Anyone who knows anything about me and my work will know that I am all about helping people find their way to financial security in their businesses … and a big part of doing that, is by helping them find ways to adopt a pricing strategy that is based on the monthly recurring revenue model (MRR).
Why? Because a business needs to make money in order to succeed, which means that getting your pricing strategy right is the most important thing you can do in your business….
But also because a monthly (or annual, or whatever period) recurring revenue strategy is one that will not only lead you to financial security fastest … it will make your business a business, rather than just a “job in disguise”.
After all, no-one becomes self-employed so that they can be a slave to their desk, worrying about whether they’ll earn enough to cover the bills every month.
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They become self-employed because they want to DO what they are good at … and because they want to achieve freedom, fulfilment and financial security from doing it.
And that is achieved through having monthly recurring revenue.
The Two Main “Types” of Pricing Strategy
Broadly speaking, there are two main pricing models: recurring revenue or transactional revenue.
Transactional revenue is essentially a one-off payment in exchange for a particular product or service. It’s “consumed” once, it’s paid for once. That customer may well come back for more – and certainly this will always be the hope and intention – but, you just don’t know for certain if, when, why or how they might….
Recurring revenue, on the other hand, is any product or service that customers purchase on a regular, predictable basis. For a business, it’s an income that you can rely on … that you know in advance you will be receiving. It’s a model that enables you to spend less time hustling for clients, or pitching for projects, and more time working for your customers … generating value … and most importantly – earning more, and earning more consistently.
Basically, it’s the holy grail of pricing strategies. And with creative thinking, it IS possible to apply to any type of business, whatever service you may be offering.
The crux of a successful business is understanding and defining the value you provide to your clients. I’ve explained elsewhere why a cost-based pricing strategy misses many opportunities … and that supply and demand influence the perceived value of your offer … and here, once again, value is the defining factor in making a monthly recurring revenue model work.
Proof that Monthly Recurring Revenue Fits All Sizes….
Think recurring revenue won’t work for your service? Think again….
Would you expect a fruit & veg seller to be able to adopt a recurring revenue model? Probably not, at first thought. But to-your-door regular deliveries have cracked that nut! And they provide hugely valuable consistency to suppliers.
They’ve converted “occasional” customers into loyal, repeat customers. Their value? Organic (perceived fresher, healthier) and convenient (“I don’t need to plan, don’t need to choose, it just arrives”).
So how can you, in your business, create a recurring revenue model?
Essentially, in service-based businesses, it comes down to offering your customers access to your expertise….
And here are six different models that just might make you realise it’s more possible than you’d previously thought….
The Six Models for Monthly Recurring Revenue(MRR)
1. Subscriptions (Access to YOU / Your Help)
Think Netflix, Spotify, even the veg deliveries mentioned above….
Subscription business models give access to your service and/or your expertise in the way your clients want or need it.
Offer packages with defined parameters: basic subscriptions for “basic” access, and premium ones for “more of you” … your clients know exactly how and when they can get access; you control delivery, and – thanks to that regular recurring revenue – you’ve created consistent earnings each month.
Subscription models create consistent and scalable income – both of which are missing in traditional “day rate” offers.
Better yet, subscriptions also encourage loyalty from your customers. Not only through developing a stronger relationship over time, but by providing them some sort of service at an upfront cost. Just think of Amazon Prime … their subscription is effectively paying for free next-day delivery, but in advance of making any purchase. So the next time you need something that can be bought on Amazon, why would you buy from another site?
2. Payment Plan (Spreading the Load / Lengthening the Relationship)
Monthly recurring revenue doesn’t always have to be about an indefinite, ongoing contract…. Just knowing your fixed income for the few months ahead can make a significant difference to the way you conduct your business, and payment plans are a great option for that.
An £8k four-month project can be charged at £2k per month. Compared with “partly upfront and the rest upon completion”, spreading payments gives both parties consistency and visibility … and may make it easier for the client to say “yes”.
Payment plans for projects also create stronger relationships with clients. Working with them over a longer period of time creates opportunities to see further benefits of working together … and the relationship continues.
3. Membership (“Belonging” to your Topic Area / your Solutions)
Membership programmes are great ways of building an audience, building on your client relationships, and building a strong foundation for clients that have a potential to become a client for your other packages, or models, within your business.
Similar to subscriptions but more “personal” – memberships might be access to a dedicated group or platform, where your clients have access to you and your expertise, but are also encouraged to participate, to learn, to interact.
They enable you to scale your earnings by charging individual people for content or time that is effectively shared amongst them … they enable you to keep building on that all important client relationship and loyalty … and of course, they provide you with that security of monthly recurring revenue.
4. Retainers (Ongoing Relationships)
In the retainer model a client pays a fixed fee upfront to secure your services – or essentially, your time.
It’s usually based on a defined amount, or type, of work to be delivered within a monthly period, although it can equally be based simply on keeping a fixed amount of time aside to work on “whatever” comes up … with that “time” effectively being lost to the client if not used.
Retainers are an ideal way to develop a long-term relationship with a client. They have regular and consistent access to you and your expertise, which often in itself leads to an even closer collaboration and an increase in the work you perform for them. And retainers provide security – both to your client, and to you.
And whilst retainers typically require that you keep time aside specifically for that client and thus cannot be signed with a limitless numbers of clients, combining retainers with commissions or other pricing models is a good way of maximising income potential – by charging the flat “minimum” per month so as to guarantee the time and/or certain fixed deliverables you provide a client, but with a commission agreement based on the actual performance-based results that are generated, thus giving you potential to earn even more….
5. Licence (Right to Use your Expertise)
Create something once, get paid for it many times over. Licensing gives clients the right to use your IP.
Software is, perhaps, the most obvious example, but with creative thinking you can licence almost anything. A sequence of emails? Yes, even these can be licensed.
Create it once, and with no further time commitment for delivery, licensing is a highly scalable recurring revenue.
6. Royalties / Gain-Share (Receive Rewards from the Use of your Expertise)
“You” get paid when “they” (i.e. your client) get paid….
This is mostly applied to “sales” offers – when you help a “partner” sell their services, you share the gain. When that sale is for a recurring service … you’ve created a recurring revenue for yourself too.
As with licensing, this is a highly scalable “do once, get paid often” model – and with a great offer, it’s highly lucrative.
The Benefits of Monthly Recurring Revenue, and How to Apply it to your Business….
Transactional revenue needs a constant flow of new clients. Which means constant marketing, pitching, advertising. Time needs to be spent looking for the work to do … before you can begin to charge for anything.
Recurring revenue is fundamentally different. Sell once, get paid month after month. Which allows you to focus on client delivery … which is what you really WANT to do anyway.
Once you have a recurring revenue stream that more than covers all your “life” expenses … and which enables you to do so without sacrificing all of your time … you have financial “peace”. You have financial security.
And financial security changes things. It changes you. It changes your thinking, and your relationship with money.
Financial security is a resource that allows you to be useful – that allows you to focus on what you are able to do for your clients. Rather than money being an essential that needs to be obtained, which requires you to focus on selling, on marketing, on securing clients.
And the best thing about it is that once you have defined these kinds of offers, the process of securing that recurring revenue is in fact easier than going after the transactional, one-off clients.
Here’s what I mean …
Say your average “transactional value” for one client, in a month, is £500 … this would mean that if you wanted to earn £5,000 in a month, you’d need to be working with ten clients every month.
Now consider the difference between “I need to find ten clients every month” with “I need to add ONE client this month, so that they continue to pay me – every month – for the value I bring them.”
Find one recurring revenue client in a month … or ten one-off clients – which would you choose? The compounding effect of recurring clients means that within ten months, you’ve got your ten monthly clients … and you no longer need to spend any time looking for new clients.
10 clients in a year … or 120 clients for the same income.
In reality some clients will be more than £500 each month, others less – the variables are in the detail.
The MRR model is a game changer for those who “get it”.
To see this in practice, use my Financial Security Calculator – my FSTN Map tool https://the3fs.com/fstn/.
See what your own business could look like. Play around with the options to see how your own business could be more lucrative AND easier to run.
It’s an exciting starting point to make you realise the POTENTIAL your business has, if you just make a few changes to the package – and pricing model – you offer your clients….
Secure income and resources mean it’s safer for you to take risks, to experiment and to grow your business.
It allows you to focus on what you do best – your client delivery.
It gives you more peace, mentally.
And it gives you more opportunity to grow … and to earn more.
Focus on achieving recurring income for your business, and you won’t ever look back, I can promise you that.
Whenever you’re ready, I have many other ways to help you define and achieve your recurring revenue goals … which may well be easier, quicker and safer than doing it alone.