its success skyrocket following the introduction of Amazon Prime memberships in 2005. Amazon was already successful before the advent of Prime, but the introduction of this recurrent, preferred-customers-only service helped take the company to the next level.

In the 13 years since the Prime program was introduced, Amazon has seen more than 100 million users sign up for the $100/year service. That is a LOT of recurring revenue. Sure, Amazon might lose a few pennies on shipping up front, but by offering this sort of “premium” membership, Amazon has not only created consistent, massive recurring revenue, but has actually changed their customers behavior.

Amazon Prime customers pay for their membership upfront and therefore are eager to “get their money back” by purchasing a bigger and broader array of products from Amazon. With free shipping and a $100 investment to recover, Prime customers go well beyond buying only the occasional item from Amazon, and now get everything from tires to turtlenecks from the e-tailer. According to TIME, the average Prime customer now spends $1,224 per year with Amazon vs. the average non-Prime customer who spends just $505. In other words, Prime customers spend almost three times more per year than non-members.

You can apply this model to your business as well. Offering premium subscriptions to your best customers is an incredible way to set your company up for success with stable, reliable recurring revenue, and it has the additional benefit of creating loyalty with your customers who feel like VIPs.

Many businesses have some sort of loyalty program (buy nine sandwiches and the tenth is on us or get five hairs cuts and the sixth is free). The difference with Amazon Prime is they are charging customers to sign up for their special club and the fact that customers pay to join changes their buying behavior to want to recover their membership fee.

If you want your company to withstand all the unknowns of today’s marketplace, a strategy like this can go a long way. So, we urge you to identify your best customers, and go about inviting them to join a special program with special benefits. The recurring revenue will turn your best customers into even better customers, leaving your business with a reliable cash flow every month.