Reduce Risk, Increase Valuation & Increase Cashflow with Recurring Revenue Streams
By: Will Housh
The home services industry is notorious for having lower valuations as compared to other industries. This is due to the seasonal nature and one-time purchases associated with many service-based businesses.
What is recurring revenue and why is it so important?
Recurring revenue is cash flow that is expected to continue in the future, mostly due to subscriptions or ongoing services like service contracts and memberships.
A top goal of all home service business owners should be to ensure the majority of income is not dependent upon one-time projects or particular seasons of the year. Relying on single projects, like big sales, brings an unstable amount of uncertainty to a business, especially in the home services industry.
Relying on big sales results in lower sale valuations, lower cash flow in the off-season, lower profitability, and a lower exit price if and when you decide to sell your business. Every owner must plan his or her exit. If you are trying to increase your sale price when it becomes time to exit your business, it’s too late. You must act now.
Repeatable business, known as recurring revenue, allows business owners to plan effectively, forecast efficiently, and resource expenditures reliably, thereby earmarking forward spending to grow a business without risk.
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Decrease Risk in Your Business
Having a high business valuation is key. Whether you want to get a bank loan, raise funds, attract investors, or negotiate your exit, your company’s valuation is critically important.
While many aspects of business, such as strategic planning, marketing, staff, and equipment are essential for success, recurring revenue is arguably the most essential metric of a company’s health.
Consistent, recurring revenue streams make a business appealing to bankers when approving loans as well as business buyers looking for immediate turn-key success. That’s why recurring revenue lowers risk for all parties.
Investors have far more interest in businesses that demonstrate reliable and consistent revenue streams. We’re not just talking about small improvements in sales prices. In some cases, recurring revenue can significantly increase the value or sale price of the business.
Increase the Internal Value of Your Business
Not only can recurring revenue increase your external valuation, but it is also internally beneficial to business owners, employees, and customers.
Customers: With recurring revenue via maintenance plans and filter delivery subscriptions, you gain the ability to regularly maintain equipment, thereby saving your customers money. Additionally, it makes the customer experience easier and more enjoyable, which in turn builds customer loyalty.
Employees: With recurring revenue, your employees know they’ll have predictable work and year-round pay. This allows them to improve their craft, while also building trust within your organization.
Business owners: With recurring revenue, you now have increased ability to make investments in equipment, create marketing strategies, hire new team members, and plan for the future. It stabilizes revenue and cash flow, while streamlining workflow.
How to Start Generating Recurring Revenue
Now that we have explained all the reasons recurring revenue is essential for service-based businesses, let’s see how to get started.
- Offer a service agreement with every sale. Sometimes a service agreement can replace a customer’s requested discount. This can be far more lucrative for your business as opposed to simply lowering the price to close a deal.
- Focus on maintaining your customer’s equipment regularly, through preventative maintenance, rather than trying to sell a new system or product.
- Create an online store. An online store turns your business into a virtual 24/7 operation and allows customers to buy whenever they want and sign up for long-term service agreements at their convenience.
- Offer automatic furnace filter deliveries via subscription. Customers want to replace their filters on time but they forget. This leads to equipment breakdowns and unhappy customers. If they do replace their filters on time, they might be buying them from a local hardware store or an online retailer. They can buy them from you via a convenient online shopping experience and the filters can be drop-shipped directly to your customer so you don’t have to stock or deliver the products.
- Use your online store to make it easy for customers to sign up for recurring service agreements.
Summary
Developing recurring revenue for your business is essential for continued success and growth. Recurring revenue stabilizes the health of your business, whether you are looking to sell your business, secure additional loans to grow your business, or enhance the structure of your business.
Recurring revenue also allows you to optimize cash flow and reduce risk associated with businesses whose revenue is based on seasonality, climate, and one-time purchases. Not only can you increase the value of your company with consistent recurring revenue, but you can also make the buying process easier by selling memberships and furnace filter subscriptions with an online store on your website.
Get that recurring revenue flowing. Schedule an online store demo today!
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Reduce Risk, Increase Valuation & Increase Cashflow with Recurring Revenue Streams
By: Will Housh
The home services industry is notorious for having lower valuations as compared to other industries. This is due to the seasonal nature and one-time purchases associated with many service-based businesses.
What is recurring revenue and why is it so important?
Recurring revenue is cash flow that is expected to continue in the future, mostly due to subscriptions or ongoing services like service contracts and memberships.
A top goal of all home service business owners should be to ensure the majority of income is not dependent upon one-time projects or particular seasons of the year. Relying on single projects, like big sales, brings an unstable amount of uncertainty to a business, especially in the home services industry.
Relying on big sales results in lower sale valuations, lower cash flow in the off-season, lower profitability, and a lower exit price if and when you decide to sell your business. Every owner must plan his or her exit. If you are trying to increase your sale price when it becomes time to exit your business, it’s too late. You must act now.
Repeatable business, known as recurring revenue, allows business owners to plan effectively, forecast efficiently, and resource expenditures reliably, thereby earmarking forward spending to grow a business without risk.
Decrease Risk in Your Business
Having a high business valuation is key. Whether you want to get a bank loan, raise funds, attract investors, or negotiate your exit, your company’s valuation is critically important.
While many aspects of business, such as strategic planning, marketing, staff, and equipment are essential for success, recurring revenue is arguably the most essential metric of a company’s health.
Consistent, recurring revenue streams make a business appealing to bankers when approving loans as well as business buyers looking for immediate turn-key success. That’s why recurring revenue lowers risk for all parties.
Investors have far more interest in businesses that demonstrate reliable and consistent revenue streams. We’re not just talking about small improvements in sales prices. In some cases, recurring revenue can significantly increase the value or sale price of the business.
Increase the Internal Value of Your Business
Not only can recurring revenue increase your external valuation, but it is also internally beneficial to business owners, employees, and customers.
Customers: With recurring revenue via maintenance plans and filter delivery subscriptions, you gain the ability to regularly maintain equipment, thereby saving your customers money. Additionally, it makes the customer experience easier and more enjoyable, which in turn builds customer loyalty.
Employees: With recurring revenue, your employees know they’ll have predictable work and year-round pay. This allows them to improve their craft, while also building trust within your organization.
Business owners: With recurring revenue, you now have increased ability to make investments in equipment, create marketing strategies, hire new team members, and plan for the future. It stabilizes revenue and cash flow, while streamlining workflow.
How to Start Generating Recurring Revenue
Now that we have explained all the reasons recurring revenue is essential for service-based businesses, let’s see how to get started.
- Offer a service agreement with every sale. Sometimes a service agreement can replace a customer’s requested discount. This can be far more lucrative for your business as opposed to simply lowering the price to close a deal.
- Focus on maintaining your customer’s equipment regularly, through preventative maintenance, rather than trying to sell a new system or product.
- Create an online store. An online store turns your business into a virtual 24/7 operation and allows customers to buy whenever they want and sign up for long-term service agreements at their convenience.
- Offer automatic furnace filter deliveries via subscription. Customers want to replace their filters on time but they forget. This leads to equipment breakdowns and unhappy customers. If they do replace their filters on time, they might be buying them from a local hardware store or an online retailer. They can buy them from you via a convenient online shopping experience and the filters can be drop-shipped directly to your customer so you don’t have to stock or deliver the products.
- Use your online store to make it easy for customers to sign up for recurring service agreements.
Summary
Developing recurring revenue for your business is essential for continued success and growth. Recurring revenue stabilizes the health of your business, whether you are looking to sell your business, secure additional loans to grow your business, or enhance the structure of your business.
Recurring revenue also allows you to optimize cash flow and reduce risk associated with businesses whose revenue is based on seasonality, climate, and one-time purchases. Not only can you increase the value of your company with consistent recurring revenue, but you can also make the buying process easier by selling memberships and furnace filter subscriptions with an online store on your website.
Get that recurring revenue flowing. Schedule an online store demo today!
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“It’s really easy to set up. I had an online store and was selling products within 48 hours of talking to these guys.”
Jeff K, Ductworks Heating & Air Conditioning“The Contractor Commerce team has been easy to work with and has even customized a few things to fit the needs of my business!”
Chris H, Dick Hill and Sons Heating and Cooling“We have several subscription customers already. This just means recurring revenue for us with no additional overhead or managing.”
Jason C, Advent Air ConditioningRECOMMENDED FOR YOU:
Industry-Leading Contractors Use Contractor Commerce
“The fact is, consumers would rather shop online than in person. If you don’t build an e-commerce presence, you won’t have the opportunity. Now is the time.”
Lou Hobaica, Hobaica Services“It was scary-easy to get set up. It’s plug and play. I drive people to the site, and I collect on the backend. Contractor Commerce takes the order, processes the order, and ships it…any HVAC company would be crazy not to start an online store with Contractor Commerce.”
Bob Reilly, Courtney's Heating & Cooling“Working with the Contractor Commerce team is simple. It’s great. They’re understanding, and they will do anything possible in their power to accommodate your needs. It’s an added service for us…it’s good for our customers”
Jeremy Shellabarger, Airtron Heating & Air Conditioning“Having our website store powered by Contractor Commerce gives us a unique competitive advantage in our market. Our friends in the industry look at our website and say, ‘Wow! That’s super cool. I don’t know why my company isn’t doing this.”
Lizeth Melisa, Comfort Pro“Having an online store from Contractor Commerce is great for our customers! It is convenient and easy for customers to order filters. It saves time when they can go right to the website, place their order and have the filter delivered within a couple of days. Plus, the Contractor Commerce team is great to work with. They are very responsive and helpful and I know they really care about my success!”
Karen B, Liberty Comfort Systems“It’s really easy to set up. I had an online store and was selling products within 48 hours of talking to these guys.”
Jeff K, Ductworks Heating & Air Conditioning“The Contractor Commerce team has been easy to work with and has even customized a few things to fit the needs of my business!”
Chris H, Dick Hill and Sons Heating and Cooling“We have several subscription customers already. This just means recurring revenue for us with no additional overhead or managing.”
Jason C, Advent Air Conditioning