The third secret to creating a sustainable business is having a business with recurring revenue.  For lots of businesses, this is a challenge.  If you want to have a business that will last past you, this might be the most important secret you need to learn.

You see, the next owner of your company will be more interested in the cash flow from the business than anything else. There is one exception to this rule and that’s if you have a business where the next owner is more interested in the intellectual property your business has created than the cash flow from the business.  Otherwise, just be aware that without recurring revenue there isn’t much for you to transfer.

What is recurring revenue?

This is where you wake up on January 1st and you know you can count on a certain amount of sales.  If you have contracts like I did in the vending business, I could count on a range of sales that would happen every week.  In the wealth management business, it’s the same.  I know within a certain range what my revenue will be.

What if you own a business like a consulting company or a construction company?  These businesses traditionally don’t have recurring revenue.  They are as good as the last project they have.  It seems the majority of businesses I run across fall into this category…..a business where the owner wakes up on January 1st and there is no assurance that any sales will happen.

What owners want.

When you own a business, I bet you want to know how much cash your business will create.

If you own one of those businesses where you’re not guaranteed your next piece of business you still want to know your business will create a certain amount of cash.  And, you probably think the more sales the better off your company is.

For many of us, the challenge comes down to how do I create a sustainable level of sales that will allow me to have a healthy, successful and hopefully sustainable business.

If it’s not contracts, what can I do?

This is where it gets interesting.  You see there is a way to create a business that has recurring revenue or at least acts like a business that has recurring revenue.  What, you ask, might that be?

It’s really very simple.  You just need to put together a marketing and sale process that creates customers on a predictable basis.  The sad fact is most of the time, businesses that could have predictable sales don’t.  It’s not that they can’t, it’s that the owners haven’t set their businesses up for sustainability.  In fact, most of the time these owners haven’t even thought about how to do so.

Marketing and sales are two completely different things.

Before we get into what you need to do let’s talk about a huge problem I see way too often.  Most business owners I talk with think marketing and sales are the same thing.  The truth is they are completely different activities.  Most of the time someone who is good at marketing won’t be good at sales and the same is true for someone who is a good salesperson.  They probably won’t be very good at marketing.

The purpose of marketing is to create awareness of who you are.  The purpose of sales is to create revenue for a business.  If you can only afford to do one, you must focus on sales.  If you don’t have revenue, your business can’t have profits.  Without profits, your business won’t exist.  (Kind of obvious, isn’t it?)

Let’s say we have enough money for both marketing and sales.

If you have enough money and bandwidth you want to start with marketing.  The reason is very simple, your sales process is much easier if those you’re approaching have put their hand up or you’ve done something to make them aware of your business.

Once a potential customer is aware of who you are and you’ve helped them understand that you know what the job to be done is, that potential customer will most likely be interested in what it is that you sell.

Here’s a caveat for both marketing and sales.  If you’re talking about all of the cool things your product does, you’re likely missing the mark.  Your customer really wants some benefit that your product or service provides.  Your job is to identify what that benefit is and find ways for potential customers to figure out they need to be talking with you.

A marketing exercise you should do.

In our EBook, Strategic Marketing I ask our readers to do this simple exercise:

  • Write a list of your best customers down. This list should be the customers who make you the most profit.  I do mean profit and not sales.  And, then cross off all of those customers who are not easy to work with.
  • You are now left with a list of customers who create great profits and are easy to work with.
  • Next, write down what all of these businesses have in common. Make sure this is not only demographic information but psychographic information as well.
  • Build an avatar or persona for what your perfect customer looks like.
  • Think about where you can find these people. Is it a trade association?  How about Chamber mixers?  It could be LinkedIn or even Facebook.  You get the idea.

You’ve now put together a basic marketing program.  You know who your best customers are and you know where they hang out.  This is where it gets hard.  And, we’ll cover this when we move from marketing to sales.

Your assignment is to read The Illustrated Book Yourself Solid and do the exercises.  After you’re done you’ll have a fully fleshed out marketing plan.

Never let your sales department call on anyone but A Customers.

Remember that perfect customer we just identified.  Your sales team is going to push back.  They’re going to say you need to allow them to call on other customers if they are ever to hit their quota.

This is one of the worst things you could ever allow.  When your sales team calls on anyone but potential A Customers you’re allowing your sales team to make your company inefficient.  And this costs you money.

Instead, develop a sales system that supports your sales team in selling to your best customer, not any customer.  Your best customer will be interested in a solution that’s different than others in their industry.

You’ll have answered two crucial questions that will arm your sales team with a secret weapon.  You ask, what are these questions?

  • What is the job to be done by your company?
  • Why is your company being hired to do this job?

Answering these two questions is harder than you think.  Make sure you go past the obvious first answer.  Make sure you drill down at least five levels on each question.  This will allow you to get to a core reason your company can uniquely provide for your customers.

Book to read:  Competing Against Luck by Clayton Christiansen

The final step, enter the Challenger Sale

In the book The Challenger Sale, the authors discovered the very best salespeople are not relationship builders, but challengers.  This type of salesperson challenges their customers to think differently about their problems and more importantly, the solutions to those challenges.

If you’ve done your job properly, you’ve provided the challenger answers for your team.  And, this is the important part, you’ve put together a solution for that challenge that you’re asking your salespeople to present.  If you can do this, you’ve put your company in a different place than your competition.

If your sales team is a little prickly here, that’s OK.  You want to disturb your potential customers and you want them to think differently about what your company does.  When your team sells this way, you become much more valuable to your potential customers than the salesperson who wants to create a personal relationship but doesn’t have a solution.  These salespeople will have great conversations, but won’t bring much business back to your company.

Let’s review

  1. Recurring revenue is the goal for any sustainable business.
  2. If you do or you don’t have recurring revenue and have a great marketing and sales system, you’ll still be able to adequately predict the amount of sales your business will create.
  3. Understand that marketing and sales are completely different activities and require different skills.
  4. Figure out who your best customers are.
  5. Clone your best customers through developing a demographic and psychographic profile.
  6. Only let your salespeople call on A Customers.
  7. Understand what the job to be done is and why your company is being hired.
  8. Have your sales team use this information to challenge your potential customers to think differently.
  9. Have a solution for the different thought process that your sales team presents.
  10. Don’t forget to have your sales team ask for the sale. This is a step too many salespeople forget.

Following these ten steps will help your business create a predictable source of revenue and after all, isn’t that what you want in the first place?

What do you think about creating a business that has true predictable revenue?  Leave a comment and let me know what you think.

Topics: recurring revenue, Sustainable Business, sustainable business project

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