Many people think reoccurring and recurring revenue are the same thing, but that couldn’t be further from the truth, and not knowing the difference can cost you. While both are valuable to your bottom line, one is much more valuable than the other.
Reoccurring revenue comes from repeat customers who need your services more than once, but they aren’t under contract, so they contact you at different times to schedule the work they need done.
You’re never quite sure when those customers will call, but you know they’ll reach out eventually when the leaves pile up or the weeds start affecting the look of their landscape.
Recurring revenue comes from sales to customers who buy from you on a predictable, automatic basis, like a subscription or service contract.
Those are the customers who sign a one- or multi-year contract for landscaping, irrigation, lighting, maintenance, and other services your company offers. It’s a win for both the customer and the contractor. The customer doesn’t have to worry about remembering to call to schedule service, and you don’t have to wonder when they’re going to call.
Compared to one-off transaction revenue, both reoccurring and recurring revenue contribute positively to your company’s bottom line, but you can see why recurring revenue is more valuable. Not only does it ensure you keep your crews working and your revenue flowing, it also saves you time when it comes to filling your calendar and scheduling jobs for maximum efficiency.
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Why Recurring Revenue is So Valuable to Your Business
An example of why recurring revenue is much more valuable to a company than reoccurring revenue can be found in the case of Advanced Waste Services (AWS) of West Allis, Wisconsin, which was acquired by energy giant Covanta Holding Corp. (NYSE: CVA) in 2015.
Mike Malatesta founded AWS to help businesses dispose of their industrial waste. Covanta saw acquiring Malatesta’s company as the perfect way to enter the industrial waste industry and sent him a Letter of Intent to acquire AWS.
Covanta liked that AWS had repeat business from loyal customers that they assumed were on recurring contracts. However, when Covanta officials conducted their due diligence before closing the acquisition, they realized some of AWS’s revenue was reoccurring, not recurring, and that lowered the value of AWS.
Had the bulk of Malatesta’s customers been on contract and his revenue recurring, he could have made more money from the acquisition.
How to Switch Your Jobs from Reoccurring to Recurring
To convert reoccurring revenue into recurring revenue:
- Identify customers who schedule your services on a reoccurring basis.
- Look for a landscape segment with a purchase cadence that is relatively predictable. Lawn care, irrigation service, landscape cleanup, and maintenance are some examples.
- Design an offer for your regular, reoccurring customers that makes it more convenient for them to buy on a subscription or service contract rather than on a transactional business model. Instead of calling for a landscape spruce-up before a big event, offer a package with several landscape spruce-ups throughout the season.
- Give reoccurring customers compelling reasons to subscribe.
Here are three examples of recurring services you can suggest:
- Periodic landscape clean-ups throughout the season.
- Annual brick paver inspection, clean up, sweeping sand application.
- Routine irrigation system check-up before dead turf indicates an issue.
For more ideas on services to sell and other helpful information from Ewing’s team of experts, check out the blog articles and Ewing Education resources on our website, or visit your local Ewing location today.