The Importance of Recurring Revenue

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Recurring Revenue Models WorkAl Switzler, the CEO and Co-Founder of VITAL SMARTS was recently a guest on my peer-to-peer on line talk show (9 year archive: www.GrowthStrategistShow.com). Their international corporate training business has been on the FORTUNE 5000 list of the fastest growing companies for 9 straight years and “haven’t experienced the plateaus that are so common with B2B service firms.” Switzler emphasized “the importance of developing an approach and products to produce recurring revenue.” Another recent guest and CEO of an international B2B service firm, Rod Walz, confirmed that “investing in a system and technology helped $50+ Mil/yr WALZ GROUP “process breach and default documents for 15 of the 25 largest mortgage servicers.” They too have long term commitments.

Roz Alford, CEO of ASAP SOLUTIONS emphasized corporate culture during her talk show interview, but behind her comments was the premise that long term contracts and predictable recurring revenue provided situational permission for her to focus more of her time on the attraction and retention of top talent. They learned a long time ago that “if an IT services company still relies on providing services on demand it rides the roller coaster of billing time and materials. Gross profit drops whenever employees/subcontractors don’t complete time sheets completely or project managers don’t control scope creep.”

Drew Morrisroe, President of CTN SOLUTIONS, Inc. provided some of the most convincing responses to my questions about making the move to recurring revenue. His firm invested a full year transitioning from T&M to value pricing and from projects to maintenance contracts. “A few employees just weren’t up for the change and we had to let a few clients go; but this has been THE most important change in our business…EVER”, said Morrisroe. Other guests from the IT industry, (Phil Jaurique – CEO of SABRE SYSTEMS and Micheal Lacey of DIGINEER) agreed with Alford and Morrisroe.

Private investor, Michael Lackland, of LACKLAND INVESTMENTS, starts with recurring revenue. A service firm that is still over dependent on a few key leaders and relies on short term projects doesn’t get past the first round in his due diligence process. The company that acquired HR411 from CEO Michael Pires, they clearly said that they would not have been interested if he hadn’t turned his T&M human resource service business into a software-as-a-service (SASS) firm.

These investors are not alone. When I screen growth financing requests for THE SERVICE INDUSTRY FUND®, I look for recurring revenue. Our investors only want information about truly scalable service firms. Scalability requires recurring revenue, a core process/methodology, resilience based on little dependence on a few top people, clear standards for training and quality assurance. Frankly, investors and funds aren’t the only entities demanding all of that. Corporate level clients look for the same elements and expect consistency.

Image courtesy of iStockphotoSTEEX

About Aldonna Ambler:
Known as The Growth Strategist®, Aldonna Ambler built and grew a suite of companies to help midsized B2B companies achieve accelerated growth with sustained profitability® A Certified Speaking Professional (CSP), Ambler has addressed over 2000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler raised over $1 Bil dollars for midsized companies. The winner of over 2 dozen prestigious national and statewide "entrepreneur of the year" awards, Ambler is available to speak about “profitable growth during any economy” and/or serve on the board of a growth-oriented privately-held company.

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