Not quite recurring: driving utilization in reoccurring revenue businesses

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Reoccurring–don’t you mean recurring–what’s the difference?

Recurring revenue is pretty well defined: this is revenue that comes in repeatedly, in predictable amounts, at regular intervals.  There is also a sister category, which I’ll call “reoccurring revenue”.  I can’t find a good business definition, so I’ll have to lean on the grammatical distinction between recurring and reoccurring.  Things that reoccur happen more than once, but not always regularly or predictably.  So by extension, reoccurring revenue is revenue that repeats, but for which there’s some uncertainty around timing or amount.

Technically, lots of repeat customer relationships could qualify as reoccurring revenue, but I’m more interested in steadier arrangements that might otherwise be categorized as recurring revenue.  There are a few big categories that fit this bill

1. Payments, commission, and other B2B2C

While business-to-business-to-consumer (B2B2C) companies get revenue through the same business clients every month or year, the amount of revenue can vary based on behavior of the end consumers.  Payments companies are a classic example: the revenue that a payment processor makes in fees depends upon end customer traffic, spending, and choice of payment type.  Companies that make their money on commission or referrals, like travel aggregators, would also fall into this category.

 2. Two-sided platforms and marketplaces

Marketplaces have always had to build their products around distinct buyer and seller user groups.  Typically their revenue is proportionate to the traffic on their platform, so they need to drive utilization by both user types.

3. Contracted volume-based pricing

More and more SaaS and tech-enabled service companies are opting for usage or value-based pricing.  Most end up still operating with some flavor a recurring model, but some move to pricing that’s completely variable and enter reoccurring territory.  For examples, think about companies that opt to charge only for users active in a given period (like Expensify) or companies that charge per usage event (like Twilio).

Utilization is the name of the game

In reoccurring arrangements, there are often multiple customer types: service provider and service seeker, product buyer and product users, payer and payee.  Usually, it’s something of a two-part sale, where you start with a larger “partner customer”, then encourage a smaller “utilization customer” to use the product or service.  If you stop once you have the partner customer, you’re only half way there.

In traditional software organizational schemes, ownership can fall through the cracks.  Maximizing utilization requires a coordinated effort across teams, especially marketing, product, and customer success.  It likely requires that someone be constantly monitoring and coordinating sign-ups (likely a marketing/customer success activity), successful first usage (likely a product activity), and continued usage (likely a joint activity).

Reoccurring revenue graphic

Get sign ups through marketing and customer success

Getting the utilization customer onto the platform can require a multi-pronged approach of contacting that customer directly (through marketing tactics) and enabling the partner customer to encourage their associated utilization customers (through customer success tactics).  For instance, if you have a payments product, you might have an email or retargeting campaign for the utilization customers (your partner customer’s customers) you’re hoping to drive through your channel.  It’s also valuable to have your partner customer educate their utilization customers that they can and should use your service.  For instance, you might want to make sure your logo is well-placed on your partner’s website, help them send enrollment emails, or train their customer facing employees on how to talk about your product—getting all those things to happen stems from strong customer success relationships.

Design a super-easy product to boost adoption

Especially for less frequent or less sophisticated users, the product should be dead easy.  For B2B companies working with utilization customers for the first time, this can be a shift.  Traditional B2B power users are in a business application all day, place a premium on deep functionality, and are more willing to tolerate a learning curve.  Utilization customers likely don’t feel the same way, as they’re probably consumers or much smaller businesses used to dealing with consumer software.  UI should be intuitive, number of steps should be kept to a minimum, and the most important features should be obvious.

Monitor utilization and intervene to re-engage

Like with any other product, customer engagement should be measured over time, and there should be product design elements to bring users back to the platform.  But with a reoccurring revenue business, there should be an additional layer of monitoring cohorts of utilization customers by their partner customer(s).  Check to see if utilization is lagging for specific partners, and if so, engage customer success.  Customer success should care not only about retention of large partner customers, but also driving their utilization rates.

Frame utilization as upsell

The KeyBanc (formerly Pac Crest) survey of SaaS companies has consistently found that selling an incremental dollar in revenue into an existing customer is cheaper than selling $1 in revenue to a new logo ($0.30 for $1 of expansion ARR vs. $1.15 for $1 of new logo ARR in 2017).  Driving growth through utilization is likely less costly than growing by bringing in new large partner customers, but many companies overlook or under-resource that opportunity.

 

 

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