Think about some of the biggest and best companies in the world – and I mean the really big ones. Apple, Amazon, Walmart. We all know about their products and how they make money, but have you noticed how they’re growing new revenue?
They’re all making buckets of money while they sleep, because they’ve figured out the age-old value of recurring revenue.
Of course, Apple still makes most of its money selling phones and computers and watches, but they aren’t really creating new products these days.
Amazon makes its money off commissions earned from sales on its site, but the shopping side of things hasn’t really changed in years.
Walmart makes its money selling products off its shelves, and that revenue model hasn’t changed in forever.
Growth isn’t in the old
What you may not know about these three companies is that most of their growth these days isn’t in products. It’s in services. It’s in subscriptions. It’s in the age-old value of recurring revenue.
When we say Apple hasn’t created any new products, that’s the furthest thing from the truth. Instead, they’re building all sorts of subscription (recurring revenue) businesses. From iCloud to Apple Music to Apple TV, everything they do today is based on growing consistent income streams. In their third fiscal quarter, Apple reported revenue of $17.5 billion in subscription revenue. That’s up from $13.2 billion the same quarter last year.
Amazon doesn’t just make money from commissions. Their $119 subscription charge to 200 million Prime subscribers means they’re making $23.8 billion in revenue while they’re sleeping.
That’s just a drop in the bucket for Amazon, though. They have AWS, their cloud storage business, and they’re bringing in more than $50 billion in revenue from that each year.
Then there’s Walmart, which we’ve always considered a retailer. They’re somewhat new to the recurring revenue game, but with their still-new Walmart+ program, they’ve already signed up nearly 9 million subscribers, all paying $98/year. That’s nearly $900 million in revenue in a new program.
Is there opportunity for you?
If you’re a small business owner, what does any of this have to do with you? You can’t offer cloud storage or movies on demand. But every single business, no matter retail or service, does have something you can offer on a recurring basis.
If you’re a roofer, can you offer customers quarterly check-ups, tile replacements – the easy stuff – for a $10/month contract (expenses extra).
Can an auto mechanic offer quarterly check-ups free of charge if you pay the $12/month membership fee?
If you own a boutique, can your loyal customers always get 25% off if they join your Boutique Club for $8/month?
The answer is every business owner can be creative and find ways to get your most loyal customers to have you on stand-by whenever they need you. It’s kind of like the insurance industry: You pay monthly for what you rarely, if ever need, because you know there’s value in it.
How do you do this?
If you’re a small business owner and you think there’s an opportunity for a recurring revenue model for your business (and there is!), then you’ll need to follow a few steps:
Talk to someone who can help you determine the best products and services to offer. More important, you need someone who can help you run numbers to make sure this model is always profitable. That means figuring out the right price point that covers your expenses and is acceptable in the market. Our full-service marketing company can help you with that.
Next, you’ll want to be creative in what you offer. The big (and a lot of small) companies use this to eventually sell you products or services at higher price points. You’ll want a recurring revenue program that doesn’t give away the farm, but is valuable enough that it keeps people coming back to you for the bigger things.
One of the most important steps will be looking through your customer lists and determining those who would be open to this and those who won’t. Sometimes, it’s a matter of putting customers in segments. What you may find is that different customers would pay different levels, which means you’d need different subscription packages.
The most important step to making this successful is how you present it to existing and new customers. You need professional marketing help with this if you want to be successful. If you wing it on social media, you even stand the chance of losing credibility. You’ll come across looking like you’re trying to rake a quick buck, when what you’re trying to do is offer more consistent service to your customers at a fair price.
While building a recurring revenue program isn’t easy, the largest companies in the world are telling us something. They’re all focused on ways to have consistent revenue coming in the door. They’re trying to eliminate the need for one-on-one selling. They want their marketing dollars to bring in groups of subscribers at a time, not one customer at a time.
If this were easy, everyone would be doing it. No, it’s not easy, but it’s incredibly profitable and should be on every small-business radar. We should all be making money while we sleep.
Jonathan McElvy is president and CEO of McElvy Partners, a company that owns media operations in Texas and North Carolina. His company publishes The Greensheet, which reaches more than 1.5 million readers each month.