Recurring revenue is an MSP’s backbone around which the success of business relies on.
Recurring revenue is a payment that is being made over a set period of time due to a customer’s ongoing subscription to a service.
These subscriptions can be made on a daily, monthly, or a yearly basis. In this blog, we are going to take a look at why it is so crucial to identify this metric and what it means to an MSP to track their recurring revenue.
Why is it essential to track recurring revenue
Recurring revenue is an essential benchmark through which the health of a company that relies on subscription-based revenue can be tracked. And once you start tracking this metric, you can see if your objectives are being met month-on-month or yearly.
By constantly tracking your returns, you can make sure that there is a constant stream of revenue flowing in. Cash flow also becomes predictable when there is a consistent tracking of revenue. It also helps put into perspective what the tangible returns on investments have been.
Conversely, tracking revenues is also beneficial for clients because it helps them plan their yearly or monthly budgeting activities.
Customer lifetime value
Customer lifetime value is also a good metric to measure when tracking recurring revenue. CLV is the total revenue a customer can generate in the lifetime they are there with the company. It shows the total value that the customer provides for the business.
CLV clearly outlines the performance and the prospects of the company. An increasing customer lifetime value can indicate that the company is doing well and there is more potential to generate more business.
On the other hand, a declining CLV indicates that the customers could be dissatisfied and there could be a possibility of churn. Consequently, tracking your CLVs then becomes significant because the MSP can then take suitable action towards keeping the customers long term.
Ways to significantly improve your recurring revenue
Now that we’ve covered what recurring revenue is and identified the metrics that measure it, how can an MSP go about increasing their recurring revenue? Diversifying your services is one way. Diversifying into cybersecurity services should be essential for MSPs especially in the vulnerable environment we are in now. Cybersecurity threats are so rampant that for a client, data protection is the top concern. Offering cybersecurity services can be an add-on to the bundle of services that the MSP provides.
Offering add-on services also allows the MSP to increase the price of their licenses. Raising prices might raise a few eyebrows but one of the crucial steps towards increasing recurring revenue is to increase prices.
For many companies, especially MSPs that are trying to grow, leveraging automation can be another excellent way to increase recurring revenue. Automation helps you free up time and manpower to focus on other tasks at hand. For instance, SuperOps.ai offers a variety of automation tools like Runbooks, time tracking, event triggers to name a few to automate multiple tasks and make the technician’s life easier.
Read our article to find out why MSPs need to start focusing more on automation.
Predictable cashflow aids in growth
Predictable cashflow is the force that drives an MSP forward. To put it simply, unless there is recurring revenue coming in every month, there is very little chance of an MSP surviving. Cashflow and profitability are the keys to an MSP’s business success. Now the question that every MSP should ask themselves is can this cashflow be tracked? And can they identify the factors behind the unpredictability in cashflow?
This is where a robust automated quoting system comes into play. At the onset, clear out all your negotiations with your client before you fix a final quote. Once the quote is fixed, that goes into your invoicing, which goes to the client for approval. Once you have these set in place, then there is no pushback from the client for an invoice approval.
Since one of the biggest roadblocks to cashflow predictability is quoting, once you have an effective quote management system in place this solves for the challenge in measuring recurring revenues.
Click here to learn more about SuperOps.ai quote management system.
Monitoring revenues to stay ahead of the curve
The technology terrain has seen such significant changes over the past few years and is continually seeing rapid developments. There is much talk about the recession and its effects on the industry and trends have shown that even though MSPs seem to have dodged the bullet it wouldn’t be judicious to put one’s feet up.
By keeping an eagle eye on their recurring revenue especially, MSPs can measure their growth, plan their budgeting and arrive at predictable cashflows. This directly results in the MSPs consistent business success, customer satisfaction and staying ahead of the changing revenue curve.