5 Ways Your Business Is Suffering
5 Ways Your Business Is Suffering from not having recurring revenue.
With recurring revenue time is your enemy and speed is your friend. Here are 5 ways you’re business is suffering due to your lack of recurring revenue.
New Service And Revenue Opportunities
A typical systems integrator has a revenue split of 70% product and 30% services. With the continued decline of product margins and the onslaught of low cost consumer electronics replacing once complex and complicated systems technology professionals are looking for new revenue opportunities. Many of these new opportunities will come in the form of services which will tile the 70/30 scales. There is a large opportunity to add recurring revenue services into the mix which carry higher margins and demand higher valuations.
As technology becomes more accessible and affordable for the masses a new mid-market opportunity presents itself to systems integrators. Many of these mid-market opportunities will involve an initial sale of $1000 – $3000 and will have ongoing service fees associated with them. This model is similar to alarm.com where there is an ongoing service provided to the customer to allow for remote access and control of their basic electronics systems such as alarm, video monitoring and access control. This mid-market opportunity is massive compared to the traditional high-end automation systems in homes and businesses.
Predictable Cash Flow
“Recurring revenue made my business recession proof” is a quote I’ve heard from security integrators. Having steady and predictable revenue from security contracts kept many of these integrators in a comfortable position during the last economic downturn. The bottom line is recurring revenue provides stability which can help ride out volatility in new sales or the general economy.
Recurring revenue builds value for your business! For an integration business with no recurring revenue model your company is roughly equal to 1x your annual revenue. Meaning if you do a $1M is sales each year your business is valued at approximately the same value. Conversely for a recurring revenue business, such as a security integrator, the value of your business is 30x – 50x your monthly recurring revenue income. Doing the math, if your a security integrator who books ~$1M in annual recurring revenue then your business is potentially valued upwards of $4M. That’s quite a difference!
At the end of the day you’re working hard to build your business but what is your end goal? Hopefully you’re planning on that hard work paying off and you have an exit plan. The exit plan might be to turn your company over to employees, fund your retirement through cash flow and profits, merge with another integrator and step out of the day to day or sell your business to another integrator. Regardless of your strategy recurring revenue will have a huge impact with improved cash flow, better valuation and a stronger company position.
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