improve the reliability of recurring revenue with these kpis

IMPROVE THE RELIABILITY OF RECURRING REVENUE WITH THESE KPIS

How long can your business run before becoming bankrupt

We look at KPIs that help improve the reliability of recurring revenue for answers

TYPES OF RECURRING REVENUE

Repeat customers

These are customers that frequent your

business

For example: You own a local bread store. You

know 80% of people who live within 5 miles of your bread store come to buy

bread every 5 days on average

Recurring service needs

If you are in a business where customers

repeatedly need your service, then you will

naturally build recurring revenue

Recurring contracts

Recurring revenue that occurs due to a contact

For example: your cable company might give you a

discount if you agree to stay with them for two

years

Subscription services

This is the model most software companies

useFor a monthly

subscription you get access to their software

and any upgrades

The network effect

Recurring revenue can also be built by

requiring customers to invite friends to fully

derive the full value of your service

STRUCTURING REVENUE TO INCREASE RETENTION

When talking about recurring revenue it is not enough to predict

the current year revenue, but the reliability of this

revenue stream should be predicted into the

future

Example using an example from My Cake Shop

Year 1

Hold bakery classes where customers join a community of other cake lovers

Year 2

Year 3

Year 4

Year 5

Offer more advanced classes available only to customers who have patronized for more than one year

Offer special discounts and bonuses to this group

Better discounts and bonuses than offered to year 3 customers

Give customers opportunities to help by becoming community leaders

Recurring revenue and customer value

Customer value generally means the

satisfaction a customer derives from using your

product or service

Value of your offerings Value of relationship

Customer value your product in 2 broad perspectives

VALUE OF YOUR OFFERINGS

In terms of time saved by the product or service you offer

Increased profitability or gains

In the prestige they feel by interacting with your

product

Reduced cost/ Minimizing transaction costMinimized losses

Customers derive value from your product or service

For recurring revenue to be structured for

maximum value it must provide positive value

with enhanced relationships

Increased value of offerings enhances the value of the

relationship

Customers usually derive increased value as you serve

them over time

THE RECURRING REVENUE KPIS

On a scale of 1-10

How often do customers refer you to others (evangelize your business)

How deliberate are you in building customer relationships

How deliberate are you in building a consistent customer experience

How would you rate the adequacy of customer communication

How easy will it be for a competitor to convince your customer to switch

Customer Relationship index = average score

See excel worksheet for details

CUSTOMER VALUE

The five main ways customers derive value and how to monetize that value is shown in the

table below

NET CUSTOMER VALUE

Net customer value takes into account the

fees you collect. In other words the value the customer derives

less the fees

Steps to determining net customer value

Group customers based on how they derive value in your

business

Monetize benefits for each customer type based on the

table above

Determine the fees paid by customers

Find the difference between the

monetized value and fees paid to you

RETENTION PERCENTAGE

Retention percentage is based on three main factors

Past retention experience which is calculated as: (Number of customers at end of period –

New customers acquired during the period)/Number of

customers at start of period

Proposed retention based on value derived from product or

service

Retention based on relationship built with the business over

time

See excel worksheet for details

Recurring revenue

Finally, the recurring revenue is derived by

Recurring revenue = Number of customers * fee * retention

percentage

BENCHMARKING

When you acquire a new customer, it is not

just enough to think how to get them in the

door today, but you want to keep them over time. The only way you

can do this is by keeping your customer

value positive

Recurring revenue - You need to deliberately plan to keep your customers over a long period

of time

Read more

http://www.mybusinesskpi.com/RecurringRevenue.html

www.mybusinesskpi.com

Email: evelyn@mybusinessskpicoach.com

Phone: (417) 812-5945