How to Add Value to Your Business This Financial Year
How to Add Value to Your Business This Financial Year
If you have resolved to make your company more valuable in 2025, you may want to think hard about how your customers pay. If you have a transaction business model where customers pay once for what they buy, expect your company’s value to be a single-digit multiple of your Earnings Before Interest Taxes, Depreciation and Amortisation (EBITDA).
If you have a recurring revenue model, by contrast, where customers subscribe and pay on an ongoing basis, you can expect your valuation to be a multiple of your revenue. Buyers pay a pretty penny for companies with recurring revenue because they can clearly see how your company will make money long after you exit.
Recurring Revenue Models
Not sure how to create recurring revenue? Here are five models to consider:
1. Products That Run Out
If you have a product that people run out of, consider offering it on subscription. The Australian diaper company Tooshies sells subscriptions to nappies for busy parents who don’t have the time (or interest) in running to the store to restock on diapers. Dollar Shave Club, which was acquired by Unilever in 2016 for five times revenue, sells razor blades on subscription.
Thankyou, an Australian social enterprise, sells personal care products like hand wash and body lotion on subscription, supporting their mission to end global poverty.
2. Membership Websites
If you’re a consultant and offer specialised advice, consider whether customers might pay for access to a premium membership website where you offer your know-how to subscribers only.
Today, there are membership websites for people who want to know about anything from digital marketing to running a small business.
3. Services Contracts
If you bill by the hour or the project, consider moving to a fixed monthly fee for your service. That’s what the accounting firm Blue Rock did to steady cash flow and create a more predictable service business.
4. Piggyback Services
Ask yourself what your “one-off” customers buy after they buy what you sell. For example, if you develop a company a new website, chances are they are going to need somewhere to host their site. While your initial website design may be a one-off service, you could offer to host it for your customer on subscription. If you offer interior design, chances are your customers are going to want to keep their home looking like the day you presented your design, so they might be in the market for a regular cleaning service.
5. Rentals
If you offer something expensive that customers only need occasionally, consider renting access to it for those who subscribe. GoGet subscribers can have access to a car when they need it without forking over the cash to buy a vehicle. Workspace365 subscribers can have access to the company’s co-working space without buying a building or committing to a long- term lease.
Service Model and Pricing Model Innovation
Apart from creating recurring revenue, consider innovating your service model and pricing model. By developing a unique service model, you can differentiate your business from competitors and create added value for your customers. Similarly, a strategic pricing model can attract more customers and increase your revenue streams.
For example, offering tiered pricing or bundling services can appeal to a broader customer base and maximise your revenue potential.
You don’t have to be a software company to create customers who pay you automatically each month. There is simply no faster way to improve the value of your business this financial year than to add some recurring revenue and innovate your service and pricing models.
Why It Makes Sense to Innovate
A strategically planned innovation, facilitated by a knowledgeable and experienced advisor like Expert Business, can significantly enhance the financial return and ensure a smooth transition for both the seller and the buyer. A proactive approach to optimising your business for sale ensures that every aspect of the business is streamlined and positioned to maximise its value.
This approach not only aids in achieving a financially rewarding exit but also increases the chances of future maintainable earnings and transferring predictable cash flows to the new owner.
Tags: business owner small business tips
About the author
Daniel Callegari
Daniel is a Licensed Business Broker and Real Estate Agent. Having specialising in business Re-sale, Mergers and Acquisitions, Business Valuations and ...
