Recurring revenue makes your company more predictable, extends the lifetime value of a customer and ultimately makes your business more valuable. If you’re unsure how to create these automatic sales, a simple service contract can be the place to start.
A service contract is an agreement to provide an ongoing level of service in return for a regular payment. It can be a way to transform an ordinary service company into a predictable subscription business.
For example, Walter Bergeron started a small company servicing circuit boards for large food processing plants. It was a classic service business where Bergeron offered his time to fix customer’s circuit boards when they broke.
The business model worked fine, but cashflow was lumpy. Bergeron had reached a point where he could no longer sell any more of his time, and his growth stalled. Knowing something had to change, Bergeron made a 90-degree turn.