Why B2B service companies need recurring revenue?

Have you ever heard about MRR, ARR, recurrence? Why are tech companies valued at such multiples (up to 20x their sales) while B2B service companies are valued mainly with a multiple from 1 to 3? It is all about the recurrence of their income, and the business scalability.

This series focuses on seeking recurring incomes to improve business planning to peace your mind.

Why does recurrence matter?

1/ Stability

Developing recurring income gives your business financial stability. It gives you a peaceful sleep and, more important, but it allows you to start planning and thinking about the growth of your company.

Besides giving you more income, it serves you to develop and to maintain long term profitability. You know too well how important it is for your company’s growth.

2/ Focus

Steady monthly income frees your mind from operative issues such as where to find the money to pay your employees, suppliers, or taxes. As you are sure recurring revenue will cover it, only creativity remains. The fun and exciting part of your job. Also, the real engine of your business. Rather than trying to sell each month new project, recurring revenue stream offers you time to think how to be more creative, more innovative for your clients which finally leads you to be unique on the market and have higher margins for your services.

3/ Loyalty

Running a business with stable cash flow and secured monthly revenue should result in higher customer satisfaction and, in return, customer and brand loyalty. If you manage well enough to do repeatable business with your clients, you will be in a position to understand their needs better. By better understanding their needs, you can ensure that your product or services provide them the best value for their money. How recognizable it is! In return, they might likely give you their loyalty and recommendations. More business to come then.

4/ Overhead

The business environment continually changes and can quickly become unpredictable. Leading to a peak of activity. Having a fast overload and even faster overhead in a short period is one of the worst things a company may endure, especially with a one-off revenue strategy. Such companies face challenges handling appropriate headcount per project for a more extended time. Even more often, they need to lay off people after a big project ended, as as a consequence of not having a stable business for the future and cash flow. Company culture becomes fragile. People are nervous about their job stability, which will finally lead to low employee efficiency.

Why does MRR in sales matter?

While MRR might seem like a significant picture metric that impacts the business high-level, it’s just as crucial to individual sales reps as it is for management.

MRR is the most critical metric for financial growth. There are other important metrics like growth rate, retention, average sales price, and rep productivity. Still, the most critical parameter is the amount of monthly recurring revenue; customers are willing to put on their credit card or pay through an invoice.

1. Tracking Performance

How large are the deals that you’re closing? MRR allows salespeople to see the size of the accounts they manage. If you earn a commission based on the monthly recurring revenue you close, your take-home pay could be impacted depending on the proportion of high and low MRR customers you’ve sold.

Are you struggling to hit your MRR quota each month? Take a look at the deals with high MRR you’ve closed.

• Are there any similarities between the clients that have purchased from you?
• Was there anything you did throughout the sales cycle that positively impacted the sale?

Reflecting on these details will help you modify your sales approach for the opportunities in your pipeline. And hopefully, your analysis will result in you closing high-MRR deals.

2. Sales Forecasts

Just as reps can look at their performance, sales managers and leaders can look big picture and see how the team is doing as a whole. By looking at the total MRR, they can make more accurate sales forecasts and projections. And this helps the sales team plan for growth in the short-term and long-term.

3. Budgeting

Without a steady income stream, it’s challenging to run a successful business. MRR tells business leaders how much money is coming in each month that is investable again.

Will you be able to hire more business development representatives this month? Can you run that lead generation campaign? The amount of revenue you’re bringing in is one of the deciding factors in these situations.

If you’re struggling to make ends meet, you can also identify any trends in MRR over time that might indicate financial trouble.

But, if monthly recurring revenue is trending upwards, MRR can be a source of motivation for your sales team. As your sales reps build momentum and close high MRR deals, they’ll be engaged in their roles and eager to close more.

In sum, the recurrence of income eases your life as revenue becomes more predictable. Predictability brings better business planning, and thus reduces operational and financial risks.

kopilot allows business owners and managers of professional service companies to monitor each month the recurrence of their revenue over the last twelve months. Try it. It is free.

More info here 👇👇👇
https://kopilot.io/