How To Automate Your Marketing: Building a Recurring-Revenue Business
by Mike Khorev
Having a business with exponential growth and automated marketing is the dream of most marketers, entrepreneurs, and businessmen. Fortunately, in this era of e-commerce, marketing automation tools and social media, this dream is actually possible. The secret? the recurring revenue model.
In this guide, we will share the blueprint of developing a recurring revenue model where you can automate your marketing. Let us begin by discussing the benefits of the recurring revenue business model.
The Advantages of Recurring Revenue Business Model
In the past decade or so, one of the most interesting shifts in the business world is the rise -and success- of subscription-based business model, which we often call the “recurring revenue” business model. Yet, the recurring revenue business model is not solely about subscription, as there are many different models that can produce the recurring revenue.
Here are some of the best advantages of the recurring revenue model.
Predictable Revenue Stream
With a recurring revenue model where customers will need to pay a fee monthly or annually for using a product or service, we can easily predict our monthly revenue.
Having a predictable, and especially measurable monthly/annual revenue has many benefits on its own. For starters, you can notice immediately when there’s something wrong or when you are not seeing any growth. This way, you can evaluate and adjust your strategy if necessary.
Another key benefit of the recurring revenue model is the amazing scalability, and so it is easier to achieve growth. When a customer is locked in into the recurring revenue via subscriptions and monthly payments, you wouldn’t need to spend your time -and resources- to retain customers.Meaning, you can put your resources into acquiring new customers and only managing your churn rate when necessary.
Minimize Churn, Maximize Loyalty
We have briefly discussed churn rate and customer retention above, and with a recurring revenue model, it is significantly easier to manage retention and brand loyalty. This is mainly because with a monthly payment or subscription, the purchase -the hardest part of running any business- has been made on a monthly/annual basis. So, all the business has to do to maintain or increase retention is to keep the customers happy and engaged. Compare this with a regular business model where a customer can so easily switch to your competitor’s product every month, and you will need to keep convincing them.
Maximizing Revenue and Profit
Also, a recurring revenue model will allow you to more frequently reach out to customers, because they know they are tied to your service/product, and won’t be annoyed when receiving another promotional email. This way, you will have a higher open/click-through rate on your email marketing, where you can update your customers with new product features, or even offering up-sell.
By offering your existing customers add-ons, new features, expansions, and even new products/services, you can generate higher revenue and profit.
Now, we’ve learned the key advantages of the recurring revenue model, and especially why you should adopt the business model. For the rest of this guide, we will discuss the key steps to build a recurring revenue business and automate your marketing processes. Let us begin.
Step 1: Choosing The Right Product
Not every product can be sold in a revenue-recurring business model. Yet, contrary to popular beliefs, your options are not solely limited to tech-based products and especially SAAS (Software as a Service) products. There are many different products across many different industries, and here are a few examples:
- In the F&B industry, you can start a daily food box delivery business where clients pay a monthly fee
- Property rental is actually a form of recurring-revenue business,probably the oldest one in the world. Billboard advertising leasing alo belongs to this category
- Similarly, leasing vehicles and equipment belongs to this business model
- Laundry all-in service (pickup, wash, delivery) where your clients pay a monthly fee
- Supplying regular office consumables (i.e. printer ink) in a contract-based relationship
- Supplying raw food materials or beverages to restaurants
Those above are just a few examples to give you an idea. As long as you can charge the client with a monthly fee or subscription, the product is viable. Now, obviously there’s two different approaches you can take for this step: producing your own product/service, or reselling from vendors. If you do have the available resources, obviously manufacturing your own will generate a higher profit margin in general.
Producing your products can have many different approaches and unique strategies on its own, so we won’t discuss it here. Instead, here we will discuss some key principles when you decide to resell your products:
- Test many different vendors: make sure they are reliable with their delivery, quality control, etc. Make sure you can stand behind the product and build a brand around it. Don’t be hasty when choosing your vendors. Remember, it can make or break your business
- Have a plan B: have at least two different vendors unless it’s absolutely impossible (your vendor is an exclusive manufacturer of the product). There will always be cases where your vendor wouldn’t be able to deliver on time, or when you have an order overload and would need a second supplier. Always have a plan b and even plan c and d whenever possible.
- Dropship when possible: dropshipping has many benefits. It eliminates your needs for a warehouse (at least, a big one), it saves your time and resources, and especially, eliminates your need for a big capital.
- Cost efficiency: in the end, we want to make profit in this business, and we need to make sure we get the best possible COGS (cost of goods sold) to ensure maximum profit.
Step 2: Getting Your Foot In The Door
Now that you’ve decided on a product, it’s time to finally build the infrastructure of your business. This can be an extremely simple of overly complicated process, depending on many factors. Yet, here are some key areas you should focus on:
- Branding: develop a brand according to the chosen product in the previous step. There are several elements here from design to core messages to packaging among others. Check out these huge list of branding examples compiled by HubSpot.
- Write your business plan: having a clear business plan will help especially when the going gets tough. So, don’t neglect this seemingly unimportant step. Check out this guide by Bplans to help you.
- Legalize your business: do the legal aspect of your business early so you won’t have to worry about this later. The process might vary depending on your area, so double check with your local lawyer/small business association if necessary.
- Finance your business: figure out how you are going to finance the business. The money can come from your personal savings, loan from friends and family, getting an investor, and other means. Plan your finances well, as it will be the backbone of your business in the long run
- Building your team: your business is only as strong as your team’s weakest member. So, whether you will need a partner, employee, or outsource to a freelancer, do this step carefully. Check out this guide by Entrepreneur.com on building a startup team.
- Find a location: you might or might not need a physical location depending on your product choice, budget and overall business strategy. Keep in mind that renting a space can be a major expense.
- Build your website: developing a website is now easier (and cheaper) than ever, and there are many tools to assist you in the process. By having your own website, you have more control of your online presence and are not dependent of third-party solutions.
- Choose an ecommerce platform: most likely in this business model, your main platform to sell your product will be your ecommerce. There are many different platforms available today in various price ranges. So, choose one according to your needs and available budget.
- Social media channels: register your social media accounts based on your branding.
As we have mentioned, there might be other areas you will need to focus on in this step depending on your industry. Double check everything, as your infrastructure will play a huge part in your chance of success.
Step 3: Determine Your Pricing Model
While pricing strategy is very important for any business, it is arguably even more important in a recurring revenue model. Why? Because instead of a one-time purchase, your customer must commit to a relatively long term deal, which is also relatively more expensive in value. Second, with the subscription-based model, the pricing strategy will obviously be more complicated compared to “ordinary” businesses.
While there can be many different pricing tactics in a revenue recurring model, they will usually boil down to four big categories:
In this pricing model, there are several different “tiers” of pricing where users get more when they choose to pay more. This pricing strategy is generally ideal, but not limited to usage-based services. For example, a cloud storage service like DropBox might charge 10$ monthly for 10GB storage, $20 for 20GB, and so on. On the other hand, a healthy food box business might have a more affordable menu option for $200/month, a more expensive menu for $300 monthly, and so on. For usage-based services, usually penalties/higher rates are billed when users exceed the monthly usage limit.
In this pricing strategy, users can use the service or order the products as much as they want after paying a specific fee. This pricing strategy can be applied for any products/services, but is generally more appealing for a usage-based services like cloud storage or phone’s data plan. This pricing model is usually used in combination with other models, and especially the tiered pricing model. Balancing the value between the limited and unlimited prices will be the key to success in this pricing strategy.
The term freemium rose in popularity around a decade ago with various internet-based products and services. Here, you essentially offer the product for free, while customers have the option to pay for the “premium” version of the product with more features. Another version of this model is to give free-trials, where you offer a specific period where customers can try the product/service for free.
4. Installment/Flexible Payment
This pricing strategy is used in combination with other models. Typically in a recurring revenue business, customers can have a more affordable price if they opt to pay for 12-months of more in advance instead of just a month. To further make this option more interesting, we can offer them a flexible payment options or installments, where they can pay for 4-months or 6-months first in advance. This pricing model can also work if you are a contract-based supplier. For example, if you are a meat supplier for a restaurant, you can let the restaurant pay every quarter instead of monthly.
As mentioned, these are not the only available pricing strategies for revenue recurring businesses. Be creative with your pricing options, and the key here is how you can make the price interesting enough for customers while maintaining profit.
Step 4: Scaling Your Model
Above, we have mentioned how one of the key advantages of the recurring revenue business model is its scalability. In any industry, the market leader always have an almost unfair advantage, which is especially true in the tech-related businesses. So, it is very important to plan your scaling strategies ahead and aim to achieve as much growth as you can, to be the market leader as soon as possible.
But, how can we actually scale the business? Again, there can be many different strategies, but there are generally two approaches you can take: to acquire more customers, or to get more revenue from your existing customers.
Acquiring More Customers
While there can be many different strategies to acquire more customers, it will boil down to just three:
- Generating More Leads
You can’t have new customers when you don’t have new prospects (or leads). So, to scale effectively, you will need to have working lead generation devices. We will discuss this more in the next steps, but check out this guide by Optinmonster listing a lot of creative lead generation methods.
- Have More Sales Team
Having more (proper) salespeople in your team will generally result in more sales. Yet, won’t having more people in your team results in a higher overhead and less profit? The higher overhead is correct, and this is why many revenue recurring businesses offer a cheaper price for customers who are willing to pay upfront (for 12-months, usually). Yet, it doesn’t necessarily result in less profit, as each performing salespeople can bring more than one customers, resulting in exponential rise in revenue.
- Customer Advocacy/Referral Marketing
Arguably the best way to achieve scalability is when your customers turn into your advocates and promote your products for essentially free. This is the dream of all businesses, but it is obviously easier than done. In essence, you will need to have your product went viral or be a market leader before you can achieve exponential growth from advocacy.
To tackle this issue, we can do referral marketing instead, which is offering incentives to your customers and even non-customers to be your referral marketers. The key of a successful referral marketing is the amount of your incentives: give too much, and your risk the quality of you referrals. Yet, offering too little, and you might not get any referral marketers.
Step 4: Setting Up Marketing and Sales Funnels
Customers won’t generally buy your product/service immediately after they have been introduced to it. Instead, they typically follow a process we know as buyer’s journey.
This is why, we should develop our marketing and sales strategies based on this buyer’s journey, by creating a model we know as marketing funnel and sales funnel. We call them “funnels” because with each step, generally we have less prospects, and so if we put these steps into a diagram, we will see a funnel shape.
Typically, the bottom of the marketing funnel is also the top of the sales funnel: marketing generates interests (leads), and then it’s the job of the sales team to finalize the deal. Different businesses and products will have different sales process, and thus different funnel. However, generally we can divide the marketing and sales funnel into three big stages: the top, the middle, and the bottom, each with their own different goals.
Top of The Funnel
The goal here is to attract new prospects, or technically, generate leads. This stage of the funnel is mainly about making your business known, and so that the targeted audience can be aware that your company/brand/product exists.
It is important to note that your audience in this stage is generally not ready to purchase your product/service.So, your main job here is to showcase credibility and authority as an expert in your niche/industry, to also show that you have a reliable product.
In practice, activities in this stage of the funnel can be a new audience who stumbled upon your content after a Google search, or someone who clicked on your banner ad while browsing.
Middle of The Funnel
More often than not, we give too much focus on the top and the bottom stages of the funnel and neglect the middle one. Yet, this stage is actually very important, as this is where you build relationship and trust so that those that are already aware of your brand can then be interested. In short, this middle stage of the funnel is about nurturing leads until they are ready to purchase.
So, this stage is all about amplifying your credibility and authority which you have built on the previous stage. Also, in this stage you should qualify (link to lead qualification) and nurture your leads.
Bottom of The Funnel
The audience that stayed in this stage already has an adequate level of trust with your brands, and so here your main goal is to convert these prospects into purchasing customers.
Here’s the catch: even when people are already convinced with your product/brand and is ready for a purchase, they won’t buy immediately when there’s no urgency. This is why many marketers often use limited time offer or similar tactics to build urgency in this stage.
So, what you’ll need to do in this step is to break down the processes and strategies you will have for each funnel stage, which will be necessary for the next step. Simulate different funnel possibilities, for example, a prospect might stumble upon your content from a Google search (the top of the funnel), nurtured through email marketing (middle), and finally converts after attending a webinar (bottom). Trial and error different funnel scenarios, and optimize on the most effective one(s).
Check out this guide by Teachable to help you further in building your marketing funnel.
Step 6: Developing A Marketing Strategy
Now that you have known how your marketing/sales funnel will shape, and the key processes that should be addressed, we can develop a proper marketing strategy according to the funnel.
As we have discussed above, since there are three primary stages to the funnel, we can also divide the marketing activities into three big groups:
1. Lead Generation
Here, the purpose of the marketing activities is to attract as much prospects as possible. While there can be many different approaches, the strategies will boil down into two: first, attracting leads by reaching out to potential prospects through advertising, paid social media marketing, events, cold calling and other similar “outbound” activities. We call this “outbound” or traditional marketing. Next is allowing ourselves to “be found” by customers, mainly by consistently publishing valuable contents that are relevant to our customers. This way, we get “inbound” leads that come to our business instead of us to them, and so we call this inbound marketing.
Common tactics in this category are:
- Content marketing: by regularly publishing valuable contents, you can establish your position as the industry expert, and thus gain customers’ trusts.
- SEO: Search Engine Optimization works hand in hand with content marketing,especially written content. The main way people consume content is through a Google search, and with SEO, you can give your content visibility.
- Influencer marketing: essentially, getting influencers of your industry to promote your brand. In this saturated marketplace, this tactic is very valuable.
- Advertising (including paid social media): always effective, but can be extremely expensive not managed well. The key here is to balance
- Referral marketing: getting people to market your product/service in exchange for an incentive.
Obviously, there can be many other lead generation tactics you can try. Check out this guide by Marketo to help you further.
2. Lead Nurturing
As the name suggests, in this category our activities should focus on nurturing the prospects until they are ready to buy the product. There are two main aspects to lead nurturing: qualifying (scoring) leads, and content marketing. Content marketing here serves two purposes: educating your prospects with the benefits of your product, and to maintain your relationship with the prospect.
Although at first glance, having as many leads as we can to work with can be a great thing, the thing is, we only have a finite amount of resources and especially time. This is why qualifying your leads is very important: we only need to nurture those with the highest chance of converting. Yet, how can we determine that? Lead qualifying can be a pretty broad subject on its own, and there can be many different frameworks to utilize. You might want to check out this guide by HubSpot to learn further, but here are the key aspects to consider:
How the prospect will fit to your business according to demographics. You can use the infamous BANT (Budget, Authority, Need, Time) to assess this aspect: can the prospect afford your product? Do they have the authority to make the purchase decision? Can you answer their specific need/problem? What is their timeline to fix their problem or increase their life quality?
You can track various behaviour to determine the prospect’s interest by using various analytics tools like Google Analytics or KISSMetrics. If the prospect spent a lot of time on your site and engage a lot with your social media channels, for example, this prospect is interested enough.
Further examining the prospect’s behavior can show whether they are looking to purchase, or just researching for information. For example, prospects that are only consuming blog posts should have a lower score compared to those who registered for a free trial or attend an event/webinar.
How ready is the prospect to purchase the product, and where are they currently on the marketing and sales funnel? Analyze behaviors and align them with the top, middle, and bottom stage of your funnel.
Above, we have mentioned how content marketing is a very important aspect of the lead generation activities. Yet, it is also highly essential in this lead nurturing stage, showing its importance in any marketing strategy and at every stage of the marketing funnel.
In this saturated and highly advanced marketplace where customers are now highly resistant to advertising, content marketing is now the primary voice of any brands online. It attracts, engages, and educates your audience until they are ready to buy. There can be many different applications of content marketing as a lead nurturing device, but here are the primary ones:
Email and Content Marketing
Even with all the new platforms and technologies, email is still one of the most effective ways to communicate with your prospects and customers. In fact, email marketing still has the highest ROI of over 4,000% compared to other marketing channels. Why, it’s simple, because studies apparently suggested that 73% of consumers prefer emails over other channels, especially to receive promotional messages.
On-Site Content Marketing
Your brand website is your storefront, it’s where your prospects ultimately will judge whether they can trust you or not. Content marketing on your website primarily comes in three different forms: your blog, where you can update it regularly with fresh content pieces, your highly-targeted landing pages, primarily as a showcase that you are an expert in your industry, and a centralized resource center where people can find any information related to your product and/or your industry.
Social Media Content Marketing
Social media content strategy can be a pretty broad subject, and we probably won’t give it much justice here. The key here is to find the right social media platform(s) where your ideal audience are primarily active, and present these audience with the right content type according to the platform. Check out this guide by Curata to learn further about this subject.
3. Conversion-Focused Marketing
In the past, the job of the marketing team stopped in the lead nurturing and even in the lead generation stage, while conversion was primarily the job of the sales team. Nowadays, however, the lines between marketing and sales are increasingly blurred.
The ultimate goal of your marketing strategy, after all, is to drive more sales, and here are the key marketing tactics in this category:
- Content marketing: yes, content marketing is also here. Your content pieces will be the ones educating customers about your product, and where you can establish yourself as a trustworthy brand in front of the customers
- Email marketing: as mentioned, email marketing still has the highest ROI over other channels. Keep the content short, to the point, and consider giving interesting offers
- Advertising: one of the most effective ways to drive more conversions is by investing on high-quality ads paired with conversion-focused landing pages
- Conversion Rate Optimization (CRO)
A recurring revenue business certainly has many benefits over the traditional models, especially since we can accurately predict our monthly/annual revenue. Remember, however, that the key to success in recurring revenue model is still similar to other businesses: providing value and answer your customer’s problems.
Many recurring revenue businesses made the mistake of too aggressively pushing products (that are often low-quality) and pressuring their customers with scammy sales funnels, and yet still complain when their business doesn’t grow. So, the secret here is to manufacture and/or resell high-quality and reliable products that can bring value to your customers.
June 6, 2020