10 Powerful Reasons Why You Need Recurring Revenue In Your Creative Business (And Ways To Do It)
There are two types of freelancers in this world:
- Those who have ample clients and cash flow.
2. Those who scrape by every single month, hustling for new clients and struggling to pay bills.
And the camp you’d rather be in is…
Now you may have left the daily 9–5 grind, living paycheck to paycheck, and now you’re living client-to-client.
You wonder if you’ll make enough money this month to pay the rent without resorting to asking family, friends, neighbours or strangers for a loan, or if you’ll have to throw in the towel and go back to working for ‘the man’.
You barely make enough money to call it a profit, and if you do refer to it as ‘profit’ it barely increases month to month.
And then you’re locked into working so hard to keep food on the table and to pay all the bills, that you can’t even entertain the idea of taking a vacation.
Not all creative business work like this.
Some work out how to go from a hand-to-mouth, client-to-client existence to a taking four vacations a year and still making money.
How do they do this?
It’s like Prozac for your business. Neil Patel called it ‘the new black of Internet marketing.’ Steve Penfold says your digital agency is ‘nuts’ not to do it.
So, what is recurring revenue?
Think about it like this…
Do you pay for a subscription service? Like Netflix, Google Apps, Dropbox or Xero?
They are recurring revenue models.
At Foxley, we have subscriptions for many services, like Wistia, MailChimp, Infusionsoft, Yesware, ClickFunnels, Adobe CC, Adobe Stock, and Proposify, to name a few.
Recurring revenue is the only way to build an asset, not a job.
Here are the 3 stages of your entrepreneurial journey (adapted from Rich Dad Poor Dad):
1. Owning a job
2. Owning a business
3. Owning an asset
You want to be number 3.
Owners of financial assets either sell their business, or hire a general manager or CEO to take care of the day-to-day operations. Over time, they’ve developed the processes and systems so that their business is an income generating asset on autopilot.
They use their profits to invest in other investments and usually have multiple revenue streams contributing to their wealth. Once you arrive here, you know you’ve succeeded and can finally start to see the fruits of all your hard work being paid off tenfold.
What’s the problem with the way you currently charge for services?
The biggest problem with hourly and project based pricing is you’ll always be confined by the number of hours in the working day.
The most money you can make in a day is: day rate x the number of billable staff.
Research found that under the current time-based billing model, advertising agency income ‘per unit of work’ has fallen 40% during a steady 20-year decline.’
Let’s look at 10 great reasons why you want a recurring revenue model for your business:
- Reduce client acquisition costs. It costs 6–7 times more to acquire a new client than it does to retain an existing one. Plus “new clients pay less than old clients, and they expect even more in the way of creative outputs (deliverables) and results.”
- Predictable revenue, cash flow and costs so you can reduce your stress. Not having to ‘start from zero’ revenues every month is an amazing feeling which allows you to sleep better at night. It also allows you to be more creative as you have the breathing space to try new ideas. Also, having an on-going partnership with your clients can help you develop deeper, and more profitable relationships with them.
- A higher margin so you can work less and make more money.
- Increase the value of your business so you have a true asset. Even if you can move from 0 percent to 15 percent recurring revenue, you have done wonders for the value of your company.
- Allow you more time freedom so you can kick back and enjoy four vacations every year to amazing destinations around the world. (Yes, this does happen for creative businesses who get it right.).
- Easier to grow (let’s say you make $10k per month from care plans, you increase that by 10%, and you’ve just added $12k p/a onto your revenue for the new year).
- Builds better long-term relationships with your clients. When a web project comes to an end, it can be a real challenge to maintain your client relationships. And the longer you’re out of touch with a client the more likely it is that they’ll be tempted by someone else’s sales pitch. Adding a recurring revenue component to your business means you’ll be in constant contact with your clients.
- Higher profits. When agencies move to subscription billing, clients will frequently sign up for 3-month, 6-month, or year-long contracts. You still need to ensure you’re providing quality service and results to your clients, but recurring billing further aids in client retention.
- Improves your creativity. Guess what? When you’re not worried about your unpredictable income you can focus on more innovative and creative marketing/design solutions for your clients! Stress fries your brain. Money frees up valuable creativity time.
- You can afford to invest in what makes your business great. Things like sales, marketing, research and development, create new products, travelling to awesome tech conferences all over the world, hiring great people to join your team, education and training.
TRUTHBOMB: Without recurring revenue, you’ll never build a long-lasting sustainable design business or financial asset.
So we’ve put together 10 ideas for a recurring revenue model that works for web business:
- Care plans, maintenance and/or backup and security packages.
- Sell websites (or yourself) on a monthly retainer. Just like Jake Jorgovan did and other agency Reaction Marketing in Canada did when they switched to retainer.
- SSL certificates. Google is ramping up their SSL algorithm another notch any day now, so why not take advantage of it?
- Domain name renewals. We recently doubled our domain name fees and instantly added another $20k to our bottom line per annum.
- Membership program.
- Association. Associations can fetch you a 36x higher retention rate for members versus a standard membership site, which typically has a high churn rate, with most members cancelling after just 3 months.
- eBooks. A great example of this in action is what Nathan Barry’s done with his two books, The App Design Handbook and Designing Web Applications.
- Digital products and courses set up as evergreen. Turn your services into products on sites such as Skillshare, Udemy or create your own platform easily using Teachable.
- Email nurturing campaigns. Team up with a copywriter and charge $1-$2k for a nurturing campaign strategy, copy and setup, then $500-$750 per month to add a new email to the sequence/s each week.
- Live events. Live events are a fantastic way to build instant rapport. Make sure you always have something to upsell afterwards, done-for-you services work really well.
When you have a predictable, recurring revenue stream you can spend less time worrying about finances and more time focusing on growing your business.
Isn’t that what we all want? (Well, that and a vacation to a yoga retreat in Bali, or an escape to a treehouse in Brazil to escape the bustling city life. Or jet off to Venice Beach, California, and take a scenic bike ride along the boardwalk.)