Designing recurring revenue that actually renews

Decision 1: Choose a model that fits how customers already buy

A good recurring model formalizes something customers already do. Look at your last three years of customer history and ask which customers buy again, how often and for what.

Pick one model to start. Running two new recurring offers at once usually halves the attention each one gets.

Decision 2: Define the scope precisely

Vague scope is the most common reason recurring plans lose money or cause disputes. Write down exactly what is included, how often, what is excluded, and what happens when the customer needs more.

A useful test: could a new employee, reading only the agreement, deliver the service correctly and know when to charge extra? If not, the scope is too vague. It also matters for value, because a new owner can rely on clearly written agreements far more than on informal understandings.

Decision 3: Price it so it makes money

Price from the bottom up.

1. Delivery cost per year: labour hours multiplied by your fully loaded hourly cost, plus materials, travel and scheduling time.
2. Administration cost: billing, reminders, record-keeping and renewal contact, often overlooked.
3. Margin: the gross margin you need for the plan to be worth running.
4. Value check: compare the resulting price with what the customer gets, such as priority, savings on repairs or peace of mind. If the price is far below the value, you may be underpricing.

A worked illustration

Illustration only, with assumed figures. Suppose a service plan includes one annual visit taking 1.5 hours at a fully loaded labour cost of $85 per hour, $40 of materials, $35 of travel and scheduling time, and $20 of administration. Delivery cost is about $222. At a target gross margin of 45%, the price would be roughly $404 per year. If the company sells 600 plans and renews 80% of them each year, it carries about 480 renewing plans into the next year plus whatever new plans it sells, about $194,000 of revenue already committed before January. Your costs and renewal rates will differ; the method is what transfers.

Decision 4: Write terms that survive a change of owner

The terms decide whether the revenue is a durable asset or a list of informal promises. Cover at least:

• the term and start date
• what happens at the end of the term (renewal, notice, price review)
• how and when the price can change
• how either side can cancel, and what is refunded
• whether the agreement can be assigned if the company changes hands

Consumer protection rules on renewals and cancellations vary by province, and advertising for plans must not be misleading under the federal Competition Act, which the Competition Bureau enforces. Have your lawyer review the wording. We design the commercial side; legal wording is your lawyer's job.

Decision 5: Build the renewal process before you launch

Most recurring programmes fail at renewal, not at sale. Before launch, decide:

1. Who owns renewals. One named person, measured on renewal rate.
2. When the customer is contacted. For example 60 days before term end, again at 30 days, and a final call at 7 days.
3. What they are told. A short summary of what was done for them during the term, then the renewal offer.
4. How they renew. As easy as possible: a reply, a call or a signature.
5. What happens if they decline. A brief question about why, recorded and reviewed monthly.

Reminder messages sent by text or email are commercial electronic messages under Canada's Anti-Spam Legislation, which sets rules on consent, sender identification and unsubscribing. The CRTC's CASL FAQ is a good starting point, and your lawyer can confirm the details.

Start with customers you already have

The fastest route to a recurring base is usually not new customers but existing ones. Customers who already trust you are far more likely to agree to a plan than strangers.

1. List customers who bought from you at least twice in the last three years. These are your most likely first plan holders.
2. Rank them by fit. Those who need the service regularly, pay on time and are easy to serve come first.
3. Make the offer personally. A call or visit from the person who already serves them works better than a mass message.
4. Offer something they value, such as scheduled service, priority response or a clear annual price, rather than a discount on what they already buy.
5. Record why people say no. The reasons tell you whether the problem is the price, the scope or the timing.

A pilot with 30 to 50 existing customers is usually enough to test pricing, delivery and the renewal process before a wider launch.

The numbers to track every month

Put these in your monthly management accounts. Our monthly value dashboard guide shows how they sit alongside the other drivers.

Common mistakes

• Launching to everyone at once. Pilot with a defined group, fix delivery problems, then roll out.
• Treating the plan as a discount. It should be a better arrangement for both sides, not a cheaper price for the same thing.
• Selling more plans than you can deliver. Missed visits cause cancellations, and cancellations spread.
• No record of service delivered. At renewal time, customers forget what they received. Show them.
• Measuring sign-ups only. The renewal rate in year two is the real result.

Where recurring revenue fits in a value-creation plan

Recurring revenue usually follows margin work, because you need to know your true costs to price a plan properly. It typically becomes a major focus in year one or two of a value-creation plan, and its value becomes visible from year two onwards as renewal history builds.

If you would like help designing, pricing and launching a recurring offer, our recurring revenue service covers each of the five decisions with you. Call or text (604) 632-4959 to start.