A Very Special Day in The History of Recurring Revenue
There is a little known “holiday” that is celebrated in the baseball world that came and went earlier this month, so I’d like to wish you all a happy (belated) Bobby Bonilla Day!
The Godfather of recurring revenue has been receiving an annual payment of $1.19 Million from the New York Mets on every July 1stsince 2011. He will continue to receive that annually until 2035.
The Mets no longer wanted or needed Bonilla and his $5.9 Million salary in 2000, so the parties agreed to an annual deferred payment scheme which will end up totaling $29.8 Million. Thus, on July 1, 2011 Bobby Bonilla Day was born.
You may be saying to yourself “sounds great, but what does that have to do with my business?” or “how can I make something like this happen for me?”. Well, in our world, the answer is Software as a Service (SaaS) and the recurring revenue that comes along with it.
You may not be able to pull a 6x multiple on revenue the way Bonilla and company do on their deferred payments, but we do see an industry median revenue multiple on SaaS hovering around 4x or higher.
Based on our experience, Cisco Meraki is right in line with that industry average. Over 24 months from the initial Meraki purchase there is typically a 4x revenue multiplier that the partner receives. For every $10,000 in initial customer purchase revenue, a partner can anticipate $40,000 of revenue over the next 24 months.
Not only that, but 59% of all customers add on more Meraki in the next 13 months. This is a lucrative proposition that keeps you engaged with your customers and enables you to continually offer them differentiated value as their technology needs evolve.
It’s not all smiles and sunshine; however, because it will take some patience and discipline to allow the revenue to grow month over month. One of the appealing aspects of the subscription model for the customer is the flexibility it allows for their cash flow (as it did for the Mets with Bonilla). That translates into additional pressure on the technology provider to manage their own cash flow intelligently while building up their revenue pipeline.
There are hundreds of Key Performance Indicators (KPI) that businesses can use, but when it comes to SaaS (or any business model) you should only focus on a handful. These will not apply universally, but the most significant KPIs to monitor include (but are not limited to):
- Cost Acquisition Cost (CAC)
- Monthly Recurring Revenue (MRR)
- Lifetime Value (LTV)
- Churn Rate
And no matter the industry, everyone knows retaining a customer is easier and cheaper than acquiring a new one. When properly executing SaaS, you are consistently in contact with your customer, and they see the value of the services and products you provide. This is where the concept of Customer Experience Management becomes so essential. If the customer experience breaks down, the customer will not adopt and renew the software and services… and the financial model underpinning everything begins to unravel.
Our Channel philosophy of “Perform and Transform” is designed with customer experience and retention in mind, and we have resources available that speak directly to its importance – like this presentation from Jay Baer, founder of Convince & Convert.
Cisco has also acquired and developed multiple SaaS offers – Duo and Umbrella to name a couple – for partners to sell. We’re making the investments and driving the innovation that partners can leverage to not only deliver world class technology solutions, but also to drive up the overall value of your businesses.
Our aim is to provide our partners with the necessary tools to thrive. Part of that comes from the inherent value in our products, and part of it comes from working to help our partners successfully drive a culture around customer obsession. The good news is that it is working, and our best partners are filling their recurring revenue pipelines in a way that would make even Bobby Bonilla’s camp proud.