Driving recurring revenue with your product
Why sales cannot grow your revenue alone
Hello there 👋
Welcome to today's edition of the Breve - the newsletter for product and growth insights.
🔔 A quick bit of news before we get into today’s topic.
I am hosting a virtual event for product people in Abuja, Nigeria, in November. Register here to attend.
For speaking engagements, please email me at durotoluwaolumide@gmail.com
The subscription model is a go-to business model for many SaaS products because it makes revenue quite predictable. I have also written about the various pricing models for subscriptions here.
However, choosing a subscription model does not mean your users will be willing to renew their subscription or that your revenue will be predictable.
Your product must deliver recurring impact to extract recurring revenue. Recurring impact drives recurring revenue. Recurring impact means that your customers have a reason to use your product to get certain jobs done regularly.
If your product does not deliver such a recurring impact, you will find it hard to capture recurring revenue. What you will end up doing is putting pressure on sales & marketing to bring in new customers and jack up your revenue numbers.
A company exists to find and keep customers. If you are focused on the former over the latter, you will find it challenging to achieve sustainable growth.
Pre-product/market fit, a churn rate of >5% might be acceptable. But if you attempt to scale a business with a >10% churn rate, you are only doing one thing - setting yourself up for failure.
Your sales and marketing team could be closing new deals, but without your product delivering recurring impact, your revenue bucket will leak due to churn. Churn is the biggest enemy of growth.
And it is essential to note that revenue growth is beyond sales. It combines sales, marketing, product, and customer support to find and keep new customers. It is a strategic shift from the sales funnel method to a bow-tie approach to growth.
The bow-tie approach emphasizes keeping existing customers over closing new sales. Your product cannot keep customers if it is just a nice-to-have product. It has to be a must-have product that helps your users to get important jobs done.
It becomes more interesting when your product increases in value the more it is used. That will increase customer switching costs and give them more reasons to stay.
How do you know whether you are delivering recurring impact or not? Your engagement data has the answer to that. How often do your users keep coming back? What feature keeps them coming back? What outcomes do they achieve with your product? How satisfied are they, etc? If you don’t have these numbers, you need to first build the data infrastructure to collect it and visualise it on a dashboard.
Secondly, when you look at these numbers, you need to honestly ask if you can incrementally optimise your engagement numbers to get to your desired revenue goal or whether you need to fundamentally rethink how you capture and deliver value to your customers.
A product in post-product/market fit will be focused on the former, while in pre-product/market fit, you should be thinking about the latter.
That’s all for today.
Kindly share this with your friends and colleagues. Have a great week ahead!
Olumide ✌️
Good one. I like this. Is easy to miss the value in recurring customers. Most companies are usually focused on the funnel approach