In my 30 years as a serial entrepreneur, I have built five successful businesses from scratch.

Four of them are more than 20 years old, and one just turned 15. Most businesses crash and burn in their first or second year. A small percentage makes it past year five, and an even smaller percentage last 10, 15, or 20 years. Why is that?

For many of them, it’s because they haven’t established a system that produces cash on a steady, repeatable, and sustainable basis, known as recurring revenue.

Why is recurring revenue so important?

To answer that question, let’s think about the companies in your life that are using a recurring revenue model in which you are participating. Your Internet provider for your computer or TV, your natural gas company, your cell phone provider, and your insurance provider are all examples of companies who generate recurring revenue. To them, you’re like a hamster on their money wheel—you just keep it spinning, turning out monthly income for them with no end in sight!

These companies have repeatable and sustainable recurring revenue, so they’re probably going to be stable companies for a long, long time. Even the YMCA is successfully pulling money from me every month, regardless of whether I go and work out or not (usually not).

When you don’t have a recurring revenue model, it’s very difficult to project your cash flow and predict how you will fund new growth, upgrades, and new advertising initiatives. In business, you want to eliminate as many unknowns as you can. Think about it this way, you are investing time and money into your company. Good investors like to invest in things they feel are secure; things that have a bright and stable future based on as many knowns as they can get. Recurring revenue helps you add some form of stability and predictability to your operation, which in turn lets you map out investment of time and money for future growth.

Who doesn’t have a recurring revenue model?

A muffler shop, a furniture store, a business consultant, and the handyman who can fix a leaky roof are all examples of companies without recurring revenue. These businesses go from sale to sale to sale, and there are times when they experience wild swings in their monthly income. Lots of small businesses start like this, and they run into the same problem: they can’t accurately predict how much money they’ll earn in future months, so it’s hard for them to plan. They’re running blind, and they’re only as good as their last sale or project.

What should you do?

If I owned a business that did not have recurring revenue, I’d be wracking my brain to figure out new services, subscription billing ideas, or maintenance plans that I could sell that would generate steady cash flow for me.

For example, if you owned a muffler shop, could you up-sell a customer on a quarterly or semi-annual subscription for oil changes? Or, could your furniture store offer to rent furniture to local apartment owners?

Could a business consultant offer other services that would require him/her to visit the customer periodically? Even if the customer no longer needed consulting advice, could s/he run payroll biweekly, do their bookkeeping, or conduct a quarterly review of their financials or other management issues?

Could the handyman offer a monthly or quarterly maintenance program to do general house repairs? I know my wife would gladly pay someone $35 an hour to come with their tools and finish the “honey-do-list” that I can’t seem to get done. Regularly showing up to fix leaks, clean leaves out of gutters, unclog drains, etc., would give the handyman preference when larger projects arise (e.g, staining decks, sealing driveways, power washing siding, etc.).

How do I achieve recurring revenue?

Three of my businesses use a recurring revenue model that insists on:

  • Low Pricing: I charge very fairly for our services, and in some cases I will deliberately charge below market price. Nobody wants high monthly payments, so I make sure that our fees are lower than our competitors.
  • Monthly Credit Card: I try to make the payment method the easiest it can be on the customer (e.g,. monthly credit card payment handled 100% online). Nowadays, people are comfortable with paying for things on the Internet, and a monthly cycle is simple and understandable.
  • No Contract: I never require a long-term contract or commitment from my customers. I’ve made sure that this is a cornerstone of Patriot’s philosophy so that if we underperform, the customer is free to fire us at any time without any headache or penalty to them. This keeps us performing!

Think like your customer

When it comes to implementing recurring revenue into your business, I would encourage a small business owner to think like your customers, and “think small.” Think about charging a low monthly fee. Don’t be greedy. If you were your customer, what would you want to pay for your service? I’m guessing your answer would be not very much, right? Keep it simple. Keep your fees low. Offer a discount somewhere in your fee structure (because everybody loves a discount). Remember, this is so you can run stable and grow into other areas.

One other thing to keep in mind when you’re looking for a reoccurring revenue model is, once customers are plugged into an eco-system they are comfortable with, they don’t like to leave it. Why is that? Because it takes time and money for humans to learn a new system. If you provide something that is simple, easy, useful, and cost-effective, your customers will come to trust you and rely on you to add that value to their lives with your future products– even if those future products are more expensive and not reoccurring.

Recurring revenue is your key to business longevity, so don’t delay. You may get some initial push back from your customers, but make it worth their while. Because once you make it happen, you will be happier, and actually … so will they!!