Do you know the difference between repeat customers and subscribers?  This key difference could change your profit margin forever. Many people mix up re-occurring and recurring revenue, but one is much more valuable than the other. Let’s take a look at both of them:

Re-occurring Revenue

 

Re-occurring revenue comes from customers that have a re-occurring need for whatever you sell and buy from you on an unpredictable yet regular basis. These are your repeat customers.

Imagine a cleaning company. Customers book services when they feel they need their home or office cleaned. The owner is never quite sure when the customer will book again, but she’s pretty sure they will return when they have busy weeks or high-traffic events. This creates an unpredictable cashflow that could be interrupted by competitors, discounts, or new services she can’t offer.

Recurring Revenue

 

Let’s take the same cleaning company owner. She recognizes her customer books every six weeks or so for a cleaning. She decides

to offer a subscription for cleanings, where every six weeks her customer has a repeating booking with an automatic payment. The customer doesn’t need to call for services and can count on their cleaning time to be reserved, while the owner automatically gets repeat sales.

 

 

 

 

Comparison Of Revenues

Compared to one-off transaction revenue, both re-occurring and recurring revenue contribute positively to your company’s value, but one is much more valuable than the other.  With Business Growth Curator, you’re going to be able to identify the difference in your own business and focus on growing the most valuable services possible.

For example, Mike Malatesta created Advanced Waste Services (AWS), which helped businesses dispose of their industrial waste. Energy giant Covanta (NYSE: CVA) saw acquiring AWS as the perfect way to enter the industrial waste industry and sent Malatesta a Letter of Intent to acquire AWS for $54.5 million. When you’re looking to sell your business, you want to ensure your model is as profitable as possible. Here’s why:

Covanta liked that AWS had repeat business from loyal customers that they assumed were on recurring contracts. However, when Covanta started their diligence before closing their acquisition of AWS, they realized some of AWS’s revenue was re-occurring, not recurring, and used that as justification to lower their offer by $4 million.

To convert re-occurring revenue into recurring revenue:

1. Start by segmenting your customers that buy on a re-occurring basis.
2. Then, look for a segment whose purchase cadence is relatively predictable.
3. Next, design an offer for your regular, re-occurring customers that makes it more convenient for them to buy on a subscription or service contract rather than on a transactional business model.
4. Finally, aim to give re-occurring customers three compelling reasons to subscribe.

 

Apply This to the Cleaning Company…

For example, in the case of the cleaning company owner, she could make the case that subscribing to a regular shipment of vitamins is 1) more convenient for the customer because they don’t have to call to schedule, 2) more reliable because their cleaning time is reserved ahead of time, and 3) provides the health and convenience benefits of a safe environment that is always maintained.

This will help her achieve Step 1 by reaching the customers who frequently buy the same vitamins.  Next, she can predict how frequently they buy based on recommended use of those vitamins.  That’s Step 2.  After she does this, she can create an offer that makes sense for the customers based on what they’re buying and how often they buy it.  Finally, she can use the reasons listed above to convince them that the subscription is better than buying on a last-minute, as-needed basis.

 

Takeaways

Re-occurring and recurring revenue may sound similar, but when it comes to your company’s value, recurring revenue is far better. Consider conv