There are two distinctly different revenue models for business:
- Recurring and
I like to think of this as Hunt-Kill-Eat-Repeat vs Plant-Grow-Reap-Repeat. In both cases you must repeat the steps that bring you success, however, one model provides a more predictable revenue stream than the other.
Businesses that either deal with one-time-only purchases, or products and services that are infrequently purchased by the consumer tend to fit the Non-Recurring Revenue Model. Examples of businesses which tend to have Non-Recurring Revenue Models are Auto Dealerships, Real Estate Agents, Website Designers, Interior Designers, Criminal Attorneys, Personal Injury Attorneys, Cardiac Surgeons, Video Producers, Roofers, Siding Companies, Fence Companies, etc.
Many businesses with a Non-Recurring Revenue Model likewise depend on marketing and likewise have to calculate their Return on Marketing Investment (ROMI), however, the characteristics of the target audience are different. Fundamentally the calculation of ROMI is the same, however, the element of Recurring Revenue is missing.
Here is how you would calculate the ROMI on a Non-Recurring Revenue Model business:
- How long is it between average purchase events for the typical client?
- What is the average Gross Revenue from the typical client?
- What is the average Contribution Margin from the typical client?
- What is the Cost to Acquire a New Client?
In most cases, businesses with a Non-Recurring Revenue Model have a much higher Contribution Margin for the products and services that they sell. This is required to support the marketing efforts and to sustain the business for the period of time between sales. The business must continue to operate between sales and therefore more funds from each sale must be set aside to cover the costs of running the business that are not directly related to the sales process or to providing the product or service involved.
Businesses that typically have a Non-Recurring Revenue Model:
- Attorneys – especially Criminal Defense
- Furniture Stores
- Auto Dealers