Maximizing Your Business Value with Recurring Revenue Streams
When the SaaS model came out – Software As A Service – big global software companies scoffed at the idea. No one is going to run their business “over the internet” and actually trust someone else to manage the IT and infrastructure. Combine that with the low-cost, which seemed to imply low quality, smallest feature sets, and of course “little benefits.”
This was ten years ago, and my, have things changed. The biggest ERP shops in the world – Oracle, SAP, WorkDay – are all scrambling to shift to the SaaS model, which has been a tough transition. Their entire sales model needs to change, commission modeling and incentive management, not to mention their go-to-market strategies. How do you replace multi-million-dollar sales of in-house software and consulting, expensive user license agreements, including lucrative maintenance contracts that last years?
It’s the world we live in and take for granted now.
The power is in the monthly recurring revenue, the subscription model that is based on a monthly fee per user per month. The more users you get on your subscription model platform, the more monthly revenue you make. When you combine that with paying for the service in advance, sometimes requiring an annual license paid upfront, and you can see two things. A very valuable purchase price with a lifetime value many multiples above a single sale, and a positive cash flow engine that brings in a lot of cash upfront every time you sell more of your product and service.
It’s a no-brainer when you look at it this way.
So, let’s transition to your company. You might be thinking, “Steve, there’s no way a subscription model works in my industry. It’s not how we do things, and plus, we’re a commodity.” That might be true…. In the past.
I always respond this way: “It’s because no one has thought of a subscription model yet that differentiates you from your competition (important) and resonates with your customers.”
It’s really that simple.
And here’s another truth. Buyers are mining the available companies for sale and hunting for companies where their revenue comes from a subscription model. Especially if that subscription model requires a low customer acquisition cost, is easy to onboard, has a high customer retention rate and lifetime customer value, and the holy grail – generates a positive cash flow engine.