The Power of Recurring Revenue

Create more business by getting customers to do autopays for studio membership to your studio.
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Create more business by getting customers to do autopays for studio membership to your studio.
Yoga Class

Recurring revenues are the portion of your sales you can count on receiving from month to month, with some degree of certainty. They create a stable cash flow, contribute to client retention, increase your client base, and ultimately strengthen your bottom line. No matter what type of business you run, chances are you can benefit from a recurring revenue program.

"Auto-pays have taken my business from the universe of uncertainty into the realm of steady, fluid income," said Chris Blades, co-owner of Charm City Yoga, which operates four yoga studios in the Baltimore area.

After implementing a recurring revenue program, Charm City quickly realized impressive gains, including:

A more than six-fold increase in the number of auto-pays sold
Growth in auto-pay revenue from 5 to 24 percent
A jump in the amount of recurring revenue as a percentage of overall revenue from 14 to 36 percent
A 53 percent growth in annual revenue in one year

How it Works

In general, businesses that incorporate a recurring revenue model make more money than pay-by-the-class revenue models. To add insult to injury, pay-by-the-class strategies usually have a negative impact on client retention because your clients haven't committed themselves—either financially or emotionally—to your business long term.

Recurring revenues, also known as auto-pays, electronic funds transfers or membership contracts, can be structured to work in a wide variety of environments. Charm City introduced a one-month $40 introductory offer to encourage first-time students to begin a regular practice. "During that month, I send four emails to the new students, slowly introducing the idea of moving up to the monthly membership," said Blades. "I send a personal letter describing the benefits of a regular yoga practice, with a monthly sign-up form attached, and I also have a staff member call everyone once during the month."

Creativity works well here. Instead of selling ad hoc appointments or services, create a monthly fee (i.e., membership) for classes in that time period. Most yoga studios already offer monthly unlimited class options, but why not pair them with a retail discount or monthly private sessions?

Price it Right

The biggest mistake most businesses make is overpricing their auto-pays and memberships. And then the only people who sign up are ones that already take classes or purchase frequently, or what are called high users. To transform your business, you need to price auto-payment deals so that both medium and high users purchase it.

First, business owners need to accept that most clients don't visit as often as you think they will, so you shouldn't base your auto-pay membership on that instinctual estimate or it will likely be too high. To figure out what isn't too high, analyze the attendance of your clients and categorize them by low, medium, and high users.

A rough rule of thumb is:
Low Users attend less than 2 times a month
Medium Users attend 3-7
High Users attend 8-12 times

To price the auto-pay, take the number of times the medium come per month (6, for example). Multiply that by your drop-in rate ($15). In this example, the auto-pay would be $90 per month. You should target your auto-pay on this medium demographic. That's what Charm City Yoga did, and it saw its sales skyrocket. "I can count on these earnings each month and as a result, I can budget new projects and plan growth without fear," said Blades.

There are a couple of other things to consider when deciding the price for auto-pay plans. What is the competition doing? What are other similar businesses charging? If the recently renovated, 10,000 square foot yoga studio with steam room and spa only charges $100 per month, you shouldn't charge $125. Also, you may need to reconsider how you pay your teachers. If you pay them per head, you may need to change your pay structure as classes will get bigger.

Of course, these packages won't just sell themselves. You'll need to do some legwork. First, create sales targets for you and your staff. For example, try to sell 10 auto-pays per week at $90 each for the next four months. If you hit this goal, you've just created a stable monthly stream of $3,600 and boosted your annual revenue by $14,400. You'll also do better if you sell the auto-pay rate as a "limited time offer," and give expiration dates.

Article by MINDBODY. To learn more about MINDBODY, go to mindbodyonline.com.