Recurring revenue model. It’s quite the franchising buzz term. But what does it actually mean — and how does it affect franchise owners? Find out.
What is a Recurring Revenue Model?
You might have heard the phrase before, especially as you read up on different franchise models. A recurring revenue model is one that can often depend on consistent, repeat business and revenue. For example, gyms and fitness centers often benefit from a recurring revenue model because members pay their fee each month until their contract is up. Other recurring revenue models include cleaning services with customers that request weekly (or biweekly service) and tax franchises that encourage customers to come back year after year. Recurring revenue just means that customers engage with the business on a consistent basis.
Ability to Plan
Those who own franchises that benefit from recurring revenue are generally able to plan further in advance than other business owners. Recurring revenue franchisees can calculate at least a minimum of what they expect to earn for a given time period based on the fact that customers keep coming back or pay membership dues. For example, if a gym has 215 members and a $46 monthly membership fee, the franchisee can plan on at least $118,680 in revenue for the year. And that’s with no new memberships. The franchisee would be able to plan and budget for that year, and beyond, sooner than a businessowner whose monthly revenue fluctuates drastically month to month.
A Loyal Customer Base
Franchisees who benefit from a recurring revenue model have the opportunity to build a strong customer base. Ideally, your recurring revenue model franchise will garner most of its revenue from repeat customers. And, if you choose to work with customers face-to-face, you’ll get to know your regulars, which is a great way to be actively involved in your business especially if you consider yourself a people person.
Your strong customer base will also be the ones to tell their friends and peers about how great your business is. If they are willing to spend money with you on a regular basis, they are likely to spread the word about the benefits they get from the product or service you provide.
When you own a business, each decision you make has the potential to be a big one. How will this affect your bottom line? How will it affect your employees? With a recurring revenue model, you are slightly more buffered from making the “wrong” decisions. Let’s say you swing big with an expensive marketing campaign. A recurring revenue model allows you to calculate the exact number of new memberships you would need to cover the upfront costs of the campaign. Or you can calculate how many weeks or months of your current revenue stream will cover those costs. With a recurring revenue model, you can be confident that your business will either grow or bounce back.
Explore our franchise opportunities to find a recurring revenue model that fits you and your business goals.