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
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Phone: (417) 812-5945