The best thing you can do for your business – and peace of mind – is to create a recurring revenue model.
You know the kind, where you start a month knowing you already have some sales guaranteed. Having visibility into your future revenue allows you to plan your time, neutralizes the worry about when your next job will come, and makes your business more valuable in the eyes of an acquirer, who will want to know where revenue will come from when you sell your business.
Just about any business can be reshaped to provide a steady flow of projects and cash. For example, Jim Vagonis, the founder and president of Potomac, Md.-based Hassle Free Home Services Inc., has redesigned the business model of the typical contractor.
The average drywaller, stonemason, electrician or plumber lives a lumpy existence, lurching between 16-hour days and stretches of unemployment.
Instead of following the project-to-project model of home repair, Mr. Vagonis charges a flat monthly fee. In return, his company’s property managers oversee the maintenance and repair of a customer’s house throughout the entire year. The company’s handy staff can take care of most maintenance projects. Instead of succumbing to the roller-coaster cash flow of a tradesman, Mr. Vagonis goes into each month knowing how much revenue the business will generate because its customers pay monthly on annual contracts.
The recurring nature of Mr. Vagonis’s contracts caught the attention of my fellow judges of the 2010 Emerging Franchise Challenge, which selected Hassle Free Home Services as a finalist. You can soon expect to see a company franchise in a town near you.
So how do you make the switch from project-based to recurring revenue? The trick is to figure out what will meet customers’ needs in such a way that they will agree to pay a monthly fee.
Because homeowners have trouble getting a tradesperson to come to their house for a simple – that is, low-paying – job (like fixing a toilet that runs or remounting a towel holder that has dislodged from the drywall), Hassle Free Home Services answers to such a need. The monthly fees pay for a block of time that guarantees customers get someone over to their house to take care of even the smallest jobs. That’s a compelling offer for a busy double-income professional family or a widow or widower who still has a “honey, do it” list, but no honey to do it.
If you can come up with a compelling reason for customers to agree to a regular bill, you’ll have taken a big step toward making your company more valuable in the long term, and less worrisome now.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company.