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Membership Economy Based Revenue for Your Business

By Jeremy Flinn, CMO

Whether you sell a product or a service, the daily grind of sale to sale is not something we look forward to each day. The fact is, if you’re not selling, you’re not making money. For most this is simply the way it is. But for many, they just think this is the way it has to be. The fact is they may not be operating their business, and more specifically revenue stream, to its fullest. Instead of thinking about individual sales they should be focused on recurring revenue. Though many of these business owners may not think a “membership economy” based revenue stream is applicable to their business, the reality is it may be the only way to keep their business thriving!

I know what you’re thinking. “I sell product A, how can I sale a membership?” You’re right, that’s a hard one. Or is it? Take Sam’s Club as an example. They sell a lot of “Product A” and others yet they make a large chunk of revenue on their Sam’s Club membership. Sure $3 Billion in membership, compared to over $50 Billion in sales is a small piece of the pie, but consider the little to know overhead costs in memberships, whereas there is a cost to Sam’s Club to buy Product A and sell it to the consumer. How about you cellular phone company? Most of us are carrying around an AT&T or Verizon network supported smartphone. Sure it seems like we are making a purchase of Product A, but in reality we entered a membership economy revenue stream with them, some sort of contract in which we make a monthly payment for the duration of the term. The membership based revenue stream, does serval things that will make a business more stable and allow for growth opportunities.

Think about your business. If you are selling a product or service, each day is about selling more. There is likely a level of “repeat business” but it’s not implied. The daily grind of running a business like this is taxing. What if you have a bad week, or even a bad month? Let’s say you own a lawn mowing business. The summer is experiencing an epic drought, and grass is not growing. If you charged per cutting, and there is no grass to cut, you are probably sweating bullets, and not because of the sun’s heat. But what id instead of charging per cut, you offered your customers a monthly plan that included cutting, but also featured weed control, fertilizing, aeration, and irrigation? Now you would have the ability to not only irrigate and fertilize yards, but because you are doing so, you will likely have grass to cut…that means you are more needed! With the additional services, you can likely charge more per month, than if you were just cutting grass, and it allows your business to be more predictable and stable month to month.

The ability to infuse a membership economy based structure into your business, can create not only a profitable business, but one that can grow on a strong financial foundation. In a membership based revenue stream, the goal should be to retain your existing customers about 70% of the time, and grow the business with new members 30% of the time. You’re existing base is what covers expenses and pays you at the end of the day, but it also allows the financial clarity to grow the business. However, it’s extremely important to not neglect current customers and strictly focus on gaining new ones. This will result in loss of retained business, and you begin to fight gain/loss battle.

If you think your business is struggling and unpredictable, think about the ability to stabilize your business, KNOW what revenue will be next month, and focus more on retaining current business than where the next customer will come from. If you think differently than the norm, you may find a hidden revenue gem in your own business with a membership economy structure.