The Key to a Predictable, Profitable Business
This weekend I was enjoying some Margaritas with my friend Chris. He is one of the greatest entrepreneurs I know (and I know many, many entrepreneurs). You have never seen him in the news or on the front of a magazine, and that’s because he wants it that way.
Chris’s company throws off a 37.6% net profit, every month. And when I say net, I mean NET. This is the money left over AFTER all business expenses, all salaries (including his), after depreciation, after interest and after taxes. Oh yeah, and I forgot to mention his company does over $1M… every quarter. Just in case you haven’t had your coffee yet, that is $4M a year business, with a net profit of $1,400,000 every year. Like clockwork.
With enough Margarita’s Chris grabbed my arm, and with a slight slur (Margarita’s will do that to you), told me the “secret’ to his success: Recurring Monthly Fees.
Recurring monthly fees are the secret to predictable, profitable businesses. It works for Chris, and it works for me. Now, you need to do the same.
It doesn’t matter if you sell a service or a product; there is a way to implement a Recurring Monthly Fee immediately. And, when done right it will benefit BOTH you and your customer. Here are some examples:
1. Offer a monthly, all included, maintenance service – The customer wins because they can budget for costs, and don’t need to worry about any problems; big or small. You win, because you make money no matter if there are problems or not, and you are motivated to make sure there are no problems.
2. Start an “of-the-month” club – Do you sell a perishable or consumable product? Well start an “of-the-month” club. Cigar-of-the-month, wine-of-the-month, facial cream-of-the-month, condom-of-the-month, massage-of-the-month; the list is endless. The Recurring Monthly Fees can be endless too.
3. Extended Warranties – Have a product or service that is a one time sale? You can convert it into a recurring model by offering an extended warranty.
Recurring fees are so effective for running a healthy business, because it results in a predictable income stream. With a predictable income you can adjust your costs accordingly and position yourself for profits month in, month out.
Chris’s final words drive it home:
“I start the first of every month, in the black. Any additional income during the other 30 days, and there is always some, is simple the icing on top!”
Now you have two things to do. First, implement Recurring Monthly Fees in your business. Then when you are done, pour yourself a Margarita.
By Mike Michalowicz, Author of The Toilet Paper Entrepreneur
August 31st, 2009
[...] This weekend I was enjoying some Margaritas with my friend Chris. He is one of the greatest entrepreneurs I know (and I know many, many entrepreneurs). You have never seen him in the news or on the front of a magazine, and that’s because he wants it that way. Chris’s company throws off a 37.6% net profit, every month. And when I say net, I mean NET. This is the money left over AFTER all business expenses, all salaries (including his), after depreciation, after interest and after taxes. Oh yeah, and I forgot to mention his company does over $1M… every quarter. Just in case you haven’t had your coffee yet, that is $4M a year business, with a net profit of $1,400,000 every year. Like clockwork. With enough Margarita’s Chris grabbed my arm, and with a slight slur (Margarita’s will do that to you), told me the “secret’ to his success: Recurring Monthly Fees. Recurring monthly fees are the secret to predictable, profitable businesses. It works for Chris, and it works for me. Now, you need to do the same. more [...]
August 31st, 2009
Great tip Mike!!
Frank
September 1st, 2009
Just when I am in the middle of starting my own Recurring Fee based service. Glad I was on right path.
September 1st, 2009
@Hameedullah – You definitely are on the right path. One additional tip, is make the price a “no-brainer” if you can. Meaning the value must be so obvious, that at the price you offer it at is a no-brainer.
September 1st, 2009
@Frank – Thanks, brother!
- Mike
September 3rd, 2009
This is a golden nugget one that I have received before. However, I never implemented it and it was one of those to do things. This reminds me that today I am going to take at least one small action to get this from the “to do”list to the “done list.”
September 24th, 2009
Thanks Mike! As business and technology consultants, we revamped our business model last year and are now in the process of setting up some subscription based software products for a low monthly fee.
Brenda Horton
Hware
September 24th, 2009
Brenda – you had me at “monthly fee”. Nicely done!
- Mike
May 31st, 2010
[...] profitable businesses. It works for Chris, and it works for me. Now, you need to do the same: More Posted in Startup Resources Tags: profitable business « 8 Ways to Improve Your Web-Based [...]