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Eaters & Drinkers: Increasing Your Revenue Streams

A primary goal of small business is establishing recurring monthly revenue. This grows your business and helps relieve the more strenuous alternative of re-inventing the wheel each month by selling large amounts of non-recurring stuff.

Most owners speak of building a business. To me this means establishing recurring contracts under which you sell service, support, or supplies for hardware that needs all that. I call products that require these things “eaters and drinkers.” Why do you think the I-Phone is so profitable?  The phone, sure, but mostly from the gazillion eating and drinking revenue streams it generates. 

For example, if you had your choice of selling refrigerators or computers which is the eater/drinker?  Computers, of course, because they need regular add-ons, updates, repairs, virus removal, supplies, security measures, phone calls to Bill Gates, and general support. Usually, there is a contract with an IT company for this which makes that IT business more stable and scalable compared to one selling computer hardware alone. A refrigerator needs nothing except electricity. Selling hardware only is the big boy’s game (think Amazon).

Security companies sell an alarm and then a monitoring contract. Copier companies sell a copier and then a monthly service and supply agreement. You get the idea. Eater/drinker products automatically and immediately produce second and third sales for you. Three sales for the price of one. Nice. Contracts can be subscriptions, memberships, time blocks, loyalty programs or monthly auto drafting. Even a six month contract is better than none. Your business expenses recur as regularly as a sunrise, right?  Match that by building contracted recurring revenue.

A goal is renewing annuals while adding new contracts.  This business model looks like an upside down pyramid with the pyramid’s point being your first contract. The customer base widens as they renew and new contracts add on. Of course some will not renew but eating and drinking contracts help you build a broad revenue base.

Small businesses without contracted revenue, such as storefronts, have a harder time of it.  These depend on unpredictable things like weather, location, trends, advertising, impulse buying and foot traffic. A snowfall, the location going downhill or indifferent employees can end the business. 

Avoid selling one-and-done products or at least having them as your only product. Sell eaters and drinkers needing annual support under contract. If you don’t sell any of these products now then add some. These revenue streams stabilize businesses and attract opportunities for add on sales. They also increase business valuation.

Tom Pease is a small business owner of an office equipment dealership called e/Doc Systems, Inc. He used 30+ years of experience in owning a business to author two books and publish 85 columns as a small business advisor.

Posted: 8/5/2015 7:30:00 AM | with 0 comments
Filed under: and, Big, Business, Drinkers, Eaters, Ideas, Pease, Revenue, Small, Streams, Tom

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Your business may be small, but that doesn't mean that your impact can't be huge! The Greater Memphis Chamber's Small Business Council serves to encourage, support, recognize and be a resource to small- and medium-sized businesses in the Memphis area. Here, our talented panel of contributors will present big ideas that could make a huge difference to your small business. And don't be afraid to ask questions ... no matter how small.

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Human Resources
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