In the recession of 2022, many businesses are looking for ways to cut costs or boost revenue. Nobody wants to cut resources or staff unless absolutely necessary, so businesses are thinking about models to increase cash flow.
Recurring revenue is a great way to bring in stable, predictable income. And with several variations of this available, it can suit many kinds of business.
In this article, we'll cover the different approaches to recurring revenue and go over five models that coworking businesses could benefit from.
A recurring revenue business model is a subscription-based model in which a company charges customers on a monthly or yearly basis for access to its service.
Most of the software people use today is subscription-based, as it helps a company's revenue grow linearly with the number of customers. In the 00s, it was more common for users to buy the software once on a disc and then maybe buy the next version when it came out a year or two later.
Recurring revenue provides a stable, predictable source of income that helps to reduce financial risk. It also enables companies to work on one product for several years and release upgrades as soon as they're ready. Because customers only make one initial purchase, it feels like those upgrades come for free.
But recurring revenue models can work for many kinds of business, including "brick-and-mortar" operations like coworking spaces.
Most coworking spaces run on some kind of monthly subscription model, with discounts available on longer-term subscriptions like quarterly or yearly plans. The subscription model is a great way to increase recurring revenue and customer loyalty, as it's easy for customers to build a habit around your service without thinking about the money they're paying.
This "productized service" model is based on providing pre-packaged products and services that customers can purchase and then use repeatedly, usually over a period of time. This is particularly good for consultants who can sell a batch of specific services as one highly targeted product rather than charging by the hour or day. A B2B software company might include a few hours of customer success training as a product for new customers, separate from their regular monthly subscription.
Perhaps the greatest benefit of recurring revenue is that it provides a steady and predictable stream of income. This allows companies to better plan and manage their finances while also providing a more consistent customer experience.
Companies that have a recurring revenue model are more likely to enjoy an increase in customer loyalty. Since there's none of the friction of entering credit card details on a regular basis, customers can just enjoy the service and not think about the money they're paying for it.
Content-based businesses are well suited to the recurring revenue model. This type of business often relies on customers returning to their websites or apps on a regular basis, and this model incentivizes them to do so. On an internet shaped by SEO and digital marketing, content-based businesses need to cater to a specific niche, like New Zealand tradesmen or B2B sales on a co.au site. This makes the business valuable to its audience and makes it easy to charge a monthly or annual fee for exclusive, premium content.
Service-based businesses are particularly well suited to the recurring revenue model. This is because when offering services, customers are often willing to sign up for a long-term contract or prepaid package in exchange for a discounted rate. For coworking businesses, their clients might prefer to make one big payment at the start of the year to reduce their monthly outgoings.
These packages allow for a steady and predictable stream of income while also providing customers with great value and more convenience. These packages also give customers peace of mind, knowing they're getting a service for the rest of the year no matter what happens.
Once you've identified what you can offer on some kind of subscription basis, the next step is to create those offerings and make sure they're tailored to your customers' needs.
This will likely involve a review of your customer personas, which demographics bring you the most revenue, and how you're selling to them. A coworking business in New Zealand might decide to buy a .co.nz domain to market itself as a local business. For a customer in the same area, this might be the deciding factor between them and a global operation.
Once you have your recurring offerings, it's important to set sales goals before you launch them. That might be the number of subscribers to your new service or a revenue target. It gives you something to aim for: if your target is realistic and you're not meeting it, you might need to rethink your offering or the way you're selling it.
Additionally, you can set goals for customer satisfaction, customer retention, and customer referrals. Setting these goals can help measure success aside from revenue and see how customers are responding to the new recurring model.
Another benefit of the recurring revenue model is that it's often much simpler and more low-touch than a bespoke deal for each client. Take the opportunity to review the way you're selling and think about how you could make it more automated and self-serve. Simple pricing tiers can be detailed on a landing page, and accounts can be managed on that same site or even built for mobile commerce. Building up a new recurring revenue model is a big chance, so it's a good time to review the tools and techniques you're using to do business.
Finally, you need to think about how you're notifying your customers from both an operations and marketing perspective.
Recurring revenue models might move all the payment upfront or spread it out over a set usage period or a flexible usage period. It might also have discounts for bigger orders. You need to make these details clear to existing customers whose payment plans are about to change. You might want to let clients' existing arrangements run out rather than switch them over as soon as you switch to a new model; this gives them time to budget for the new plan and make sure they're ready to switch over to any new payment methods or processes.
A coworking business is essentially a landlord renting out the "real estate" of their floor space. This is one obvious recurring revenue model, but there are other services that coworking businesses can offer on a recurring basis.
Per-user or per-seat billing would seem like the way to increase revenue proportionally to usage, but it's actually better than it looks. Not everyone uses the service as much as everyone else, and those unused resources are pure profit for the company.
That's why per-seat billing is so popular in B2B software, but in coworking businesses, the per-seat billing is literally per-seat. You can offer generous discounts on bigger "orders" of seats or longer contracts and still see a good profit on this plan. It's a win-win where the company gets all the benefits of recurring revenue, and the customers feel like they're paying a fair price relative to what they're getting in return.
A "freemium" model is popular in SaaS because the users get to experience directly what they're missing out on by not paying. A service like MailChimp will give users all features for free until they reach more than 2,000 contacts in their email list.
By giving users free, but "basic" access to resources like meeting rooms, coworking businesses can make them feel like they're getting a lot for free while incentivizing them to pay for what they know they find useful. If someone gets used to the luxury of using a meeting room for video meetings, but can only reserve it with a monthly subscription, they'll be happy to pay to secure it when they need it.
A recurring revenue model doesn't mean one price fits all. Multiple pricing tiers are common in software with "consumables" like e-signature products that offer a certain number of documents per month, per tier. Higher tiers offer more of those consumables but also better features and levels of support. For a coworking business, that might mean better privileges around booking meeting rooms or getting larger numbers of people into the space at a better value.
It's common for cloud computing businesses to charge directly based on usage because they're paying an electricity cost directly proportional to the strain the customer is putting on the system. Customers will be billed monthly or yearly, with plans priced per gigabyte of storage or compute. For a coworking business, this could be a simple charge per hour or day that someone has booked a seat or desk.
One benefit of recurring revenue models, versus many regular contract arrangements, is that you can automatically renew subscriptions. Until someone specifically cancels their Netflix subscription, they're paying for it every month regardless of how much they're watching it.
For coworking businesses, this makes operations simpler because they don't have to worry about contracts ending and chasing people up for payment. By removing a monthly payment process, you're reducing friction and not giving customers an opportunity to churn.
There are many recurring revenue models popular in industries like cloud computing and SaaS. By taking inspiration from those and adapting them to their own needs, a coworking business can simplify their operation and increase cash flow for times when they need it most.
The article was written by Francis King. Francis leads customer acquisition at OnlyDomains, a domain management solution that offers global services and support that can be accessed from anywhere in the world OnlyDomains registration in Anguilla. Francis has been a part of the team since 2009. He is our go-to guy for everything online advertising. Originally from Melbourne, Francis cannot go a day without lifting weights; he is considering taking on Jiu-Jitsu next. Francis has written for domains such as Zumvu and Trujay. Here is his blog.