If you have resolved to make your company more valuable in 2017, you may want to think hard about how your customers pay.
If you have a transactional business model where customers pay only once for their purchase, expect your company’s value to be a single-digit multiple of your pre-tax profit.
Most people think of starting a business as risky, but unless you invest a significant amount of start-up cash in your venture, you’re not really risking much other than your time.
That changes if you’re lucky enough to get your business off the ground. As your company grows, you start to risk more and more of your wealth because the business you’ve built is actually worth something. The longer you hang on to it, the more you have to lose.
You can now buy a subscription for most consumer products from dog food to flowers. Music subscription services are booming as our appetite to buy tracks is replaced by our willingness to rent access to them. Starbucks now even offers coffee on subscription.
Why are so many companies switching to a subscription business model? The main reason is that recurring revenue increases the value of your business, but there are some other, less obvious, benefits to add a subscription offering to your business.
When you put together next year’s financial plan, will your growth come from selling more to your existing customers or finding new customers for your existing products and services?
The answer may have a profound impact on the value of your business.
