Recurring Income 101

Because no one can work forever, and most people have a limited about of time each day to work toward generating revenue, I researched the Internet and found interesting ways that are being used by the world’s wealthiest people to solidify their revenue stream an auto-pilot.

Below are 6 different types of recurring income from most to least valuable.

1. Hard contracts.

What’s the holy grail of recurring revenue? Look no further than your cell phone contract. Long term commitments are the best way to generate recurring revenue. So, come up with a way to tie in a bunch of people who will pay you a small sum of money each month for years, and you’re all set!

2. Auto renewal subscriptions.

Even better than these two subscription models are the kinds of subscriptions that go on forever, or at least until a customer tells it to stop. In the world of recurring revenue this is known as an “evergreen solution.” Document storage subscriptions are good examples of evergreens.

3. Sunk money subscriptions.

A sunk money subscription requires the initial purchase of a platform. A good example of this is the Bloomberg Terminal–a proprietary platform you have to buy in order to subscribe to Bloomberg’s financial publications, which has made Michael Bloomberg a very rich man.

4. Straight-up subscriptions.

These are finite subscriptions, like for magazines, that offer an optional re-up period at the end of the contract.

5. Sunk money consumables.

This is when a customer makes an initial investment in a platform. For example, what if instead of going to Starbucks, you prefer to make your own coffee at home, and purchase a $500 titanium luxury coffee maker to prepare hundreds of perfect cups over the long haul. Now you need to buy the accessories to make it work. This means that as a consumer, you’ve bought a platform rather than just a product. In the world of recurring revenue, platforms trump products every day of the week.

6. Simple consumables.

Are you jonesing for a grande, three-pump cinnamon dolce, soy, no whip, no foam latte? Or maybe just a drip coffee? Either way, if you’re a loyal Starbucks customer you’re coming back for more of the company’s products.

If you’re a business owner, establishing reoccurring revenue isn’t only good for business, it ensures you’ll get the maximum value when it comes time to sell. #TGBATG

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