Mar 31, 2020
How to get an 8x increase in your business valuation
There has been a profound shift in business models from selling or licensing products that give perpetual ownership to customers, to a subscription (recurring revenue) model. This is a change from CapEx based sales models to OpEx based sales models. Most software companies have already transformed their licensing model to a SaaS (software as a service) base model from perpetual licensing. This transformation is not limited to software, almost any business can build a strategy to benefit from X as a service, where “X” is your product or service.
There are many benefits for making this transition. The customer benefits with better product choices and more flexible purchase options. The company may benefit from reduced support costs and improved product management. But the big upside is the recurring billing, a revenue stream that never turns off and creates customers for life. This change in pricing and adjustment to the business model can increase the value of a company by 8X!
It is critical to understand your customers and markets before making the transformation to both maximize productization (pricing, features, delivery, etc.) and to help avoid any negative impact on legacy customers. But this moment of transformation provides a unique opportunity for businesses to get disruptive — to launch a new business model to better position against competitors, re-define value propositions, and even increase revenues.
Get creative; there are many ways to create recurring revenue options from e-commerce subscriptions and consumption models, recurring billing tools, and microtransaction solutions. Any of which can give you a distinctive edge.
The key to a thriving subscription model is to enrich the relationship and monetize experiences. Subscription models can be fine-tuned and scaled to generate a recurring revenue stream for almost any scenario.
Remember KISS — Keep It Simple Stupid! Don't make the pricing too complex, especially when using reseller channels. Make the pricing simple, easy for consumers to understand and easy for resellers to remember. Considering implementing time-based events to ensure you stay in high touch with customers; being in touch creates value and combats churn. Make sure to offer payments in local currency. Think global, transact locally.
Free Trial & Freemium Models
Give shoppers a zero risk invitation to test drive your product and fall in love. A freemium model can provide basic functionality and content, or a full feature experience that expires after a limited trial. Both are smart strategies to get users engaged. It lowers the barrier to entry and lowers the cost of sale. Free trial and freemium equals new customers and faster sales conversions.
It may take thinking out of the box to build the right strategy for your business but once you complete the transformation, your only questions will be “why did I not do it sooner.”
David Cerf, Chief Disruptor at Disruptive Business Solutions
