Revenue is the lifeblood of every consulting business. Without revenue there will be no business!
And most consulting businesses generate revenue through the delivery of projects for clients.
This is perfectly fine and can generate significant revenues. I’ve delivered individual projects in my consulting career that have had multiple 7 figure price tags.
The trouble is, revenue from projects can be a bit unpredictable. And that unpredictability can be very stressful.
Having to find new projects all the time is a costly business. It requires a lot of time and money invested in marketing and sales.
But there is an alternative.
And that is to provide your products and services in a way that generates recurring revenues. To do that you’ll need to create some form of subscription service.
In this article, I’m going to provide 3 reasons why providing subscription-based services is a very smart thing to do in your consulting business.
And if you want to delve even deeper into the topic, at the end is a link to our new guide: The Comprehensive Guide to Subscription Services.
Before we discuss why you should offer subscription-based services, let’s get some foundational understanding of the different revenue models that apply to a consulting business.
We’ve already touched upon the two ways in which a client can be offered your products and services:
- Project basis
- Subscription basis (aka recurring revenue)
We also need to consider that there are two primary types of revenue:
- Services revenue
- Product revenue
A project can require a combination of services and products. It would be unusual for a consulting business to offer only a product to support a project.
A subscription service can be made up of a product, a service, or a combination of both.
What, no products?
Your business may not have any products and rely solely on the provision of services, which for a consulting business primarily means the provision of consultants to support a project or subscription service.
Products typically come about by finding ways to create lasting value from project work. For example, if you undertake research for a project it is likely that other businesses will benefit from that research.
This often spawns a regular research report as a product.
Another common example is a spreadsheet that becomes pivotal to a particular service such that it is worth investing in it to turn it into a software product.
So now you have a base understanding of the products and services that might become part of your subscription service, let’s look in more detail as to why you’d want to create a subscription service in the first place.
ONE. Predictability and Business Value
The most significant reason to add recurring revenue services to your consulting business is predictability of revenues.
When you have a good proportion of subscription-based services there is a significant lifting of the stress that you feel!
When you know that there’s enough revenue coming in every month to pay the bills and keep the lights on, it’s a great feeling.
With subscription services you typically charge up-front too, so you receive your revenues sooner.
In addition to this, and of prime importance in the latter stages of your business, having recurring revenues provides a considerable elevation in the value of your business.
As a minimum, a business with a substantial portion of recurring revenues is worth at least twice that of a business with only project revenues, and often many times more.
So, if you’re seeking investment or looking for a sale, it’s really important to focus on increasing your subscription revenues.
TWO. Sales Are Easier
Second to staff, marketing and sales are the costliest parts of a consulting business. In selling a subscription service you can be much more specific about who your ideal client is.
This enables your marketing to be laser focused and therefore improve your return on marketing spend.
When it comes to sales, selling projects requires a lot of focus on understanding the client’s needs in depth. You find yourself ever tailoring your proposals to meet the specific scenario the client is facing.
This is time-consuming and results in a long sales cycle.
When you’re selling a defined subscription service much of this tailoring is no longer required. Your sales process can be as simple as asking the client to sign on the dotted line!
A subscription service requires a fraction of the marketing and sales efforts required for projects.
Also, when it comes to renewal, the cost of sale is minuscule in comparison to seeking a new project with a new client.
A further side benefit to subscription services is the opportunity they give you to get to know your client better. In being engaged on a long-term basis you’re much more aware of the other challenges and projects that your client is faced with.
This helps you to identify other opportunities where you can offer to help. Therefore, recurring revenue services increase your chances of picking up more project revenues.
And selling to existing clients is a whole lot easier than trying to persuade an entirely new prospect to do business with you!
THREE. Quality of Service
One of my favourite aspects of a subscription service is the opportunity it gives you to improve – to get better at what your firm does!
When you’re delivering projects, they can often be wide and varied. This is great for intellectual stimulation but doesn’t create much of a legacy for a consulting business.
A lot of effort can go into learning what’s required to deliver the project, but if you don’t then find more of those projects, that effort is wasted.
By delivering the same service over and over again, you can make it better by making marginal gains.
The Marginal Gains principal comes from Sir Dave Brailsford of Team GB cycling (Jump to 6m30s in the video).
There are significant benefits to providing subscription-based services. The benefits vary slightly depending upon the stage of your business.
If you’re just starting out, the number one benefit of recurring revenue is predictability. Once you’ve got revenue coming in every month on a predictable basis life starts to become a whole lot less stressful!
If you’ve been running your business for a while, you can benefit from recurring revenue for the same reasons of predictability, but you can also benefit in that many other things become easier. Your work is more predictable as your subscription revenues will likely be based on the same service or services.
That means you won’t be continually having to break new ground. Whilst that may not be the most exciting thing for a consultant, it’s great for a business owner as it makes marketing and sales easier, and recruitment less risky.
If you’ve been running your business for a long time and are ready to sell or to seek outside investment, then you absolutely need to have recurring revenues to create tangible value in the business.
A business with a good proportion of its revenues recurring is worth many times that of a consulting business that relies solely on project revenues.
If you’d like to learn more on how to win with subscription-based services in your consulting business, including:
- The 3 key decisions you need to make to ensure your recurring revenue services are a success
- 3 of the biggest risks to avoid with a subscription service
- 3 ideas for subscription-based services in your consulting business
- 3 things to do to increase your chance of renewal
Then download our Comprehensive Guide to Creating Subscription Services
If you want to learn more on the general topic of subscription-based services, The Automatic Customer by John Warrillow is a fantastic book on the topic: