Becoming Profitable

Why a recurring revenue model makes sense for your digital creative agency

By January 26th, 2017 No Comments

Business People With Graph

We work with a lot of digital creative clients. And we’re seeing a clear intention from many of them to create a recurring revenue stream for their business – something we support them in 100%.

Examples can be as ambitious as the development of software as a service (SaaS) model to something as simple as building website hosting services. At both ends of the spectrum, the principles are the same – recurring revenue gives you a predictable growth model that sets the platform for a scalable business.

What do we mean by recurring revenue?

So, what is ‘recurring revenue’ exactly? Recurring revenue means charging a regular retainer for ongoing work that you provide to a client. In essence, it’s about ongoing, long-term work. Unlike project work, such as building a website, where you work very hard to earn a sale, the beauty of the recurring revenue model is that you sell once and get paid a known amount of money, frequently, for an infinite amount of time.

Why is this so good?

With short-term project work you have to constantly battle to win the next piece of work just to keep the revenue levels you achieved last month/quarter. The recurring revenue model means you’re constantly increasing your sales, month by month. By finding a new client to benefit from your proven service offering, you add to the level of revenue that you earned last month – and that means you continue to grow.

Is it just about the beauty of constantly building revenue? Not quite. There’s also the added benefit of being able to plan the future development of your business under the recurring revenue model.

You can:

  • Calculate the level of growth in recurring client numbers that you have worked out you can achieve.
  • Work out the average fee that you achieve for this kind of client.
  • Easily forecast the growth of your revenue.

Once you understand what your expected revenue will be, you can start to flesh out a full forecast for your business. You’ll be able to work out what it takes to deliver the revenue that you’re aiming to achieve – so you can accurately understand the associated costs of personnel, sales and marketing, I.T. etc.

A better financial plan for your business

Having this information about revenues to hand is incredibly useful. You’ll then be able to build a full financial plan that will drive the decisions you make in running your business.

The key to success will always be having the right financial information at your fingertips at the right time. And a recurring revenue plan lets you make accurate predictions of the money you can expect to make from your long-term clients.

If you’ve got this long-term overview of the money coming into the business, you’re in a far better position to make decisions around hiring new talent, expanding your office space or growing the business into new markets.

If you’re a digital creative business and want to find out more about managing your revenues, we’d be very happy to sit down with you and talk through a recurring revenue plan.

Want to find out more? Just drop us a line.

Leave a Reply