Striving for Recurring Revenue
Jun 17, 2019
Give them the razor, sell them the blade
Gillette may not have been the first, but it’s still the most famous example of a company moving to a Recurring Revenue model. The story goes like this: a razor marketer gave away razors to the public for free, knowing they could recoup the one-time cost of the razor over a period of time with custom fit replacement blades that would be sold on an ongoing basis at a premium. The rest, as they say is history.
In the Digital Age, a recurring revenue strategy is critical to your sales and marketing success too, because it’s getting harder to make a profit on retail products. Files, photographs, records, books, etc. are all sold and stored online. Meanwhile, selling recurring services to these items -- the apps to upload/download/manage/transfer/warehouse -- is booming.
Technology has been both the catalyst of this change and the first success story. Software moved to a Software-as-a-Service (SaaS) licensing model years ago. Why? Because licenses are sticky: it’s expensive and time-consuming to change course. Some tech companies, like Red Hat and RStudio, don’t even supply the main product, but instead offer support, updates, bug fixes and possibly hardware on a recurring basis.
Even manufacturing is shifting to a recurring revenue model
Car and truck dealerships are a great example of how the world is embracing the change: many now sell the product almost at cost, and instead aim to capture the service and parts at a higher margin. Because of knowledge gained through Internet searches, buyers know what cars are selling for, so dealers must sell the new car at cost and gain margin on service.
So the critical question for many suppliers is how to change or add a recurring revenue based model, before competitors or new entrants. Consider:
- What are the needs of your different segments?
- Example: The food industry is innovating for the health conscious: instead of grocery stores and cookbooks, they’re delivering meals ready for cooking. Think Blue Apron and Plated.
- What is your real value to your consumers?
- Is it the product, convenience, or something essential to keeping an operation running?
- Where is value added (or lost) in the chain? Can you do production at cost, eliminate a middle man and perhaps provide delivery or subscription?
- Example: Film and television subscription services Netflix and Amazon Prime are thriving by producing their own television shows and movies.
- If you are part of the chain, what is your value add?
- Example: the classic VAR (Value Added Reseller) in the computer industry that can supply value to a target group – for example YMCA’s, rental companies or any target segment that the VAR knows well.
Liberate your business. If a distributor is currently taking your product to market, ask yourself if this is a service you could theoretically provide yourself, because otherwise a competitor or upstart might. If you are a distributor, make sure your value-add is of real value to the consumer or end user. Business-to-Business products and services may be slower to adopt the trailblazing sales and marketing techniques of Business-to-Consumer companies, but they’re still following the map.
It’s happening everywhere. Think it over. Let us know if we can help.
Mayfield Consulting: Where Results Happen
At Mayfield Consulting, we let the results speak for themselves: two clients with 20%+ growth rates, one of whom has been on the Inc. Fastest Growing list five years in a row, plus many clients earning awards including 8 American Business Awards in just the past 2 years.
Harvard MBA and sales and marketing veteran Anne Mayfield left her work as a Senior Consultant at Arthur D. Little to start Mayfield Consulting in 1987. Initially, she launched the firm with an objective of providing targeted, insightful and simultaneously economical market research to business-to-business companies. The results of her uniquely targeted, limited sample marketing research efforts and her insightful design were so rapidly successful that clients began to clamor for additional services, most notably, strategy, implementation, content and PR.
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