Recurring revenues are the new Holy Grail of sales success | Opinion

Like so many of us, I’m cooped up by COVID-19, I rarely eat out. I haven’t bought a stitch of clothing. I can’t remember the last time I was at a gas station.

So why is my monthly American Express bill so high? Over the past seven months, it’s barely budged. Sure Publix, Fresh Market and Whole Foods have made a killing on me lately. But no dinners out, no shopping sprees, no nonessential travel. With the economy on such thin ice, I’m in belt-tightening mode.

But you wouldn’t know that from looking at my credit card bill. The reason, in large part, is because of all the recurring subscription charges that have me locked into paying fees month after month after month. $98 here. $14.99 there. Pretty soon you’re talking real money, to quote the late Sen. Everett McKinley Dirksen of Illinois.

This isn’t great news for my pocketbook. But it’s very good news for companies who can rely on a fairly steady stream of predictable revenue. What businessperson wouldn’t give their eye teeth for more of that these days?

It’s true that subscription fees have been around for a long time, going back to newspaper subscriptions introduced in the late 1700’s. We’re all familiar with the way that Netflix, Spotify and SiriusXM have become multi-billion-dollar businesses on the strength of automatically recurring monthly payments from customers.

Recurring revenue streams have become the new Holy Grail of sales success. Today, you can sign up for monthly subscriptions for sports cars, bicycles, socks, lingerie, dog food, tacky T-shirts, artisanal bacon; the list goes on and on.

One of the masters of automated subscription revenue is right here in South Florida. Chewy, Inc., the Dania Beach-based online seller of pet supplies has seen sales soar by nearly 50% year-over-year. The driver of that growth has been “auto-ship” customer sales according to company CFO Mario Marte. Automatically recurring shipments of pet needs accounted for more than $1 billion in second quarter 2020 sales, nearly 70% of the total.

During a recent earnings call with stock analysts, Marte said that the company’s auto-ship program has seen uninterrupted growth since it was launched. And, not only does it account for the vast majority of sales, it also takes much of the guesswork out of forecasting future revenues.

So, if subscription services can accelerate Chewy’s business, it may help your business as well. Here are three things to think about as you get started:

One: Analyze your customers’ buying behavior. For a subscription service to work, you’ve got to identify a product or service that customers will want to get on a regular basis. That means staples that customers use often, or special treats they’d be excited to receive regularly.

Two: Target a specific customer niche. Focus your very best customers and determine what type of unique product will appeal to them. Or, create a value-based subscription — target people who are already buying something regularly and give them a discount for paying in advance for a year’s worth of product.

Three: Make sure the price is right. Your price needs to cover the costs of not just the product, but the logistics of packing and shipping. Of course, if your subscription model offers a “subscribe and save” discount on regular purchases, then you’ll want to calculate the price the way you would a discount for loyal customers. Your goal is to find a price point that’s attractive to the customer but profitable for you over the long run.

So many of us have seen our revenues tank during the pandemic. Wouldn’t it be nice to automatically lock-in a much bigger slice of the pie?

Adam Snitzer is a revenue strategy expert and president of Peak Revenue Performance, a consulting firm that specializes in designing and executing innovative pricing strategies to increase revenue and generate cash. He can be reached at adam@peakrevenueperformance.com.