The Drive for the Automatic Customer
Nearly half of U.S. businesses have adopted or are planning to adopt a recurring revenue model. Have you? Should you?
Recurring Revenue is much more than taking a customer order and setting it to “repeat.” It is a fundamental shift in how businesses operate. And with $420B spent on subscriptions in the US last year with an average yearly growth rate of 13% per year, it’s a topic worthy of CEOs’ attentions.
Many experts will argue that Recurring Revenue Models need to center on exploiting Customer Lifetime Value (CLV), but this is a bottom-line financial formula. To enable true transformational change and be successful, organizations need to shift focus to CLX (Customer Lifetime Experience) by transforming how customers are viewed and serviced internally.
Switching to a Recurring Revenue Model puts a hyper-focus on the customer relationship—the key to enhancing the overall experience of a product. And though the payoffs are significant (e.g., revenue becomes more predictable, stable, and perpetual (yes, please!)), it’s not easy to do; however, with 80% of consumers demanding a new revenue model, many businesses find themselves without many options.
What’s Changing with Recurring Revenue?
In our new world of same-day home delivery and 24/7 access to services, consumer behavior is changing. Consumers are demanding more from businesses than they ever have before. Given how many new businesses saturate the market every day vying for a piece of a consumer’s pocketbook, high standards are justified. Recurring Revenue Models provide predictable and stable revenue streams, giving businesses the freedom to stop focusing on billing and start focusing on providing valuable customer experiences. This shift results in personalized, concierge-level service where customers can have on-demand fulfillment, try before they buy, and control their cost by controlling their consumption.
Like with most things in life, a happy customer is a repeat customer, giving rise to the highly-sought after golden snitch called the “automatic customer.” These automatic customers drive up business valuation, spend almost twice as much as one-off customers over their lifetime, and champion business services to others as their loyalty is gained. Thanks to a recurring revenue model, businesses now have a new way of engaging with customers. But what is the right way to engage?
Engaging the Automatic Customer
Revenue models vary from offering one-time fees, to flat-rate subscriptions, to recurring usage models that vary by consumption. A medical company takes advantage of a subscription model by providing same-day doctor appointments and personalized treatment plans in return for an annual fee. SilverCar takes the idea of Zipcar to the next level by offering short-term premium Audi vehicle access through a usage plan.
Slack, the new gorilla in the room for online company communication, also has a variable rate model and charges customers only for the number users active on one’s account. When I went on a two-week vacation, my company received a refund notification email from Slack for my inactivity over those two weeks. This level of customer focus and what solution is best for me (a refund) instead of the what’s potentially best for the business (no refund) is what keeps me as a customer. By taking a long-term view and thinking about me as a lifetime customer, Slack secures my brand loyalty in the short term.
Revenue models are complicated and put a strain on traditional models of IT, sales, services, and tracking. And what’s right for one business isn’t going to fit another. Businesses need to hold on to what makes their services unique before they strategize the best way to monetize that distinction. Just shifting focus to driving customer relationships instead of performing individual transactions requires a complete business transformation and C-suite buy-in. Sound difficult? It can be, but there are some simple tactics that help pave the way.
To find out more about Recurring Revenue and what it can mean for your business, as well as the most common pitfalls to avoid when transitioning, stay tuned for the next part of this blog post.