George Cohon, renowned businessman and founder of...
As you examine Canadian franchise opportunities, you may have come across the term "recurring revenue model" (RRM) more than once. Learn what this term actually means and how it can affect franchisees before you decide which brand to join.
The recurring revenue model (RRM)
Essentially, this model is what it sounds like--one that usually depends on repeat business that is consistent and brings regular revenue with it. Fitness centers, gyms, some spas, for example, usually benefit from this model because their members have to pay a set fee monthly until their contract ends. Other recurring revenue models include tax franchisees that often see customers coming back each year and cleaning services that have customers who request service on a set and regular basis. This type of business model depends on repeat revenue and business that comes in consistently. In short, in an RRM, customers engage with the brand in a reliable business.
Benefits of the recurring revenue model
Generally speaking, franchisees with this model can plan more in advance than franchisees on other models. A franchise with recurring revenue can calculate the minimum of expected earnings for any time period based on the fact that customers keep returning or paying their membership fees. If a gym has 200 members with a $40 membership fee per month, for example, the owner can plan on $96,000 in revenue for the year, and that's with no new members signing up. This allows the franchisee to plan and budget for that year and even beyond sooner than a franchisee with varying monthly revenue would be able to.
RRM franchisees also have the chance to build a loyal customer base since they are more likely to see customers on a consistent basis. Your staff, and even you, can regularly interact with customers and encourage their loyalty to your business. There's also typically less risk in these models than other franchise models. You know just how many new memberships you would need, for example, to cover a large marketing campaign with a bigger price tag.
Of course, as with any other business, even franchises with an RRM have their downsides. These types of businesses tend to build more slowly, for example, and it can take a long time to build yours up to a point where it is producing enough income. Your customers, because of their long-time relationship with you, will expect more value. You will also have less flexibility in pricing changes, and tracking all of the revenue streams can become complex because you'll have multiple people at different points in their membership cycles.
The biggest drawback is that it is slower to get this type of businesses going and bring in revenue at first than other types of businesses. After all, gyms don't have 200 members as soon as they open their doors, and annual services such as tax professionals usually need to time to build up a loyal base.
What is the right choice?
An RRM franchise could be the choice for you if you are looking for consistent, reliable finances, but there are the downsides to this model to consider, too. Before you decide which type of franchise model is best for you, make sure you fully research each option.
As you explore franchises in Canada and their respective models, keep the recurring revenue system in mind.