Make 2017 the Year of Recurring Revenue

We’ve said it again and again: one-off, project-based revenue won’t sustain profitability in the cloud era. It’s time to walk the walk, but you don’t have to do it alone. We’re here to help.

The case for recurring revenue is undeniable.

Our own Jethro Seghers wrote about the power of recurring revenue, highlighting these key reasons why recurring revenue is so attractive to the Modern MSP:

  • growthLower effort, higher yield. “Salespeople can focus their efforts on a new customer who is ready to be onboarded, rather than focusing on closing another deal with the same customer in a transactional model.”
  • handshakeStronger, lasting customer relationships. “Managed services can provide insight into the infrastructure of your customer’s business,” which can lead to upsell opportunities and even referrals for new leads.
  • grow-upReduced complexity. Repeatable, recurring services can often lead to increased efficiency. Plus, simplified billing allows you and your customers more time to focus on strategic growth.

Not convinced? Read this article, recently posted on ModernMSP.com, to get your eye on the prize.

Your “financial freedom” relies on business valuation, author George Mellor writes, reminding us to heed “the magnitude of the disruption that is occurring as the market chooses to consume IT services on a monthly basis. It’s a shift that’s occurring whether you’re ready or not.”

Luckily, with everything-as-a-service appearing more and more in our lives, the IT services marketplace is accustomed to, and conditioned for, the recurring revenue model. Most customers prefer a predictable, recurring charge over a large, up-front capital outlay or unpredictable and unbudgeted project fees.

Great. You’re sold on the idea, but where can you start today?

Taking a page from the Cloud Profitability eBook we published in Q4 of last year, let’s begin with some growth modeling.

We call it a Business Growth Model (versus a revenue plan) because it should reflect all your assumptions about the key drivers for your business. These assumptions include:

  • The average one-time revenue (OTR) value on a per-user or a per-deal basis
  • The average monthly recurring revenue (MRR) value on a per-user or per-deal basis
  • The average deal acquisition rate (for OTR deals, MRR deals, or a combination)
  • The average cost of acquisition for each deal (total sales and marketing expenses)
  • The blended gross margin that you will realize for an average deal

With a baseline of your current business and a plan for where you’d like to take your business next, you can start making some very interesting side-by-side comparisons of possible growth trajectories.

We have some free tools to help you jump right in:

  • Download the Cloud Profitability eBook and check out the second section, starting at page 7.
  • Download the accompanying Modern MSP Business Growth Model (you’ll find the link on page 9) and follow the instructions in the eBook to capture your business assumptions; project your revenue, gross margin, cost of customer acquisition, and net profitability; and graphically explore different growth scenarios.
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Now you’re ready to make 2017 the year of recurring revenue.

About the author

Spencer Czapiewski

Spencer Czapiewski is a senior staff writer for ModernMSP. A Seattle native with a passion for writing and marketing, he loves putting narrative and lightheartedness into his technology content.

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