Last month, Darden, the genius behind the Olive Garden restaurant chain, made headlines by splurging $715 million to acquire Ruth’s Chris, the legendary American steakhouse. This hefty price tag implied a valuation of roughly one times last year’s annual revenue, or about ten times their adjusted EBITDA for 2022. Not too shabby for a corporate giant, right? But here’s the catch: Ruth’s Chris’s value might have been held back by its lack of recurring revenue.
Now, let’s do a little comparison exercise. Pit Ruth’s Chris against another traditional player in the business arena with recurring revenue, and you’ll see the magic of automatic customers in action. Take Waste Management, a private garbage collection company that handles trash disposal through long-term contracts. It’s trading at over three times its annual revenue. Yep, you heard it right—three times!
Using Recurring Revenue to Grow Your Accounting Business
So, here’s the big revelation: Recurring revenue isn’t just a game for software companies anymore. Even accounting businesses can cash in on the benefits of creating those sweet, reliable income streams. Let’s take the fascinating story of Gamal Codner, the mastermind behind Fresh Heritage, a line of men’s grooming products that didn’t start with a bang and see how it might apply to accounting businesses.
Codner, whose company started out selling only beard oil, initially used Facebook ads to reel in customers. At roughly $15 per pop, it was a tight squeeze on his profit margins, especially with an average order value of $30. That’s when he realized he needed a makeover in his business model. Codner expanded his product range and unveiled the VIP Club—a subscription program for gents who wanted their Fresh Heritage products delivered on autopilot.
A Subscription Program that Goes Beyond Discounts
But hold on, this wasn’t your average run-of-the-mill discount-driven subscription program. Codner did his homework, surveying about 500 customers and hitting the jackpot with some groundbreaking insights. Turns out, his target audience cared more about feeling like alpha males in their fields than just saving a few bucks. That insight aligned perfectly with Fresh Heritage’s mission to empower growth-focused men and boost their self-confidence.
To entice men into the VIP program, Codner went beyond mere discounts. He crafted a sense of community and belonging, emphasizing membership in a group of like-minded individuals striving for personal excellence. Gamal set up quarterly local meetups, where members could network and swap stories, turning these gatherings into a driving force that steered new customers towards the VIP experience.
From Customers to Subscribers
Fast forward, and Gamal had successfully transformed one-time purchasers into loyal subscribers. The average order value skyrocketed to over $60, and with the subscription program swelling to 3,000 members, Codner’s EBITDA margin soared to a whopping 40%. This impressive performance attracted the attention of BRANDED, a hub for digitally native, direct-to-consumer brands, which made Gamal an offer he simply couldn’t refuse in 2022.
So, what’s the moral of the story? Recurring revenue isn’t some elusive unicorn reserved for software moguls. As Fresh Heritage’s journey illustrates, you can whip up an annuity stream regardless of your business type. Find out what your customers crave on an ongoing basis, and you’ll have the golden ticket to creating a subscription offering that propels your business to new heights.
Lessons for Accounting Business Owners
We can see the value of adding recurring revenue streams for business owners, and this advice is applicable if you have started an accounting firm yourself. If you only offer one or two of the three core accounting services (bookkeeping, tax planning and preparation, and CFO/advisory services), providing additional services could pay dividends as it did for Codner at Fresh Heritage. Obviously there aren’t as many one-time sale opportunities for accounting businesses, but the lesson of turning sales into subscriptions is still valuable. Instead of just getting paid to do taxes for a client once per year, you could earn all year long by preparing their books as a Professional Bookkeeper.
CFO/advisory services are the holy grail of revenue for accounting businesses. Small business owners are desperate for the advice of a trusted, strategic advisor, and they’re willing to pay top dollar for that advice.
The recommendation to add recurring revenue streams through subscriptions is useful for your clients as well. This could be a game changer for them if you can help them develop a model that will keep their customers content in the long run.
The best way to add a new service and create a new, recurring revenue stream at your firm is the turnkey system developed by Universal Accounting Center. Whether you’re looking to add bookkeeping, tax preparation and planning, or advisory, Universal Accounting Center’s video trainings will give you and your employees the confidence and competence to offer quality accounting services to your clients. Call 877-801-8080 to learn more, or schedule a time to discuss how a recurring revenue stream could elevate your business using this link.
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