Secure Financial Stability with Annual Recurring Revenue
April 24, 2024 | Read: 10 minutes
When you think of annual recurring revenue, what comes to mind? A long-term subscription? Lock-in contracts?
How about financial security? Predictable profit? Or improved diary management?
These are just a few positives to consider! Join us as we explore how you can easily secure and manage your annual recurring revenue with software…
These days, you can get a subscription for just about anything, but not every Trades business is making the most of these valuable opportunities.
While there are plumbing, heating, and HVAC businesses who offer regular maintenance plans to cover boilers, heat pumps, or air-conditioning systems, managing their recurring revenue can be another (often complicated) story.
Below, we’ll explore how you can manage reliable recurring revenue and, whether it’s annual or monthly, use it to transform the way you run your business.
What is Annual Recurring Revenue?
Annual Recurring Revenue (also known as ARR), is the guaranteed, repeatable revenue that your business generates every year. Income like this is usually the result of a contract-based service agreement between your business and your customer.
This type of income, alongside Monthly Recurring Revenue (MRR) is helpful for granting your business greater financial stability.
This approach not only ensures a steady flow of income but also builds a long-term relationship with your customers.
Ryan Esco, Chief Marketing Officer, FireRock Marketing
With regular income from a loyal customer base, you can better understand what you’re making and plan for the future.
What Types of Recurring Revenue are there?
Recurring revenue can come to your business in a few different ways. Some methods are easily predictable while others may require a bit more effort.
Either way, recurring revenue can help your business to secure a lot of profit!
Service Reminders
A service reminder itself is not a direct source of recurring revenue, but it can help you get it.
After all, a service reminder is a notice (usually an email, letter or SMS) sent to a customer to let them know that a particular service is due. Service appointments are usually for regular maintenance of a particular asset that a customer has installed.
By sending a service reminder at the right time and highlighting the cost, you can give customers a helpful nudge to book an appointment with your business. If they have an asset that needs to be assessed yearly, then annual service reminders can help you secure their business as predictable recurring revenue.
However, compared to contracted work, a service reminder isn’t a guarantee of income…
Take a look! Find out how to create effective service reminders, here.
Service and Maintenance Contracts
On the other hand, you may have a a maintenance contract. Sometimes called a service contract or maintenance agreement, this is a binding arrangement between you and your customer.
Contracts typically outline the terms and conditions of the service you provide and will state the annual and/or monthly cost a customer pays for these services.
A simple contract, for example, could cover a boiler service for a residential customer. Rather than manually pitch the customer every year (as with the service reminders we mentioned above), the contract could simply roll over so that the customer is automatically covered. If you’re using software, like Commusoft, a service contract reminder can even be sent out automatically, saving you even more time!
On the other hand, with contracts, you might have larger, more lucrative commercial contracts. While similar in what they do, their scale (both for work and financially) will be greater than a residential contract.
Either way, having a customer of any size sign a contract that has a clear price, duration, and terms & conditions will help paint a much clearer picture of your annual recurring revenue.
Three Reasons Why Annual Recurring Revenue is Important
Here are three core reasons why calculating and tracking your ARR is important:
1. Yearly Forecasting
As we touched on above, a benefit of generating annual recurring revenue is the ability to forecast your yearly income. Unlike one-off transactions, ARR provides a steady and predictable stream of revenue.
When you establish this baseline of income, it means you can create more accurate forecasts, plan your budgets, allocate resources, and make informed decisions about business growth.
Furthermore, when you use software to manage information—from individual jobs to customer contracts—your can forecast with an even higher degree of accuracy.
2. Performance Tracking
By tracking your recurring revenue, you can gauge the success of your services, identify trends in customer acquisition, and focus on boosting customer retention.
By adopting a data-driven approach, you’ll empower your business to make strategic decisions about its sustained growth.
For example, if you notice that annual payments have plateaued, you could decide to start a new expansion campaign whose goal is to attract new customers to your business.
3. Peace of Mind
Recurring revenue of any kind creates peace of mind for you and your customers.
After all, by signing a contract to cover a particular service, customers can be sure that their asset—whether it’s a boiler for their home, or HVAC system in an office block—is taken care of with regular maintenance. They can rest easier knowing they won’t have to spend time or energy thinking about what to do, especially in an emergency.
Not only that, but similarly to your business, a customer can manage their own budget more easily. That’s all thanks to a clear breakdown of the monthly or annual service fee that you charge, stated in the contract.
For your business, it’s guaranteed money in the bank. This can relieve the pressure of wondering how much your business will make each month, or across the year. From there, you can make better purchasing decisions, plan ahead for slower periods, and even comfortably navigate unexpected economic issues.
How Do I Manage Recurring Revenue?
With software to help, calculating and managing recurring revenue is a straightforward process.
For calculating, it’s as simple as using your software tool to report on income from active customers. You can then check for annual and monthly returns and filter for different forms of income.
In this way, using software to help you to build all sorts of reports makes getting a breakdown of recurring revenue easy.
As far as managing recurring payments goes, software once again proves invaluable.
A payment integration—like Commusoft’s integration with GoCardless—can mean it’s easy for customers to set up recurring payments via direct debit.
GoCardless enables admins to create recurring billing calendars, so they can spend less time managing and chasing payments.
Additionally, if you manage contracts with software, you can make renewing contracts simple, too. It reduces friction and makes it easy and comfortable for customers to make decisions.
Not only that, but you can provide customers with the convenience they’ve come to expect from a modern service experience.
Features like automatic billing and diverse payment options can reduce friction and encourage customer loyalty.
Josh Miller, Owner, Clean Carpets
Curious to see how recurring revenue can impact your business?
Explore Commusoft’s service reminder recurring revenue calculator!
The Challenges of Offering a Subscription-Based Service
While the benefits of recurring revenue are evident, businesses also face challenges in implementing and maintaining a successful subscription model.
So that you can better understand how software can help, let’s take a look at some challenges you may face:
1. Difficulty Managing Volume
As the number of clients under contract grows, so does the complexity of managing them.
Handling a high volume of customers requires efficient systems and processes to ensure a seamless experience.
Implementing customer management systems becomes crucial to avoid operational bottlenecks and maintain service quality.
2. Acquiring and Retaining Customers
Subscription businesses thrive on customer loyalty. However, acquiring new subscribers and keeping existing ones around can present difficulties.
Balancing customer acquisition costs with subscription revenue should be one of the first calculations you make to maximise profitability.
3. Finding the Right Price
If your goal is to attract customers, you may decide to undercut your competitors. However, this will only kick off a race to the bottom. It’s never a good idea to undervalue your services.
No matter what, the price should cover your operational costs and allow you to make some profit, too. But your pricing should be attractive to customers. At the same time the value of what they’re getting should be clear.
It’s not just about sending out invoices. It’s about creating a narrative around the value your service continuously provides.
Gustav Nicholson, Editor, ampifire
It’s by leverage technology that you can take the pain out of solving these problems. By doing so, you:
Create a seamless, secure, and flexible service offering meets the evolving needs of customers while ensuring a steady income stream for the business.
Rex Liu, Chief Revenue Officer, GoSite
Making the Most of Every Type of Job
Depending on the services you do offer, your profit margins can fluctuate between high, medium and low service jobs. Other factors, like offering a discount, may also impact profitability.
At the end of the day, there’s no such thing as bad profit. Just that the amount of profit earned on a job can vary greatly.
Inevitably, this will make some jobs more attractive to accept than others. For instance, a full-scale heat pump fitting will make you more money than its annual check-up, so it makes financial sense to prioritise these high-profit jobs..
However, with a job management system helping you make better sense of scheduling, you can find ways to fit in more jobs with less effort, further boosting profits.
That means better organised diaries, sending the right engineer to every job, and rarely missing an opportunity to help a customer. As a result, you’ll make more money.
The convenience of booking, combined with the assurance of secure payments, significantly enhances the customer experience, encouraging them to commit to long-term service plans.
Rex Liu, Chief Revenue Officer, GoSite
Using Commusoft to Manage Recurring Revenue
Commusoft empowers field service businesses to streamline operations from top to bottom. Here’s a glimpse into how our powerful software simplifies the way you manage recurring revenue:
- Automates Invoicing and Payments: We can eliminate manual billing and even send invoices automatically based on contract terms. This way, you can ensure payments are on time and predictable cash flow.
- Flawless Customer Management: Easily consolidate all customer information – including contact details, service history, and payment records, in a centralised location. This means your technicians can always access the customer information they need while in the field!
- Detailed Reporting: Gain valuable insights into your recurring revenue performance with insightful reports. Track key metrics like customer acquisition cost, churn rate, and average revenue. You can then use these insights to identify areas for improvement and optimise your subscription model for long-term success.
By using Commusoft, field service businesses can effortlessly manage their service contracts and secure recurring revenue. You can also optimise service delivery and more easily predict financial growth.
Get started today by reaching out to us or clicking the banner below!
