If you have resolved to make your company more valuable in 2022, you may want to think hard about how your customers pay.

If you have a transaction business model where customers pay once for what they buy, expect your company’s value to be a single-digit multiple of your EBITDA. 

If you have a recurring revenue model, by contrast, where customers subscribe and pay on an ongoing basis, there is a higher likelihood that your business valuation will be based on a multiple of your revenue.

Buyers pay a pretty penny for companies with recurring revenue because they can clearly see how your company will make money long after you exit. 

Not sure how to create recurring revenue? Here are five models to consider:

Products That Run Out

If you have a product that people run out of, consider offering it on a subscription. The local firm Pumpkin’s Diaper Delivery sells subscriptions to diapers for busy parents who don’t have the time (or interest) to run to the store to re-stock on diapers.  Dollar Shave Club, which was acquired by Unilever in 2016 for five times its revenue, sells razor blades on subscription. Subscription Boxes have grown into a complete retail category. The likes of WhiskerBox, RockyMountainShave, CleanCrate and Goodfood are all emerging Canadian retailers with assorted gifts and consumables that are delivered regularly with 80% or more of sales originating in recurring, subscription-based revenue. 

Membership Websites

If you are a consultant and offer specialized advice, consider whether customers might pay access to a premium membership website where you offer your know-hows to subscribers only. Today, there are membership websites for people who want to know about anything from Search Engine Marketing to running a restaurant. 

Services Contracts

If you bill by the hour or the project, consider moving to a fixed monthly fee for your service. That’s what the marketing agency GoBrandGo! did to steady cash flow and create a more predictable service business.

Piggyback Services

Ask yourself what your “one-off” customers buy after they buy what you sell. For example, if you create a new website for a company, chances are they need hosting services for their site as well. While your initial website design may be a one-off service, you could offer to host it for your customer on a subscription. If you offer interior design, chances are your customers will want to keep their home looking like the day you presented your design so that they might be in the market for a regular cleaning service. 

Rentals

If you offer something expensive that customers only need occasionally, consider renting access to it for those who subscribe. Communauto provides customers with access to a car when they need it without forking over the cash to buy a hunk of steel. WeWork subscribers can have access to the company’s co-working space without buying a building or committing to a long-term lease.

Conclusion

You don’t have to be a software company to create customers who pay you automatically each month. There is simply no faster way to improve the value of your business this year than to add some recurring revenue.

Contact Whitehorn today to find out how we can help you drive up the value of your business