No matter what business you’re in, or about to start up, sales that create income are critical to your success. The biggest risk to your venture is that you won’t make the sales you need to survive, so reducing that risk is tantamount.
Franchise businesses are attractive in that they come with a built-in sales model, and possibly pre-established marketing. But franchises can still be risky business unless you find a franchise business with monthly recurring revenue.
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Here’s why the requirement for recurring revenue makes sense…
Guaranteed Revenue
Whatever the business offers its customers, it’s possible that it can be offered with a monthly subscription fee. Every monthly subscription, service fee, or membership is guaranteed revenue for the month.
Your business might also enable you to solicit one time sales, but by establishing a large percentage of your revenue as monthly recurring revenue, you help assure that you will bring in a steady stream of money from month to month.
Predictable Revenue
If you know what your consistent monthly revenue will be, you can predict your firm’s total monthly income. Going into the month knowing the revenue generated by the monthly service or membership can help you predict overall profit.
Use the known revenue for the monthly customers as a variable to determine the predicted income from isolated sales. Adding those two numbers together gives you a comfortable idea of what your net revenue will be for the month, and will help you to set that number as the goal for the month.
Easier Base to Expand From
Growing is critical for any business to survive long term, but it can also be the most difficult part of your business. Once you’ve established monthly recurring revenue, your baseline to grow from is no longer zero.
For example, let’s say you end the year with $100,000 in revenue, and you set your goal for the next year to be $125,000. If all of last year’s revenue was first or even repeat sales, then you start the new year at zero, and have to grow by $125,000 to make your goal. But, if last year’s number includes $80,000 in monthly recurring revenue, then your growth goal starts there, and you only have to grow by $45,000 in the next year.
Higher Valuation
Having monthly recurring revenue means having a predictable revenue stream, and that helps your company have a higher valuation. If you’re looking for investors, or planning the future of your business, your company’s valuation can make or break the deal.
Check out this article, which illustrates the difference between ADT, who sells monthly monitoring contracts with its security systems, and Ford Motor Co, whose business is mostly transactional. The market values ADT at close to twice its revenue, but values Ford at about one-fourth of its revenue. The difference is because of ADT’s guaranteed income through monthly recurring revenue.
Conclusion
Buying a franchise is considered the best way to start a business and avoid the risks that cause so many independent businesses to fail. It helps mitigate the startup costs and the financial loss you might have while learning the business. It can also provide a network for advertising and providing low cost supplies.
No matter what the business, success depends on bringing in more than you spend. By buying a franchise business with monthly recurring revenue, you mitigate the biggest risk you have in your quest to success.
