It seems like Amazon is establishing itself in Australia. Amazon sells much more than books. It sells electronics, white goods and groceries plus much more. It is not just its size (market value US$440 bill) that is a concern for local retailers, but its business model. Amazon’s business model maintains and grows active loyal subscribers that will most likely make them a major retail force in Australia. Does your business have subscribers that give you recurring income?
Recurring income is when you make a sale and you get an ongoing revenue stream on a regular basis, preferably monthly. Without recurring income, your monthly sales are dependent on you making new sales, every month. This can result in very good months and also very bad months. Recurring income has many more benefits.
A business with recurring income will be much more valuable to a purchaser than the same business without it. The increase in value will depend on the amount of your revenue that is recurring and the industry. As a rough guide, it will increase the value of your business from say three times profit for a traditional business to four times the profit. With online businesses, the multiple can be much more.
By the subscriber model giving income every month, and not just now and again, there will be more income over the lifetime of a customer. In addition, statistics show that loyal subscribers will buy more additional services or product than those that are not subscribers.
Another major benefit is that you get paid automatically. A subscription model is usually accompanied by an automatic direct debit. This does away with issuing invoices and chasing up debtors. Much better for cash flow.
But “I can’t do this in my business”, I hear you say. In his book, The Automatic Customer, John Warrillow cites examples of how businesses from all types of industries generate additional revenue through subscription models. From trade businesses, restaurateurs, florists and psychologists for example. Warrillow also talks about nine different types of subscription models.
One subscription model is the Membership Website model. This model is gaining traction as people realise the quality of free information is uncertain and are now prepared to pay for valuable information. An example is a dance studio owner wrote down all her knowledge of running a dance studio for her staff. It was later made available on the web for a modest annual fee and it grew to 2,000 customers. Dance clothing and accessories were later added to the subscriber base. The key for this to work is that you need to be updating the information so customers continue to get value and be able to add other product or services to it.
Another model is the consumables model. An example of this is a florist H.Bloom who offered a subscription for regular fresh flower delivery to hotels, restaurants and spas. It has a set monthly fee depending on what the customer wants. This increases their sales as the purchase is automatic and not something the customer has to remember to do.
Some questions to ask yourself:
Do you have recurring income in your business?
How would you add a subscription element to your business?
With some imagination and market testing, you will be surprised at the ways you can add a subscription element to your business to earn recurring income.
Published by Toowoomba Chronicle www.thechronicle.com.auon Saturday 22 April 2017.