How long can your business run before becoming bankrupt? You probably answered, “Hope forever”. However without predictable income, the answer to this questions might be gloomier than you hope. Too much variation in inflow or outflow makes it difficult to run a sustainable business. Over the long run, less predictability results in lower income. The strength of your recurring revenue depends on you serving the right customers at the right price at the right time. However, this does not happen by chance. In this article we look at KPIs that help improve the reliability of recurring revenue.

1. IMPROVE THE
RELIABILITY OF
RECURRING REVENUE
WITH THESE KPIS

2. How long can your business run before
becoming bankrupt

3. We look at KPIs that help improve the
reliability of recurring revenue for answers

4. TYPES OF RECURRING REVENUE

5. Repeat customers

6. These are customers
that frequent your
business
For example: You own a
local bread store. You
know 80% of people who
live within 5 miles of your
bread store come to buy
bread every 5 days on
average

7. Recurring service needs

8. If you are in a business
where customers
repeatedly need your
service, then you will
naturally build
recurring revenue

9. Recurring contracts

10. Recurring revenue that
occurs due to a contact
For example: your cable
company might give you a
discount if you agree to
stay with them for two
years

11. Subscription services

12. This is the model most
software companies
use
For a monthly
subscription you get
access to their software
and any upgrades

13. The network effect

14. Recurring revenue can
also be built by
requiring customers to
invite friends to fully
derive the full value of
your service

15. STRUCTURING REVENUE TO
INCREASE RETENTION

16. When talking about
recurring revenue it is
not enough to predict
the current year
revenue, but the
reliability of this
revenue stream should
be predicted into the
future

17. Example using an example from
My Cake Shop

18. Year 1
Hold bakery classes where
customers join a
community of other cake
lovers
Year 2
Year 3
Year 4
Year 5
Offer more advanced classes
available only to customers who have
patronized for more than one year
Offer special discounts and
bonuses to this group
Better discounts and bonuses
than offered to year 3
customers
Give customers opportunities to
help by becoming community
leaders

19. Recurring revenue and customer
value

20. Customer value
generally means the
satisfaction a customer
derives from using your
product or service

21. Value of your offerings Value of relationship
Customer value your product in 2 broad
perspectives

22. VALUE OF YOUR OFFERINGS

23. In terms of time saved
by the product or
service you offer
Increased profitability or
gains
In the prestige they feel
by interacting with your
product
Reduced cost/ Minimizing
transaction cost
Minimized losses
Customers derive value from your
product or service

24. For recurring revenue
to be structured for
maximum value it must
provide positive value
with enhanced
relationships

25. Increased value of offerings
enhances the value of the
relationship
Customers usually derive
increased value as you serve
them over time

26. THE RECURRING REVENUE KPIS

27. On a scale of 1-10
How often do customers refer you to others (evangelize your business)
How deliberate are you in building customer relationships
How deliberate are you in building a consistent customer experience
How would you rate the adequacy of customer communication
How easy will it be for a competitor to convince your customer to switch

28. Customer Relationship index = average score
See excel worksheet for details

29. CUSTOMER VALUE

30. The five main ways customers derive value and
how to monetize that value is shown in the
table below

31. NET CUSTOMER VALUE

32. Net customer value
takes into account the
fees you collect. In
other words the value
the customer derives
less the fees

33. Steps to determining net customer value
Group customers
based on how they
derive value in your
business
Monetize benefits
for each customer
type based on the
table above
Determine the fees
paid by customers
Find the difference
between the
monetized value
and fees paid to you

34. RETENTION PERCENTAGE

35. Retention percentage is based on three main
factors
Past retention experience which
is calculated as: (Number of
customers at end of period –
New customers acquired during
the period)/Number of
customers at start of period
Proposed retention based on
value derived from product or
service
Retention based on relationship
built with the business over
time

36. See excel worksheet for details

37. Recurring revenue
Finally, the recurring revenue is derived by
Recurring revenue = Number of
customers * fee * retention
percentage

38. BENCHMARKING

39. When you acquire a
new customer, it is not
just enough to think
how to get them in the
door today, but you
want to keep them
over time. The only way
you can do this is by
keeping your customer
value positive

40. Recurring revenue - You need to deliberately
plan to keep your customers over a long period
of time

41. Read more
http://www.mybusinessk
pi.com/RecurringRevenue
.html
www.mybusinesskpi.com
Email: evelyn@mybusinessskpicoach.com
Phone: (417) 812-5945