You are now listening to Leverage for Growth. Hey everybody this is Jesse P. Gilmore founder of Niche in Control and creator of the Leverage for Growth, welcome to the daily leverage edition.
Today’s topic is this The Great Revenue Debate: Monthly vs. Annual Subscriptions. Sit back, relax and welcome to today’s daily leverage.
Today, we’re discussing a topic that has a significant impact on businesses and clients alike – the debate between Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR). And guess what, this isn’t just theory for me – I’ve walked this path in my own business. But first, let’s understand what we’re dealing with here.
Section 1: Understanding ARR and MRR
ARR refers to the amount of revenue a company expects to earn in a year on a subscription basis, while MRR is the same but calculated monthly. Both have their benefits and drawbacks, and I’ve personally experienced these in my journey.
In the beginning of Leverage for Growth, I was selling the program as a 3 month coaching package. A one time payment and then if at the end of 3 months they wanted to continue, it would be another 3 months
This worked in the beginning but I hated the end of the 3 months as I never set up for continuation. It just sometimes happened. Other times it did not.
Not a good model.
Then I switched to coaching that was a 3 month minimum with month to month after. That worked well for coaching.
Then in 2022, we created our group coaching program that became our Alliance mastermind.
Everyone in the space told me that it must be annual recurring revenue and cash upfront. That way you have committed clients.
I spent several months trying to get cash upfront for an annual recurring model and it was an uphill battle.
The switch to annual recurring revenue almost killed the business because of a reduction of cashflow.
In the last couple months, we switched back to a monthly recurring model that is at a price point that is typically less than what our marketing agency clients charge for their services
All of a sudden things started to flow again.
I realized that for us, a monthly recurring revenue model and monthly subscriptions for clients made sense for both of our cashflow needs
Now we can focus on client results and client retention, more than simply marketing and a hard sell.
Win/win.
Section 2: Financial Stability and Cashflow
After going through that experience, I started to do some research. I found out that, according to a study in the Journal of Corporate Finance, companies with predictable recurring revenue streams have better financial stability and can plan and forecast more effectively. And it’s not just for the big guys; a study in the Small Business Economics Journal found that smaller businesses benefit significantly from predictable monthly revenue. This resonated with my experience, and I saw firsthand how MRR acted like a life raft for my business.
Section 3: The Focus on Results
But it wasn’t just about the money – it was also about the focus. A Harvard Business Review study found that businesses with monthly recurring models tend to focus more on delivering ongoing value to retain their customers. And this made sense in my case, as I felt more accountable to my clients and always aimed to prove my worth month after month.
Section 4: Client Retention
And lastly, let’s talk about client retention. According to a report from the Subscription Trade Association (SUBTA), businesses with monthly subscription models tend to have higher retention rates. I can attest to this – the ongoing nature of my relationships with clients led to more focus on customer satisfaction, resulting in happier, longer-lasting relationships.
Conclusion:
So, what’s the verdict? In my experience, the MRR model was a win-win for my business and clients. The benefits of improved financial stability, a greater focus on results, and higher client retention far outweighed those of the ARR model. But just like a steady monthly workout routine can lead to greater health benefits over time than an intensive one-week bootcamp, a steady monthly revenue stream can result in a healthier business.
Call to Action:
Now, it’s your turn to reflect. Could shifting to a monthly model provide you with the financial stability, results-focus, and client satisfaction benefits we’ve discussed today? Remember, in the end, it’s about creating the best possible value for your customers and your business.
Note: Please make sure to consult with a finance professional or business consultant before making any significant changes to your business model.
That is the end of our daily leverage. This is Jesse P. Gilmore and you have been listening to the Leverage for Growth podcast.
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