Are you stuck trying to figure out how to create recurring revenue for your business?
Automatic sales will make your business more valuable and predictable. However, the secret to transforming your company is to think less about what’s in it for you and more about convincing customers to agree to a monthly bill.
Consider the transformation of Laura Steward’s IT consulting firm, Guardian Angel. Steward had built its revenue up to $400,000 when she called in a valuation consultant to price her business. She was disappointed to learn her company was worth less than 50% of one year’s sales. Why? Because she had no recurring revenue and what sales she did have were dependent on her personally.
Steward set about to transform her business into a more valuable company and made three big moves:
1. Angel Watch
The first thing Steward did was to design a monthly program called Angel Watch. The program offered her business clients ongoing remote monitoring of their networks, preemptive virus protection and staff on call if there was ever a problem.
Steward approached her clients with a calculation of what they had spent with her firm over the most recent 12-month period, including downtime costs. She made the case that through Angel Watch, they would save money when considering both the hard costs of her firm’s time and the soft costs associated with downtime.
90% of her customers switched from hourly billing to the Angel Watch program.
2. Doubling Rates
Next, Steward doubled her personal consulting rates. That way, when one of the customers who decided not to opt into Angel Watch called her firm, they were quoted one rate for a technician’s time or twice the price to have Steward herself. Not surprisingly, most customers opted for the cheaper option. Others chose to re-consider their decision not to sign up for Angel Watch.
3. Survivor Clause
Steward also credits a small legal maneuver for further driving up the value of her business, a “survivor clause”. The clause stipulated that the obligations of the agreement would “survive” a change of ownership of her company.
Steward went on to successfully sell her business at a price more than four times the original valuation she had received just two years prior to launching Angel Watch. What steps can your business take to improve its value and better predict its sales numbers?
Author, Jerry Olson, is an experienced Business Advisor and Human Resources expert. Connect with Jerry and other RFB® Business Development Advisors here, or on LinkedIn.