by Kelly Dies, Soundpoint Consulting
A dollar is a dollar. That’s true. And, all revenue is equal. Right? Well no, not in an investor’s or potential buyer’s eye. So what makes some revenue good and other revenue better?
Recurring revenue is highly desirable because is it known and predictable. The best example of this is an auto-renewal fee or service charge periodically charged directly to a customer’s credit card. Once the initial sale is complete there are no more costs to acquire a customer. The revenue stream is much like an annuity. Continue to provide the goods or services as promised and the revenue keeps coming in.
Great examples of this are insurance premiums and streaming fees. Once customers have decided to purchase the product – and assuming they remain content, they are happy to have their credit card billed automatically.
In contrast, consulting and attorney fees are often one-time in nature. Revenue ceases when the project is complete and the engagement ends.
High Switching Costs
Revenue generated from products or services that have high switching costs are more reliable than from those which do not. Switching costs can vary from technical reliance to data lock-up to high start-up costs with a new vendor.
A great example of high switching costs includes services which are outsourced, such as payroll processing. The cost to bring the work in-house is significant as you would have to hire and train a staff of people for this function. Likewise, a bank account with automatic bill pay also has high switching costs, as unwinding those (recurring) transactions is a pain in the neck!
High switching costs in combination with recurring revenue results in some very high quality revenue. Take for example, my relationship with Constant Contact which reliably sends these monthly newsletters to you on my behalf. My credit card is billed monthly. And, it would be a quite an undertaking to transfer my email list to another email provider. Do you think
Constant Contact is at risk of losing my revenue? Absolutely not!
Revenue from a loyal customer base is extremely valuable. Not only does it guarantee repeat business but it potentially means additional business from referrals, thus significantly reducing the overall need for marketing and advertising spend.
Good examples of this are a trusted relationship with your tax preparer or a favorite clothing store. Although switching costs may not be high, loyalty keeps you from looking elsewhere.
Consider two comparable stores with the only difference being the loyalty of the customer base. The store with the more loyal customers has less customer churn and doesn’t have to work as hard for every dollar of revenue. Conversely, the store without the loyal customers has to work hard for every dollar earned. Not surprisingly, the investor/banker/ potential buyer will value the first store more.
What are you doing to earn and keep the loyalty of your customers?
All businesses have revenue streams with different margins. Revenue that generates higher gross margins is more valuable than revenue which generates lower margins. Makes sense. You cannot generate much income from a revenue stream that is saddled with large variable costs.
And, if a revenue stream costs more to produce than the dollars it generates, well that is not good. It’s like giving someone $1 in exchange for 85¢. Do this in too often and you will soon be out of business.
The bottom line – know and manage your unit costs. Try to divert revenue from your lower margin products to those with higher margins.
Just like an investment portfolio, a diversified customer and supplier base is less risky than if you are highly dependent upon a handful of them.
If one of your largest customers were to transfer business to a competitor, how quickly can your business recover? Or, if your largest suppliers were to run into financial difficulties, could you weather the storm?
If your business model is highly dependent upon Google, Amazon or Microsoft, what happens if they change how they do business with companies such as yours? Trust me, you do not have much negotiating power with these guys.
A good rule of thumb is that your top 5 customers should not be responsible for more than 15% of your total revenue. A similar metric should hold for suppliers.
If you would like assistance improving the quality of your revenue, please give me a call. I would be happy to help.
The American Rescue Plan Act established the Restaurant Revitalization Fund to provide funding to help restaurants and other eligible businesses keep their doors open.
During this live webinar we will discuss:
Staff from SBA will be answering your questions live throughout the presentation with dedicated Q&A time at the end.
Who should attend: Current small business owners who have experienced pandemic related revenue losses who own a restaurant, bar, and other similar places of business that serve food or drink.
The application portal is still open! This program is administered by the state Department of Commerce and focuses on brick-and-mortar for-profit small businesses, especially those that were required to close due to public health and safety measures. Grant awards will be up to $25,000. Visit commercegrants.com for information. Materials are available in multiple languages and technical assistance teams are ready to help with questions.
The Washington State Department of Agriculture (WSDA) is offering grants to small agriculture-related businesses in sectors that have suffered economically due to the coronavirus pandemic, but have been left out of earlier relief programs.
The WSDA Relief and Recovery grants, funded through a partnership with the state Department of Commerce, are intended to assist small businesses in four agriculture sectors, which include:
The application period for the WSDA grants will be open for two weeks, beginning as soon as Friday, April 9. Visit agr.wa.gov/grants to learn more.
The Shuttered Venue Operators Grant (SVOG) program includes over $16 billion in grants to shuttered venues, to be administered by SBA’s Office of Disaster Assistance. The application portal is scheduled to open Thursday, April 8.
Eligible entities include:
More information about eligibility and the application process are available here.
The Washington State Department of Health (DOH) continues to make progress with their COVID-19 vaccine distribution and administration efforts.
As of March 29, more than 3,325,998 doses of vaccine have been given across the state, which is 83% of the 4,006,330 doses that have been delivered to Washington state providers and long-term care programs. Washington is currently averaging 55,894 vaccine doses given each day. This information can be found on the DOH data dashboard under the vaccines tab, which is updated three times per week.
Gov. Jay Inslee recently announced that effective April 15, all Washingtonians age 16 and up will be eligible to receive a COVID-19 vaccination.
Over the past four months since Washington began administering doses of the vaccination, the state has followed a tiered eligibility system, beginning with those most at risk of hospitalization and death.
The governor and the state Department of Health (DOH) have also prioritized equity issues in each phase to ensure vaccine access to populations disproportionately affected by the virus, including communities of color and low-income communities.
The expansion of eligibility comes, in part, in response to a recent uptick in COVID cases in the state.
Find more information on the COVID-19 vaccine here.
Use the Vaccine Locator tool to register for a vaccination appointment here.
For DOH’s COVID-19 Information Hotline, dial 1.800.525.0127, then press #. Language assistance is available.
“Start a Business in Washington,” is a free, one hour webinar which includes information about business registration and licensing, other regulatory requirements, and resources for further assistance. The webinar is scheduled for April 14 at 2 p.m. Click here for more information and to register online or call 800-917-0043.
Additionally, the free, 90-minute “COVID-19 Impact Webinar” includes the Governor’s Office of Regulatory Innovation and Assistance and the state departments’ of Employment Security, Labor and Industries, and Revenue. These partners provide an overview of resources, updates, emergency rule changes, and other impacts affecting small businesses to create a new successful path forward. Subject matter experts are available online answering questions throughout the webinar. The webinar is scheduled for April 22 at 2 p.m. Click here for more information and to register online or call 800-917-0043 and the Spanish webinar is at 9:00 a.m. Click here for more information and to register online or call 360-515-6101.
Date: Tuesday, April 6, 2021
Time: 3 – 4 p.m.
Via: Zoom (link to be provided)
Credential hacking, email phishing, the dark web–all are increasing threats to businesses these days. The global pandemic brought business a slew of challenges, not the least of which is fast-changing security issues. With many companies turning to remote ways of working, they’re increasingly relying on virtual activities like email, meetings, and remote access to systems. And each hold a unique set of security risks. This presentation will outline those risks as well as provide tips on how to mitigate them (and some even remove altogether). Continue reading
by Ken Sethney, Kitsap SCORE
Trying to understand the effectiveness of your marketing efforts without access to measurable results means your business is flying blind.
Marketing data gives you the insight you need to make well-informed decisions about your marketing efforts and know how to adopt the right marketing efforts to drive the biggest return on your investment.
Reliable analytics will empower you to make data-driven decisions that improve the effectiveness of your marketing.
Just about every business needs an online presence regardless of what they sell. And, bringing customers and prospects to your website should always be one of your primary marketing goals.
Google Analytics is the website analysis platform most used by businesses to get real- time data for insight into how many people visit their website, who those people are, which products or services they’re most interested in, and much more.
Because of its ability to dig into the weeds of your web traffic, Google Analytics is one of the best tools for determining the effectiveness of your marketing and learning how to improve it. Fortunately, you don’t need to be a technology expert or SEO professional to use the platform.
By familiarizing yourself with how to pull some basic information, you can gain an understanding of how well your website is performing for your business. Even at its most basic level, Google Analytics is a tool that the non-tech savvy business owner can operate and benefit from exploring.