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U.S. & World

10 Ideas to Generate Recurring Income in a Business

By on November 17, 2013

One of the most important aspects of any business model is a recurring income since it allows us to have a better forecast of revenues, reduce customer acquisition costs, and improve the relationship with them. However, what can we do implement it? Are there any strategies to boost recurring revenues?

10 Ideas to Generate Recurring Income in a Business

The recurrence is a key in any business model. However, often we do not know how to transform a business model of a single sale in recurrent. It is very important to understand something:

Although in every business model the implementation is completely different, business owners have all something in common: the motivations. That means making an in-depth analysis of what moves the customer, and above all, be able to answer the following two questions:

Why does first time customer come to buy from us?
What it drives them to buy?
What can motivate my customers/users to return?

The answer to these two questions will give us a clue, which is the best tactic to transform our model into one recurrent. The key is to understand how we can help the customer. Moreover, the duty of any business owner is to understand their motivations and needs in detail.

WHAT OPTIONS THERE ARE TO CREATE A RECURRING BUSINESS MODEL?

Without an extensive list, I decided to collect some of the ideas that I have tried in different business models and that have worked well to promote the recurrence. I’m sure there are many more options, so if any you think another interesting please share it.

1. SERVICES: One of the most common, along with the product we sell offer management/care of the product… like for example with a car: the dealer normally takes more leeway in reviews, care and adjustments to the vehicle than with the sale.

It is important not to confuse them with the customer support (although it is paid), since in this case we speak of a service (except in the case of periodic inspection).

2. COUPONS: It is common to see this option of recurrence in supermarkets, restaurants… etc. It is offering customers a future discount/gift to change periodically again / use our product/service.

Is quite good, and although it works, it is important to balance the feeling of closeness of the reward and the return (discount/gift), which should be sufficient incentive.

3. MEMBERSHIP: The fact of being part of a club (recurring payment) in Exchange for discounts on the purchase of the products is a little used option but it offers great results.

For example, imagine a fast food restaurant near a business area: the dish costs $6, but if you are a member of the “club” (and pay $20 every month) it will cost you $4. Although a priori may seem like a cost risky, in practice it is a great way to enhance the recurrence.

4. UNDERSTANDING our clients:  The more we know about a customer and understand their needs,  they will get a greater satisfaction with our product and it will be more difficult for them  to stop using our services or products.

It is one of the strategies, which is widely used in the online world: for example, imagine that you offer personalized menus. If you don’t’ the preferences of a client, you will offer the customer ingredients that do not like… but if you gradually understand their tastes you will end up knowing so much and giving them what you they like, what will be very difficult to find another competitor and therefore increase your recurrence income.

5. SUBSCRIPTION: Possibly the most obvious model on which implement recurrence, passes by offering our customer the use/sale of our product recursively. For example, instead of selling each time a package of razor blades create a model in which every x months we send the customer blades that will need at one lower price.

6. INFORMATION: Another common model of the online environment to implement the recurrence, It is based on providing information of interest or very segmented the customer according to their needs and in near-real time… something very useful on platforms where the customer is reactive to enter.

Social networks use it much (whenever someone says something about your business, it alert you and you enter again), but it could also be used in another scenario: imagine a stock exchange financial information site. Customers by default fall when they are interested, but if them (via mail for example) that there is new information about company X or notice that has happened and event, it is usual to return.

7. CUSTOMER service: Even if it is something that sounds very common, the reality is that one of the best ways to improve significantly the recurrence is to have a fanatical service support area the customer, and to really show her passion and strong belief in customer.

Possibly one of the best known references worldwide Zappos, known for its policy and values of service to the client, but you don’t have to go that far.

8. COMPLEMENTARY products/offers: A little-implemented strategy but it tends to work pretty well, is propose customer product offerings that are complementary to the value proposition we offer (typically through reciprocal partnerships) which leads us to improve the recurrence not only our customers but of our ally.

It’s a model that works best the more know the customer and better segmented is. One of the most common examples are bids “in the pack” of cinema and dinner in a restaurant at a fixed price… since it encourages cinema customers dine at the restaurant and restaurant customers then go to the cinema.

9. BRAND loyalty: There are some brands that generate real passion among its clients, who feel completely identified with it (like Nike, Apple, Starbucks… etc, and more local examples), which in practice means that by default they will return to buy new products from the same.

Obviously not all companies may be Apple, but yes we can learn of the importance of seeking our own way, generate an audience of fans (which not only customers) that create and support our company.

10. MAINTENANCE: A step beyond service, involves a slightly different from this model. In service the customer is close to us when you have a problem/need and let us know (we are in “reactive” mode), while in the maintenance the customer signs a contract whereby recursively pays a fee to call us if you need it and help you.

It is much more interesting because it involves a subscription model in which the customer pays Yes or Yes regularly consume the service or not. For example, it is very common in the world of the computer support, in which companies pay a monthly fee in order to resolve issues, get updates… etc.

In the end all the previous options are different ideas or tactics to implement some degree of recurrence in your business model… but there are many more. In my opinion, the key to run either of them passes through:

  • Know your customer
  • Personalize and segment the proposal
  • Take advantage of any communication
  • Improve the relationship and proximity

If we are able to properly implement a recurring business model, the effect is extremely powerful: the customer acquisition cost will decrease significantly, which predictably improve profitability… and if we know the margins by customer (customer lifecycle value) we invest much more in advertising than the competition that has 1 sales business models.

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