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Have you ever found yourself awake at night thinking… Where will my next customer come from? Why hasn’t my client paid yet? What will I do if they don’t pay by Friday?
In this article, we’ll cover the 9 types of recurring revenue business models, breaking down advantages, suitability and ideas for each.
Your Cash Flow Solution
Even if you don’t worry about customer acquisition or cashflow, establishing a recurring revenue business model can substantially increase the valuation of your business. Companies with subscribers sell for 3-5 times the price of companies with the exact same revenue and profitability!
John Warrillow wrote the classic book on recurring revenue businesses: The Automatic Customer.
If you’re short on time, this video provides a 4-minute summary of the book.
9 Business Models
John Warrillow broke down 9 models that he encountered while consulting for hundreds of clients. While many of them are better suited toward specific industries, all of them can be applied to almost any industry.
After you put in the hard work setting it up, a subscription business model simplifies life for you and your clients.
- Payments are automated.
- Service is automated.
- You can give your clients better pricing since they’re effectively ordering in bulk.
- You can give your clients better service since you can get to know their needs over time.
- You can get better referrals since you’ll be top of mind for your clients.
- You can potentially sell your business, since buyers will recognize the value of your loyal customer base, recurring revenue, and simplified business operations.
Next, we’ll dive into each model individually to give you insights and ideas for how you can create your own “automatic customers.”
Model 1: Surprise Box
Surprise box businesses delight customers with the joy of opening a gift and the convenience of having it delivered. While these benefits are valuable to customers, they’re not exactly expensive for you to provide. All you need is creativity, postage, the ability to source products in bulk at low prices, and some marketing.
You can start a surprise box business with low upfront expenses. Fortunately, there are plenty of opportunities still untapped.
Surprise boxes are perfect for creative entrepreneurs who are in touch with niche communities, especially on social media. Usually subscribers pay a monthly fee to get a package delivered each month.
If you love sharing your passions for something like travel, wine, comic books, or movie trivia, consider offering a surprise package that you can get paid for! For example, if you own a social media account about travel, try offering your followers a snack box with unique snacks from a new country each month.
- Monthly food and drink deliveries like “tea of the month”, farm-to-table packages, pet food, chocolate, candy, vitamins, and more
- Pop culture collectibles, comic books, shirts or art
- Care packages and gift baskets
Model 2: All-You-Can-Eat Library
The “library” model lets you focus on what you do best (creating content) while your customers enjoy not just one product, but all of your products, for a low monthly fee.
This business model works well for companies who create or distribute online products since digital distribution is so convenient for both businesses and customers. (Think of Netflix and Spotify.)
The “library” model is perfect for anyone who loves to create content—bloggers, videographers, podcasters, designers, photographers, teachers, coaches, and more.
If you love spending your time creating awesome content for others to enjoy, why not give away everything? (For a monthly fee of course!)
Your goal with this business model should be to create a library so unbelievable that no one will ever want to ever unsubscribe. John Warrillow suggests trying to make something 10x better than what your customers could afford to buy so that subscribing will be a vastly superior option for them.
- Mindfulness or wellness exercises delivered through a mobile app with a monthly subscription fee
- Recipes or meal plans delivered to clients’ inboxes
- A massive library of financial planning templates, workbooks, and video tutorials
Model 3: Consumable Product
Your business earns additional revenue every time a customer needs to restock or refill. This is sometimes called the “razor blade” business model because of the consistent income razor companies generate by selling the same simple blades over and over again to their customers.
This business model works especially well for ordinary, everyday products that people need to buy on a weekly or monthly basis.
Customers prefer simplicity, so it’s worth exploring whether you can automate their purchasing process. Ask yourself:
- Do your customers consistently use and rebuy your products?
- Could you tweak your offer so that they could choose to rebuy food or other goods from you rather than someone else? Can you offer your customers a better deal if they pay you a monthly fee?
- Could you sell someone else’s product to repeat buyers and get an affiliate commission?
- Lotion and makeup products delivered monthly
- Packages of pre-written social media posts that you sell to specific industries so that your clients can share the posts on their social media
- “Take & Bake” meals delivered to your customers’ doors (a great option for popular restaurants)
- Single family homes, duplexes, or triplexes that your tenants lease from you on an annual basis
Model 4: Peace of Mind
Everyone worries about something… or many things. What do your clients worry about? Is there any way you can address their concerns and alleviate their fears?
With the “peace of mind” business model, your clients get to breathe more easily while you earn a monthly income for boosting their security.
In many cases, a small amount of effort from you can produce enormous benefits for your clients. So long as you charge for the value of the benefit (not the time you spend providing the service), you can have a very profitable business.
The “peace of mind” business model works for businesses that minimize problems, concerns, or fears for their clients.
Sometime a client fear isn’t immediately apparent to you or your client. To develop a business model, first identify your clients’ fears or possible fears. Next, craft a pitch that addresses these fears directly in a way that would be profitable to you. Finally, test the pitch and see if anyone subscribes to your service.
- Elderly care
- Home security system for a monthly fee
- Monthly website hosting, maintenance, and protection from hackers
- Reputation management service where you respond to online reviews posted on your clients’ Google, Facebook, and other online profiles
Model 5: Simplifier
The simplifier model saves time for everyone.
- Your clients get to automate a part of their personal life or business. One less thing to worry about!
- You get to automate your cashflow.
Usually you can sign clients up for your simplifier service by giving clients a great discount in exchange for their ongoing business.
The simplifier business model works well for busy customers who want to simplify their life…. And who isn’t busy?
Your customers might be:
- business owners aiming to save time so they can focus on growing their companies
- wealthy clients who strongly value their time
- middle class families who want to save time to spend with their kids
- anyone who dislikes a task and would rather outsource it
- Bookkeeping service on retainer
- Ongoing housekeeping service for Airbnb rentals or private homes
- Weekly lawn maintenance
- A design tool or WordPress plugin that customers pay each month to continue using
- Software that simplifies work for professionals (your software niche could be anything from accountants to geologists to veterinarians to zoologists)
Model 6: Membership
Customers are often willing to pay for access to complete trainings, specialized tools, or personalized advice.
A membership business model allows you to earn recurring revenue that reflects the ongoing value your customers receive from your instruction, resources or consulting.
If you like sharing what you know or making people’s lives easier, you’ll love this business model.
Putting together a membership service usually involves significant upfront time investment. For this reason, you can increase your chances of success by doing market research, getting feedback from potential customers, pre-selling memberships, marketing your new service with key partners, and adding new content each month to retain your subscribers.
- A personal trainer offering workout subscriptions (try offering 40% off to customers who buy 4 or 8 workouts per month)
- A massage therapist who raises prices for single massages and introduces a lower price for customers who sign up for weekly or monthly massages
- A hobby website that offers special promotions and deals exclusively to paying members
- An online video course that teaches how to create ink drawings (members get feedback on their work, and the course adds new videos every week)
- Training on how to make viral videos (where members get critical feedback that improves the effectiveness of their videos)
Model 7: Front of the Line
A “front of the line” business model lets you provide a wonderful product to a mass market while earning your living from select customers who are willing to pay for premium features or service.
The “front of the line” model works for businesses where a percentage of customers are willing to pay for premium, exclusive benefits.
The model works particularly well when clients enjoy using the free version of a service, eventually decide they need the Pro version, and then find it hard to stop using the Pro version. G Suite and Dropbox both followed this approach. They offered customers a free version of their products. People used them until they ran out of storage and needed to upgrade. Then it became hard for people to unsubscribe, especially since they came to depend on G Suite and Dropbox for business.
If you’re not sure about designing a service or platform like this, you can apply to be an affiliate (commissioned) seller for a service that you feel comfortable promoting.
- Software with some features locked-off except for those who subscribe
- Email list where additional information is available only to those who pay for the premium version
- A service (car wash, pet grooming, academic tutoring) where you provide different levels of service for clients based on their subscription tier package
Model 8: Private Club
Once you set up a quality club, you won’t be responsible for creating all the value. Instead, your club members will start helping other members!
While you won’t want to completely disengage, your club can sustain itself even when you’re away or you assign management duties to an administrator.
If you like socializing, teaching, or bringing people together, you might enjoy running a private club.
This model is especially popular for coaches. If you’re a coach, you can design an online or in-person environment for your their clients to meet, exchange ideas, and inspire each other.
- Private Facebook group for pilates instructors
- Private LinkedIn community for Facebook marketers
- A co-working space for freelancers and startups that includes private events and networking opportunities
- A mastermind group where members can help each other with their businesses
Model 9: Network
A network business model improves as your number of subscribers grows. The more people engage on your network, the more valuable the network becomes to new members.
A network can be one of the hardest business models to set up. It requires extensive research and planning, significant investment into building out the platform, and a strategic (and probably expensive) marketing plan to reach a critical mass.
However, once you have enough users, and once you’re able to consistently retain and monetize your users, your network can become extremely profitable.
- A social networking community that matches people from two complementary groups, especially where one group attracts the other (ex. Tinder)
- A network where sellers and buyers transact and you’re able to take a commission on every transaction (ex. Fiverr)
- An online marketplace where entrepreneurs can sell physical products (ex. Etsy) or digital products (ex. Udemy)
Imagine Two Alternatives…
In one scenario, you continue operating your business as it is for the next 5 years.
- You run into cashflow issues, but you persevere.
- You stress until eventually you pass the business on to someone else or close it down.
In the second scenario, you follow an actionable plan to make your business extremely valuable.
- You schedule a free call with a business coach. It will be hard to transform your business alone.
- Before your meeting, you analyze possible recurring revenue opportunities using this article for reference.
- During your meeting, you discuss ideas.
- During subsequent meetings, you work with a coach to map out a plan to achieve a recurring revenue business model.
- Within a couple years, you’ve launched your subscription offer and generated a base of 500+ subscribers.
- You enjoy more time off and live with less stress, knowing that every month you have enough recurring revenue to pay your recurring expenses (and additional recurring revenue to keep as profit). A coach holds you accountable for continuing with your business growth plan and helps you identify and seize new growth opportunities.
- When you’re ready, you contact a business broker to explore selling your business.
- Based on the size of your subscription list and the volume of your recurring revenue, your broker places a strong valuation on your company and finds a number of potential buyers.
- You interview buyers, entertain proposals, and accept an offer.
- After selling your business, you take a vacation, start a new company, or retire. You have freedom to choose.
In both scenarios, you put in the same amount of work.
The first scenario results in:
- recurring expenses
- variable revenue
- variable profits
- lots of stress
- no final payout, since the business has no sustainable value after you exit
The second scenario results in:
- recurring expenses
- recurring revenue
- consistent profits
- less stress
- freed up time to market your company, provide excellent customer service, and generate good worth of mouth
- significant profits as you grow your subscribers, like a cascade of compounding interest
- an acquisition payout based on the value of your customer list and the consistency of your cash flow
In the second scenario, you could exit your company perhaps 5 or 10 times wealthier. That’s the experience of many individuals who grew thriving businesses using recurring revenue models.
The difference can be astounding! Built to Sell is a great resource if you would like to explore these dynamics in more depth.
Implement Your Recurring Revenue Plan (Starting Today)
If you already own a business, you can tweak your business model to turn customers into subscribers.
Usually this involves some growing pains. You might have to develop new content, services, or products. Or you might have to raise your prices on your normal offers so that you can make your subscription prices more attractive.
You’re asking more of your customers by charging a monthly payment instead of a fixed fee. To justify this, you’ll need to provide more value. This doesn’t necessarily mean working harder to serve each customer, but it does mean finding creative ways to serve them.
Luckily, each of these business models provides opportunities for automation, especially once you reach a certain volume of subscribers.
As you systemize and spend less time serving each individual customer, you’ll be able to spend more time improving the value of your subscription service and acquiring new customers, thus increasing your profits and scaling your business.
Where can I find more subscription ideas?
No matter your talents or interests, this list has something for almost everyone!
If you’re not sure which idea to pursue, start by asking yourself:
- What do I enjoy doing?
- What am I good at?
- What do I have experience in?
- What are people prepared to pay for?
- Who do I like working with?
What if my business doesn’t work as a subscription?
Discovering or implementing a subscription business is challenging for most business owners. It’s easy to continue operating in the same way you always have rather than pursue something more ambitious.
A business coach can help you uncover subscription opportunities, set up a realistic plan to implement them, advise you on challenges as they arise, and hold you accountable for making progress.
There are many qualified business coaches around the world. If you’ve found this article helpful, you’re welcome to schedule a free consultation with Allison Dunn, the owner of Deliberate Directions.
What is a company you’ve observed that uses a recurring revenue business model? Please comment to share, especially if the company is your own!