Don't Get Hooked On Recurring Revenue

I get it: who doesn’t love a guaranteed paycheck?

Many IT businesses fall into the trap of relying on recurring revenue systems, where they can always rely on getting their specific payments for their services.

Of course, that’s a very reasonable system, and recurring revenue has the benefits of consistent and predictable payments.

However, (unless you are doing recurring right), you’re leaving money on the table that isn’t worth the price of consistency.

Not sure if you're doing recurring right? 

Let’s do a test: 

• What is your AGP? (Agreement Gross Profitability)

• What is your EHR on Contracts? (Effective Hourly Wage)

If you don’t know the answer to both of these, then keep reading - you might be better off to charge hourly. (Yes, we really just said that)

Can’t seem to make recurring work for you? Instead, IT businesses should strive to base their services around billable hours to ensure they get the maximum compensation for their efforts.

Many business owners recoil at the idea of buildable hours, instantly thinking of all the potential risks and unknowns that come with billable revenue systems. They believe that if their employees do their tasks quicker, they’ll lose money, or payment fluctuations will be unsteady and challenging to plan.

These fears couldn’t be farther from reality.

Billable revenue may not possess the same guarantees of recurring payments, sure. However, the payments can be just as steady, and the income ceiling will also be much higher.

Instead of focusing on your clients’ guarantees, emphasize maximizing your team's efficiency by adjusting your team to match your client’s billable hours. 

For example, companies that rely on IT tickets should evaluate their team so that each tech is doing the optimal amount of work. If your techs are overworked, switching to billable hours will increase their compensation. On the flip, if your employees are underworked, then you know you should downsize your team to maximize your overall billable profit.

Knowing exactly how efficient your team is through billable hours allows you to better evaluate your company’s overall workload and whether or not you should pursue more clientele. By solely relying on recurring revenue, you’ll struggle to understand exactly how efficient your employees are and may miss out on significant gains in income.

I’d say that you should ‘take a chance’ on using an hourly or billable revenue system, but if you properly adjust your team to match your billable hours, all the risk of switching from recurring revenue turns into a guaranteed improved profit.