Everything You Need to Know About Flexible Pricing Strategies
Recurring revenue and subscription models are no longer confined to technology companies or consumer goods like razors and cat toys. New recurring revenue models have emerged in many industrial sectors: financial services, healthcare, leasing, logistics, transportation, and even manufacturing. Adopting a recurring revenue or subscription model doesn’t mean abandoning your traditional pricing model. These models can be phased in. You can evaluate their effectiveness against your traditional business model and adjust your pipeline accordingly.
When you think of recurring revenue, you may think of subscription services like Netflix or Amazon Prime. However, recurring revenue can take many forms:
- The Lease/Buy Model: This is one of the oldest recurring revenue models, where a customer leases equipment for a defined period of time instead of purchasing it outright.
- Constant Supply Model: This is the Amazon Prime or Staples model. Customers can have a standing order for kitty litter and laundry detergent, office paper and toner cartridges, or engine oil and spark plugs.
- The Service Contract Model: Similar to the constant supply model, this model is popular for services. Customers purchase a contract with a company to provide services, repairs, and replacement of goods for a defined period of time.
- The VIP Model: A variation of the service contract model, the VIP model moves the customer to the front of the line. This is an easy upsell for many companies.
Benefits of a Recurring Revenue Model
You may be curious why are so many sectors are embracing recurring revenue. Inc Magazine highlights three benefits of recurring revenue
- Revenue and cash flow – Companies can rely on recurring revenue to repay loans and other financial obligations
- Predictability and stability – Recurring revenue models are more predictable, so owners can forecast revenue months in advance and create budgets with greater certainty
- Reduced risk and growth potential – Recurring revenue buffers income fluctuations, reducing risk and presenting more opportunities for growth, especially if the companies can anticipate recurring revenue growth in the future
Additionally, recurring revenue models can help businesses
- Expand into new markets and/or geographical regions
- Increase customer retention and build brand loyalty
- Provide scalable models for business growth
- Create opportunities for collaboration and shared revenue
All it takes is some out-of-the-box thinking and the right platform to monetize your business model. Fortunately, you have BluSynergy to support you!
The Challenges of a Recurring Revenue Model
Adopting a recurring revenue model necessitates a change in your pricing mindset. Pricing becomes an ongoing, evolving process not a once-and-done event. It requires acquiring big data on customer activity and preferences to optimize your revenue. If you are confused about big data, read our blog on the importance of big data.
To leverage the power of a recurring revenue model, you need to adopt multi-attribute pricing that takes into consideration the types of products and services you offer; geographic location(s); and usage volumes and trends over time (hourly, weekly, monthly, annually, and seasonal). Your company will need to consider offering a pay-as-you go option, volume discounts, subscriptions, and bundling. You will need to find the right balance between generalized and personalized plans. Will you offer three general plans with customizable add-ons or ten specific plans?
Your pricing strategy must also provide targeted pricing options individualized to your different customers. Multi-attribute pricing takes the beliefs, attitudes, and buying intentions of your customers into account in creating a pricing strategy. For example, value-for-price is influenced by your customers’ beliefs about your brand’s quality. If you are a new company competing with an established brand, you may need to offer your products or services at a lower price point to enter the market. Additionally, you may have customers who want different tiers of personalization. You may want a tier pricing strategy to meet these needs or to help your customer grow into your top-tier services.
Sound confusing? Fortunately, the team at BluSynergy are experts in big data. If you need a new system that leverages big data and agile billing, we can help you with design and implementation for a seamless transition.
Factors to Consider in Adopting a Recurring Revenue Model
Recurring revenue models are becoming the rule rather than the exception. If you haven’t yet adopted this model, now is the time to enter the new world of recurring revenue so you don’t get left behind. There are a number of factors you should keep in mind as you adopt or adapt your recurring revenue model:
- Customer acquisition cost: What does it cost your company to acquire a new customer? How long is your sales cycle? Are there “sticking points” that your sales team could better manage to shorten the sales cycle?
- New business revenue: How much of your net revenue is attributable to new business? How do you balance new customer acquisition and customer retention or increased revenue from upselling or bundling?
- Increased revenue from existing customers: How much of your revenue comes from existing customers who you upsell? Do you generate new business through subscription models or bundling offered to existing customers?
- Customer retention: How adept are you at retaining your customers? Do you know why customers leave? Have you explored ways to minimize the churn?
- Customer lifetime value: What is your ability to attract, close, and retain new customers? What is the average lifetime value of your customers? Are there patterns in a customer’s lifetime relationship with you? Can they grow with you? How can you use that to build your customer base?
Flexible pricing strategies aren’t a one-and-done event. They aren’t focused on meeting your third-quarter sales targets. Recurring revenue and subscription business models focus on how to create the best long-term results for your company’s products and services. Models work to leverage one-time sales by upselling, cross-selling, and bundling. It requires interacting with your customers on a regular basis to learn more about them and their preferences, so you can more effectively meet their needs. With the right monetization platform, mastering big data can be easy and provide you with the nimbleness to compete in a fast-paced marketplace.
BluSynergy is here to support you in creating or expanding your recurring revenue. Let us help you design a sales strategy that integrates seamlessly into your current business model. We believe there is always room to grow!
Give one of our BluSynergy sales consultants a call today at 731-INVOICE (731-468-6423).
PHOTO CREDIT: Photo by Polona Mitar from Pexels