In The Solopreneur Life: 42 Solo-Business Owners Speak the Truth on Dreaming Big, Failing Forward, and Calling Your Own Shots the solopreneurs talk about mistakes they’ve made with their businesses.
One of the solopreneurs, Ted Prodromu, says, “[My mistake was that] my business was project-based, with little recurring income…Recurring income is a must.”
So, what is recurring income?
Recurring income is revenue that comes in to your business over and over again — it repeats, it reoccurs. Recurring income is like a river — a money river that keeps flowing day after day, month after month. Compare it to one-time income, which is like a puddle of water: it’s here today, gone tomorrow, and the puddle won’t return until you make it rain again.
Examples of Recurring Income
For me and my business, the production of newsletters and magazines has been an important source of recurring income.
Here are other examples, both online and offline:
• Producing an agreed-upon number of SEO-optimized press releases every month (or quarter)
• Offering maintenance packages to clients for whom you’ve built sites
• Managing the online presence for clients on the various platforms
• Cloud services for which customers pay an annual, monthly, or weekly fee — some well-known examples are Freshbooks, e-junkie, PayPal, and Highrise
• Online passive income — Web-site revenue that comes from AdSense or affiliate programs
• Royalties from the sale of products — books, training materials, and music are examples
• Landscaping and yard care
• Window washing
• Pet grooming
• Auto maintenance
The list could go on and on, but I trust you get the idea of what recurring income looks like.
The Benefits of Recurring Income
Recurring income provides multiple benefits:
• Return on investment (ROI). Recurring work provides a big return on your marketing investment. For example, I have a newsletter client who’s been with me for 15 years, and my total revenue from that client is more than $100,000. In contrast, I have clients for whom I have done one-time projects, which typically bill out at $1,000 to $5,000.
I have to work just as hard to land the one-time job as I do the recurring one, so the marketing ROI for the recurring job is at least 100 times greater than my one-time projects.
A corollary to marketing ROI is that recurring income allows you to spend more time doing work for which you’ll be paid, less time on sales and marketing.
• Budgeting. Recurring work builds stability into your budget. You begin each month, or each year, with a base of business that’s already booked.
• Intangibles. Literally everything else you do in your business is easier and less stressful when you have recurring income.
A Word of Caution
It’s easy to become too dependent on recurring income.
This is how it happens. You do great work for a client, and they pay you on time. The client begins sending you more and more work. You’re happy to accept it! But as the amount of work from that client increases, you reach a point where saying “yes” puts your business at risk.
For example, about 10 years ago a client hired me to manage and edit a magazine. Over a period of time, the client sent me a lot more good-paying, recurring work, and the client grew to represent about 60 percent of my revenue. That’s a precarious position to be in, because if that work disappears (and it eventually will!), you are left with a huge hole in your budget that will require a significant amount of time and effort to replace.
A rule of thumb is to never let one client become more than 40 percent of your business. If you want to reduce your risk even further, set the ceiling at 20 percent.
How To Find Hidden Recurring-Income Opportunities
Some recurring-income streams are as obvious as the Mississippi River. But many are like underground streams — unseen, unknown, unidentified.
One way to discover those hidden opportunities is to ask clients what their challenges are. Listen closely and carefully to their answers. When they talk about work that doesn’t get done on time, work that’s unprofitable (for them), and tasks that they hate doing, it’s likely they’re discussing things that can become recurring income for you.