Cash flow is something that no company should leave to chance. Only roughly 25% of businesses have short-term cash flow accuracy. Even still, their cash flow estimates are only around 70% correct. Small businesses in the United State have a tough time being paid on time.
This makes it difficult for small businesses to repay their debts on schedule. If you follow the domino effect, you'll notice that it has a negative influence on the economy as a whole. In the United States, just 40% of small companies are profitable, while 82% fail due to problems with cash flow.
But what can business owners do to avoid having to close their doors due to cash flow issues? Implementing a recurring billing strategy for your services or products is one possibility.
Let's look at why and how you can leverage regular payments to improve your cash flow.
What Are The Advantages Of Recurring Payments?
The best method to assess a business model's potential is to examine the successes (and failures) of other companies that have already implemented it. We may begin with Adobe. In case you missed it, the firm transitioned from a one-time payment approach to a subscription-based approach.
It generated a record $1.46 billion in sales and $0.75 in profits per share in the third quarter of 2016. It even increased by 20% year over year. The company may appreciate recurring revenue, which increased to $3.7 billion in a year. This is a $285 million increase over the previous quarter.
This is a regularly occurring topic for most businesses, including Netflix.
Let's go through some of the reasons why you should set up recurring payments.
Increase Your Revenue With Little To No Effort
You spend the majority of your time attempting to convert prospects and retain customers when selling one-time payment items and services.
A recurring payment cycle reduces the amount of effort necessary to create cash flow. After you've established the billing schedule, you can sit back and watch the money roll in.
All you have to do now is make sure your services and products are up to par so that your customers stay with you in the long run.
Cut Down On Late Payments
Late payments are one of the most critical issues affecting your business's cash flow. When you bill customers automatically, you don't have to worry about this at all.
Late fees are frequently used by businesses to discourage customers from making late payments. This might have a negative impact on your customer relationships.
This takes us to the following benefits:
Enhance Customer Relations
The benefit of recurring payments is that they minimize the need to chase customers down for late fees. This merely adds to the tension and affects the relationship.
Furthermore, because recurring payments are a no-brainer, you and your customers will save time and energy.
It's a good idea to establish a system that allows customers to simply update their card/bank information and payment due dates. Furthermore, it would be more beneficial if your customers could upgrade or decrease their subscriptions on their own.
Save Both Money And The Environment
Another challenge that recurring bills solve is waste. You no longer need to waste money sending paper invoices. You also don't have to be concerned about paper waste from invoices and envelopes.
You're killing two birds with one stone by decreasing both your office expenses and your carbon footprint.
Improve The Security Of Your Customers' Sensitive Information
Keeping your customers' financial information in files is a disaster waiting to happen. A data breach might occur unless you have a safe method of handling and storing these files.
You get all of your payments virtually with recurring billing arrangements. As a result, there is no need to be concerned about unauthorized personnel reading financial documents.
You and your customers can both sleep well knowing that sensitive information is secure.
Simplify Sales Forecasting
One of the difficulties that business owners have is effectively anticipating future sales. Using recurring billing, you may make it easier for your company or business to estimate sales.
Assume you have 10,000 clients who pay you $100 each month. This translates to a monthly salary of roughly $100,000.
You should now expect some customers to cancel after the first month. However, with this technique, you can forecast how much you'll earn each month.
To produce a more accurate forecast, you should know how many subscribers you have at the start of each cycle.
Create A Reliable Customer Base
When you provide a high-quality product or service that people are ready to pay for on a monthly basis, you build a fan base. You can turn them into lifetime customers if you play your cards well.
These people will ultimately become brand ambassadors, bringing in new customers for your business.
Be Unique And Do What Your Competitors Aren't Doing
The majority of business models are one-and-done. They choose to earn a fast profit rather than provide a more cheap product that makes money over time.
This is what premium brands like Adobe are doing to gain a larger market share. If your products and services are expensive, you can offer ongoing monthly payments at a lower rate.
This will give you an advantage over companies that still use one-time payment terms.
Now that you've seen some of the benefits of recurring payments, let's look at how you might incorporate them into your business.
Make An Offer To Ship Products On A Regular Basis
Certain items are required on a regular basis. For example, if you sell dental supplies, you can supply toothbrushes, toothpaste, and floss on a regular basis.
Customers can identify merchants on Amazon that offer this service at discounted pricing. Customers, for example, can sign up for a 15% discount on 5 lbs of flour delivered to their homes every three months.
Put Your Content Behind A Membership Website
Creating a membership website is another method to transition to a recurring subscription cycle. This works if your customers are willing to shell out for a course, videos, or premium material.
Some content providers may combine their blog entries, e-books, and other items into a structured online course and charge a subscription fee to access it.
Software-as-a-Service Monthly Billing
SaaS (software-as-a-service) is a booming industry right now. SaaS products are currently available from businesses in technology, finance, health, and a variety of other areas.
Businesses and customers are always seeking ways to better their lives. If you offer a software service that can address their problems while also increasing efficiency or productivity, you may have a winner.
Instead of charging a one-time fee for access, you may charge customers on a monthly or annual basis. Grammarly is a great example of this, as it provides a basic editing tool for a monthly or yearly fee.
Become a SaaS Affiliate
Perhaps you don't have software to sell as a recurring service. However, there are multiple options available, so why not join one of them?
You can create content, authority, and trust in the industry you care about. Then, using this platform, promote a SaaS product that is both relevant and valuable to your target audience.
Then you get paid for each visitor who subscribes. And you get paid every month; they keep paying.
Make Your Services Available on a Retainer Basis
Perhaps you are a service provider looking to earn a recurring income. You can easily accomplish this by establishing a retainer model for your customers. When a customer pays you ahead of time for monthly services, this is known as prepayment. You can set it up so that they receive a certain number of hours or projects per month.
You won't be taken advantage of this way.
You'll need a tool and a platform to set up recurring payments. You can use a variety of payment portals, including PayPal and Stripe.
You can create "buy now" buttons on your website that direct visitors to the subscription portal. You can also use a tool like Blinksale | Super Simple Invoicing if your work requires an invoice to be sent and paid.
This enables you to set up automated recurring billing for clients who pay the same amount on a regular basis.
Once you've completed all of the necessary steps, you'll be well on your way to boosting your cash flow, retaining customers, and increasing your security.