Today, your favorite client wrote you a check for $100,000. Wow, what a sale … wow, that money is really going to come in handy! That is, until it’s gone, without coming back any time soon. That is, of course, if the project had a great profit margin and your team got it done quickly – we keep hoping for no overtime!
Okay, we get it, it’s fun to see that big check. It’s gratifying and exciting! But, in the long run, it won’t help your company grow, and it will hurt your valuations, if you ever want to sell your business to another company.
When you begin adding recurring cloud revenue to your bottom line, you can expect some great benefits!
Low, low Churn | Once a company converts its IT to a WaaS solution, getting them to move is hard! Going back to on-prem means a huge capital expenditure, and even just changing from one cloud provider to another takes some time and is a very tough sell when the current solution is highly available and meeting the End Customer’s needs.
All of that is so different than when a business needs a new on-prem deployment. If you’ve built a good relationship with the End Customer, of course, they are going to give you an opportunity to win the next project. But chances are, the executive team is going to demand three bids from it’s IT leadership, and they might just ignore loyalty and go with the cheapest option.
Better Margins | Any good accountant will tell you that you bottom line, you simply must earn a 35% gross margin on equipment sales, though 50%, 75% or higher is truly more in line with success. These days, no one manages to get anywhere near those margins! These days, there are just too many competitors to be that successful across every project you bid on. With the cloud, getting a 75% or higher margin is very doable, and you can get that on a solution that doesn’t need a lot back-end support. Once it’s up and running, the End Customer just doesn’t need a lot of help.
Together, low churn and better margins lead to a higher customer lifetime value (CLV). That’s a true mark of a successful company. And, that alone can be…
The Wind Beneath Your Wings | Stop, if you will, and take a moment to imagine having enough MRR (monthly recurring revenue) to cover all of your monthly expenses…every month…into perpetuity! Pretty cool, no doubt! Once you get there, imagine all the way you could spend your time growing your business: add another office, hire more sales people, even develop that product you’ve been noodling on since college.
Then, It’s Time to Sell | In today’s business environment, business brokers love recurring revenue. There’s simply more interest in a business who can demonstrate they have built a reliable, consistent revenue stream. Let’s use the software industry as an example.
SaaS companies are currently averaging valuations that are 6X revenue multiples. You can compare this to a 3X revenue multiple for software companies who sell perpetual licenses. So, why does the MRR from the cloud entice buyers?
Revenue & Cash Flow | Buyers can count on a revenue stream from day one. They know that the income is in hand and readily available to meet their current and new business obligations.
It’s Predictable & Stable | When your company has built a recurring revenue stream, a buyer can easily predict future income growth and use that to create budgets and other business plans.
Reduced Risk & Growth Potential | Recurring revenue streams means steady, non-fluctuating incomes, and that means less risk and more opportunities for growth.
If you want to learn more about growing your monthly recurring revenue with the cloud, we can help! firstname.lastname@example.org or (844) 645-6789. Follow us on social media: Twitter | Facebook | LinkedIn.