transition-planning-yumpuu

SUBSCRIPTIONS
Even better than having loyal customers who repurchase is having revenue that is guaranteed into the future.
For example, loyal subscribers to magazines, newspapers, and other publications get a renewal letter each year
and pay upfront for the next 12 issues. They make the conscious decision to renew into the future for a certain
period of time.
Automatically renewed subscriptions are even more attractive than periodic renewals because they require
a conscious decision to cancel rather than renew. For example, Mozy.com automatically backs ups office
computers online on a daily basis and charges a fee each month. This subscription service has no end date
unless the client tells them to stop providing the service. By tracking historic cancellation rates, revenues can be
predicted well into the future, which is why these types of revenue streams enjoy higher valuations.
CONTRACTS
The only thing more valuable than an automatic renewal subscription is a hard contract for a defined term.
Wireless cell phone companies come to mind as one of those industries that push hard to get you on a multiyear
contract. When a company is acquired, the owner and some employees may leave after the acquisition,
however customers with plenty of time remaining on their contracts are security for the acquirer. As you ascend
the recurring-revenue hierarchy, the value of the business will go up accordingly.
RECURRING REVENUE MODELS FOR YOUR BUSINESS
Do you think that recurring revenue is tough to achieve in your business? Here are some examples of recurring
revenue models:
• Maintenance contracts
• Annual license agreements
• Warranties
• Subscriptions
• Landscape maintenance companies
• Pool service companies
• Janitorial companies
• HVAC companies that perform routine maintenance of
equipment
• Accounting firms that provide annual tax return preparation and
audits
• Security firms that monitor home and commercial businesses on
a monthly basis
• Software companies that provide annual user support and
software upgrades for a maintenance fee
BENEFITS OF RECURRING REVENUE
The recurring revenue customer base you build for your company will:
• Increase the probability that you will have stable revenues and cash flow
• Decrease future risk in the mind of a potential buyer
• Provide you with an opportunity to sell additional products or services to your existing customer base
• Keep you more attuned to your customer needs while helping you ward off competition
• Provide a corporate buyer with the opportunity to cross-sell its products to your customers
• Provide a justification for a higher sales price of your business
“Ensuring your company has a predictable and stable revenue base will mitigate
risk in your business and leads to a much higher valuation.”
TRANSITION PLANNING GUIDE 9