Home Articles Residual income – how to build it

Residual income – how to build it [PODCAST]


PreneurCast is a business podcast. Each week, author and marketer Pete Williams and digital media producer Dom Goucher discuss entrepreneurship, business, internet marketing and productivity.

Pete is back and on full form, and this week talks to Dom about Continuity – generating residual income from your business by setting up products and services that can be charged for automatically on a regular and repeating basis.

Pete talks to Dom about building a residual income from your business

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Episode 062:

Dom Goucher: Hello everyone, and welcome to this week’s edition of PreneurCast with me, Dom Goucher, and fully fit and raring to go, Pete Williams.

Pete Williams: I have my voice back and I am feeling 105%.

Dom: Watch out, world!

Pete: Exactly. So, now it’s good. It was a crazy couple of weeks in the middle of winter where I lost my voice and there was literally two days where I didn’t say a word, which was interesting.

Dom: It was one of the quietest times of my life.

Pete: Well, Fleur had plenty to say about it as well.

Dom: Well, I’m very pleased that you’re back. I’m very pleased that you’re back and on full form again. We’re raring to go. Let’s just get straight into it. Let’s just make the most of it. What have you got for me this week?

Pete: Well, I think, carrying on from something that kind of popped up in last week’s show- continuity. I thought we could chat about that as a model for a lot of businesses, whether you’re online or offline, bricks-and-mortar-type businesses, definitely some continuity opportunities for companies. That’s a really important thing to try and strive for and incorporate into your business somewhere.

If you can at least get to a point where the continuity revenue coming in on a monthly business, which you can predict, can cover a good, substantial amount, if not all of your fixed overheads, you’re in a pretty good position as a business. Obviously, a lot of businesses, it’s all about getting new people in the door consistently and things like that.

And, we talk about that quite a bit inside 7 Levers, about having systems in place to automate the repeat sales to clients. But that’s having repeat marketing strategies and tactics and processes in place. But if you can just automate the revenue itself directly and not have to worry about the marketing and sales, you’re one step ahead of the game. That’s what I thought we could chat about to a certain extent today.

Dom: Cool, OK. I’m going to do my usual thing, because continuity is one of the words that within a certain circle of people, it means something. It really has almost a concrete meaning when you say it to certain groups of people; but in the wider reach that we have in the Preneur Community, I just want to make sure that everybody’s, as our American friends say, on the same page.

So, can we just take a few steps back and define continuity. Not just in that kind of closed sense that if you’re in the internet marketing world, it means something; but in the general sense. You kind of nearly said it in what you just said, but I just want to make sure we all start from the same. So, as you like to do, let’s frame it and give everybody the context as we go forward.

Pete: Yeah. So, in the traditional or real-world sense, it would have been called residual income or automated income, or something like that. Whereas, in the internet marketing world, they’ve kind of termed it ‘continuity programs’ and things like that. It’s basically about having something in place that generates revenue for your business on a repeat, regular basis that’s automated.

It’s some sort of program in place where people pay every single month. Now, to give it a really high level context, a telecommunications carrier, so someone who actually provides phone services; fundamentally, that business is a continuity business because every single month, without having to do anything directly, you’re getting revenue coming in the door.

Now, obviously, you have to provide the service and make sure the network stays up and things like that; but that is continuity. It’s residual income. It’s money coming into the business without you having to go out and get it from a sales and marketing perspective every single month. It’s coming in automatically.

Dom: I think, actually, that’s a really good definition there. And again, you said it as part of the introduction. But, the important thing there is, in the wider sense, it’s that once you’ve made that initial sale or set up that initial process, you don’t need to continue to put effort into the sales and marketing of this thing. Once it’s been sold, it carries on automatically and on a regular, repeat basis, bringing that residual, that regular money income into the business.

And that’s quite a big thing. That’s why I think it’s a good thing to talk about and why a lot of people get really excited about the concept of continuity. Because of that disconnect, in a positive way in this case, where once it’s been sold, it keeps bringing money into the business rather than a point item sale like a physical product or something that you sell over the counter or off the shelves, or even over the internet.

Somebody orders it, they pay for it, that’s it. That money’s been done, and it was a one-time sale. Whereas, continuity is all about, you put effort into sales and marketing, but that thing keeps bringing money in on a regular basis, yeah?

Pete: Yeah, exactly right. It’s not passive income in the sense of investing where, if you put your money into a stock or a mutual fund, and you receive dividends and things like that. That’s purely passive income. You put the money in once, and you get paid a return because someone else is doing the work. In a business, that’s extremely hard to do- have a passive income as a business owner.

Because continuity programs, as a business owner, mean the continuity of revenue coming in- you still have to deliver that product every single month. So, it’s not passive income; it’s residual income There’s a big difference with that, and I think particularly people who are into investment opportunities and things like that, have really muddied the waters between passive income and residual income.

Dom: Another good point; yeah, that it’s not passive. Whatever it is that people are paying you for, it’s something that you still need to deliver on. You need to provide the regular service, or provide regular content, or deliver the product, and so on. It’s not passive. You gave a good example as in an investment.

Pete: There’s plenty of different ways that businesses can actually implement different forms and types of continuity programs. That’s what I thought we could talk about throughout the show- sort of give a whole bunch of idea starters and little sparks of things that people can look at, mold, adjust and see how it can fit into their business no matter what business they’re in.

Dom: Great. But, just before we go on, I just want to really round off that framing and the context, and put this back into the 7 Levers and the Preneur Hierarchy. We talk about, in the Preneur Hierarchy, that marketing to people- the easiest group of people to market to are people that have already bought from you. Even easier, it’s kind of sliding off the bottom of the Preneur Hierarchy, is not having to market to them at all, which is really what we’re talking about here.

Once they are a customer, they continue being a repeat customer by this residual income. And that leads us to the 7 Levers; because in the 7 Levers, one of those levers is the number of times that people buy from you. And, a lot of what we talk about in the 7 Levers is ways of marketing to those people so that they come back and they buy another item from you. They visit your store again. They give you another chance to put a product in front of them. All those different things.

But, again, if you can set up some form of continuity where once the initial sale and marketing and everything has been done, they then commit to a regular payment to you, that’s your repeat buy from that person. You’ve got a guaranteed setup, known in advance, number of times that person is going to pay you some money. So, it really speaks very directly to that one of the 7 Levers, yeah?

Pete: Yep. You’re spot on there, absolutely.

Dom: Great. So, that’s the context and that’s why I think this is a really great thing to talk about, and this is why a lot of people get excited about continuity. So, let’s get in and let’s pick that fully active brain of yours and come up with some ways that people can implement this in their businesses.

Pete: Yeah, sure. I want to talk for online and offline businesses as well, so we can jump back and forth. It may be a bit of an all-over-the-shop-type of discussion, but I think that’s a good way to have this, because I want to cover all different types of continuity programs and, as I said before, spark people’s imagination, and hopefully give them some ideas of how they can implement this in their business.

Dom: Definitely, because we’re not just about online. We’re about any kind of business. So, let’s go for it.

Pete: Absolutely. So, look, in terms of some real obvious continuity programs- we may as well start with the obvious ones and then work our way down the funnel from there. Things like online membership sites, that’s very much an obvious continuity program that gets spoken about quite a bit in the online information marketing space, where it’s like work out and start a membership program.

People pay to be a member every month and then you deliver content, advice in whatever niche or space you’re in, whether it’s business consulting kind of space like our Preneur Platinum program, or it’s some sort of knitting class where every month you give a different knitting advice of how to sort of do a cross-stitch one month and things like that. That’s a perpetual continuity program.

Newsletters- there’s plenty of newsletter subscriptions. Magazine subscriptions are absolutely a form of perpetual continuity where you subscribe to a magazine, whether it be a MagCast iPad magazine, or whether it’s a traditional magazine like Women’s Weekly, or Mac magazine, or Runner’s World. That’s a continuity program. And then newsletters as well, obviously. There’s plenty of companies that run newsletters that are a great way to get perpetual continuity income.

Gym memberships are another way. Netflix, as a service, is obviously a continuity type-based model where they have members pay every single month, whether they use the service or not. So, if you can have a continuity program where people pay whether they use the service or not, you’re in a great position. Because a lot of gyms make their money by having people not actually use the service, which is an interesting business model in itself.

Dom: Yeah, that’s a huge range of things there, and you did start off with the one that’s best known in online circles, the membership site. This idea that you have a piece of information or a set of information that you deliver over time, or a service, or whatever it is, and people pay you a regular fee. And yeah, as you say, one of the things you can do with that is like we do with Preneur Platinum, you can have a membership where people are then in an inner circle.

And all of these things are about providing some type of value to the person, whatever that value is, whether it’s a product delivered on a regular basis like the magazine subscriptions, which I think pretty much everybody has got some experience of. But, in that case, the value proposition, this is, I think, just a little side angle on this; the value proposition is quite an important part of this. Let’s look at magazines, which is a great kind of offline, real-world, physical thing.

Any kind of those subscriptions, like wine clubs is another one, or you said Netflix, which is where they deliver videos, and there’s physical DVD services as well as the online video services. And it’s all about the value. Part of the value is having it delivered to your door, the value proposition; but the other one, especially with magazine subscriptions as we’ve seen, is that you very often get a hefty discount off the cover price of the magazine if you commit to 12 months of subscription.

I’ve been involved in the publishing industry and I’m aware of what it takes to get a magazine out the door, both the physical paper version and now the electric ones that we do through MagCast and the other people working with that platform. From the vendor point of view, one of the benefits to you is that, as I said when I put it in the context of the 7 Levers, if somebody pays you 12 months in advance or commits to pay you a regular revenue, that’s a very positive thing for you and your business.

You’ve got either the instant cash in the business, or a predictable cash flow in your business. So, it’s well worth it to you to give them some kind of incentive, whether it’s a discount or something else. But, from a physical distribution point of view, like with the magazines, the reason why they don’t have to charge you all that money, the full cover price, is because they know where that magazine’s going and they know they’ve sold it.

Pete: Well, they don’t have factor in the cost of acquisition into the sale price.

Dom: Exactly. And this is the thing. I think that’s kind of where I was going to, and yet again you jump in with the correct terminology, thank you. It is that, cost of acquisition. But, what’s really important is the bigger lesson there, which is that a lot of people don’t pay attention to that cost of acquisition in the first place, which maybe we should do another show on.

But, if you are aware of what it costs you to market and sell to clients- for example, anything that you deliver by subscription, like the wine club. If you create a wine club where you’re mailing a box of 12 select wines every month or whatever it is, out to your client base, your infrastructure model changes from if you were a wine store. If you were actually a high-street shop that stocked a range of wine.

You’re not renting commercial premises with a storefront, you’re not paying for the staff to stand on the thing, you’re not holding that stock, you’re not doing this, you’re not doing all these things that go towards your business costs which affect your margins, another one of the 7 Levers. You can change that model. I know somebody, I was literally talking to them this week, and they have used a subscription model to avoid having stock.

They know that on the same day of every month, they need to ship a certain number of a certain kind of item. And, if they know in advance what that kind of item is, they can literally order it from their supplier, they could even theoretically have it drop shipped- so have the supplier ship it out for them; they bulk order whatever it is that they’re shipping out that month. They get it dropped to the distribution point.

They get it segmented, packaged, labeled and put out to, again, they get a bulk discount from the carrier because the carrier has predictability; they can send one truck on one day to do a pick-up. So, just by using this continuity model, they’ve got this fantastic efficiency of business and they’ve really kind of hit the lower end of the 7 Levers with the margins and the repeat buys, and things like that. Just really hit it by implementing this model.

Pete: Absolutely right. So, if you want to give the listeners some applicable questions to ask themselves to come up with some ideas around creating this perpetual subscription continuity. The real thing is, if your business- the product and service you deliver- is a consumable, it really does align itself exceptionally well to this sort of business model. Because if it’s a consumable, people are going to consume it and it’s going to be gone.

So, they need to then go and actually purchase it subsequently to replenish the stock. Whether it is buying fruit and veg. Whether it’s getting your lawn mowed. Whether it’s hiring DVDs and watching DVDs from Netflix. It’s the consumption activities. You mow your lawn, the grass grows back. You watch the DVD, you’ve watched the DVD. You eat the food, the food’s gone. So, if your business, on any level, is something that is consumable- so you offer a service or a product which you do have repeat buys of the same item.

Not repeat buys of other items, where you’re up-selling and cross-selling, but they’re coming back and buying that same item again. This is where this sort of thing works really, really well. Obviously, if you are a car retailer, that’s hard because you can’t get somebody to subscribe to the car and buy a new car every three months. That just doesn’t happen. But obviously, the mechanical side of the business could be.

You could put some sort of model in place that they actually prepay or go on some sort of direct-debit scenario where every three months, they get charged for their car servicing, or they get three car services a year, which they pay monthly. So, rather than having to pay the $500 at the time you’re getting your car serviced, you’re paying $100 a month over the year, which gets you three credits for car servicing.

Maybe you’re a lawn mower, or a house cleaner, and you can say, “Let’s actually put you on a payment plan which lowers your actual out-of-pocket expenses when you get the cleaning done,” but it’s going to happen regularly. So, the benefit to the consumer, because they’re going to have the headaches, the logistics of friction, taken away and get what they want on a more consistent basis.

But it means for you, you’re getting this subscription continuity income coming into the business. So, if you’re on any level doing something that is consumable- so, your client buys item A from you today, and then tomorrow they come back and buy item A again, that definitely lends itself to subscription continuity model on some level. Not every client, but some clients will still pick that up.

Dom: Yeah, and all those things have that same value proposition to the client, and value proposition to you as the person setting up the continuity. You get the predictability of business, the predictability of income. Even just having a payment plan for something, some service or other, because it’s the repeatable nature of the service or the consumable nature of the product that means that they’re going to have to come back, they’re going to have to do it again.

You can set up a payment plan to offset the cost. Value proposition to them is two-fold in that case. Your example of car servicing was great, because nobody really wants the $500 bill on that day. They just don’t. Because absolutely nobody, except for the statistically insignificant number, plan for a car service and put the money to one side every month. They don’t do it. The normal consumer doesn’t do it. So then, they get this $500 bill that they can’t face.

Whereas, part of the value proposition if you put up a payment plan, is yes, you can offer them a small discount as well, because you’re getting something, you’re getting the predictability of the income, and just the predictability of the repeat business back to your garage, because it ties them in to you. But also, you’re helping them by taking their money regularly as if it was them saving it themselves.

You’re kind of helping them put the money to one side, which in and of itself has amazing value to quite a lot of people. So, a lot of this is about that. And yeah, the generic example here is- is what you sell, what you do, repeatable and consumable? And look for the widest sense of the term ‘consumable.’ Like you say, the Netflix is an example of people consuming content.

Pete: So you watch the DVD and they’re gone. Newsletters, membership sites, it’s all consumption because you consume it and then you consume something else again to fulfill that need of whatever it might be.

Dom: A slightly different one, just to get people thinking, is what you have possibly experiential? Because the wine clubs are based upon the idea of, first of all, experience. Experiencing new wines. Recipe clubs, or sewing/knitting pattern clubs- they are experiencing new patterns. It’s not just about having the thing and consuming the thing, it’s also about finding out about new ones. And the great thing about that is- and this is how the guy I was talking to about this other subscription service does this.

Because the items that he ships out are perishable- by creating this idea that he’s helping people experience new things, it’s up to him what he sends out. He doesn’t have to hold stock of a particular thing on the off chance somebody’s going to order it from him. Every month, he decides what thing he’s going to let somebody experience. A bit like the magazine people. It’s the same thing. Magazine publishers know what they’re going to send out in next month’s magazine.

In fact, they know for six months what they’re going to send out. So, they can create the thing within their own parameters, and this is a great way of managing resources and using the continuity to its full benefit. If what you can send out is up to you rather than up to the consumer, then you can control that supply chain. Whether it’s an information supply chain, or a physical supply chain. But, that’s definitely something worth sitting back and thinking about.

Pete: Yeah, Bill Rancic, the first winner of The Apprentice TV show with Donald Trump, had a hugely successful continuity business called Cigars Around the World that he started way before The Apprentice. His book, You’re Hired, talks about all that, how he set the business up and that whole story that then leads into his journey and experience through The Apprentice.

But it also talked about how he went about setting up that type of continuity program where people subscribed; and every month, he got to choose which cigars got sent to the consumer. If someone’s going to start a brand new business model, it’s a great model because in those sorts of trial-per-month-type businesses whether it’s wine of the month, or cigar of the month, you’re not only getting paid by the actual client, quite often, the actual manufacturer of the products will give you those products at a significantly reduced rate.

You’re exposing their product to a huge range of cigar enthusiasts or wine enthusiasts that will actually go and buy it again. So, often the margins in those businesses are absolutely huge because you’re making, fundamentally, money on both sides of the transaction. You’re getting paid by the end consumer, and you’re getting paid in the sense of not having traditional raw input costs to buy the products because the wholesaler’s giving it to you at next to nothing for the exposure.

Dom: Absolutely. The secondary benefits of running a system like this can be huge, and I think that may be a little bit worth talking about. We’ve talked about the reason why you would do it to directly affect your repeat business, to directly affect your margins, to add value to the client, and all those things. But, taking a step up to another lever, which is how many things can you have in a sale to a client, how many items.

Let’s take the cigar example. There’s lots of secondary things that cigar consumers might want to buy. And, you could either offer to drop-ship things to them, so you’re not taking any heavy costs. But when you send cigars out, you could advertise other products. You could advertise other products for other suppliers and take some form of commission payment for introducing those people.

But, all the time that you have any kind of continuity, you have something incredibly powerful, which is a list of people that buy things of a certain nature. And, that knowledge about people and what they buy is incredibly valuable, both to you and possibly to other people. You can look for opportunities to monetize that list.

Pete: Well, I think that’s a whole other podcast in itself- how to maximize the value of a client base.

Dom: And amazingly, that’s where I was going with that. But, just to put it in people’s minds that this idea of continuity has so many value angles. It really is something that you should look at. I think it’s like the 7 Levers. The 7 Levers is a model that is applicable to any business, anywhere, selling anything, in any way. Which is what we’re about. We’re about entrepreneurship and business, not just about being on the internet and all that kind of thing.

And, I think that there’s a place for some kind of continuity in pretty much every business as well. Your example was, are you a landscape gardener or a garden maintenance person? Do you mow lawns? Do you clean carpets? Do you do car service? We’ve talked about cigars, wine. Pretty much, there’s somewhere for this as a model. But definitely, we should come back to the value of a list or a client base.

Pete: Yeah, absolutely. So, let’s go on to some other types of continuity programs. We kind of spent a lot of time talking about perpetual continuity programs, but there’s plenty of other types of continuity programs that businesses can operate if they’re not in that traditional consumption-type of space to a certain extent, or can’t see how that fits.

I want to make sure we cover some other stuff as well. So, there’s industries that have been completely built or funded, and their foundation is built on continuity. Look at the legal profession. “I’ve got our lawyer on retainer,” is a very common statement you hear quite a bit. And what the legal team and profession have done is they actually put a model in place of continuity where clients prepay for their service whether they use it or not.

So, it’s not necessarily a membership program because they don’t deliver anything at all. It’s a retainer. They’re paying for access. They’re prepaying for services. And if they don’t choose to use those services, they’re gone. So, it’s basically a monthly option program. They’ve got an option to use you or not. Legal teams work that way very, very well. A big chunk of the telecommunications hardware space is built on that. You purchase a phone system and you pay for maintenance.

You pay a maintenance contract which covers you for technical onsite support if and when required. There’s obviously a lot of limitations around that. There’s plenty of IT companies that do that sort of stuff. We have your SLAs, Service Level Agreements, that you pay for every single month, and you’ve got the retainer for the IT team. If something goes wrong, they’ll come out there and help you 24/7 type of scenario.

I think Xerox really pioneered this. Dom, you might know, having a background in the Xerox world, that when you originally bought your photocopier, you’d pay a monthly maintenance contract fee above and beyond the cost of the photocopier. Just in case something went wrong, you had that covered rather than paying for the tech time if and when you needed it. It was part of like a retainer program.

Dom: Absolutely. I mean, Xerox literally, you couldn’t buy in the original business model of Xerox, because they were the only people. They had market domination because they were the only people in the market while they held that patent for xerography. And, you couldn’t buy a Xerox machine without a maintenance contract.

Pete: So it’s forced continuity?

Dom: So, whatever you saw as the ticket price of the copier was usually not anywhere as much as what the maintenance contract would come out to be when you finished paying for that.

Pete: Yeah. And, these legal teams and these telecommunications companies, and gyms, you can always file under this category. Because it’s there if you want it, it’s not there if you don’t; and you’re banking on people not actually using it. You do your modeling of the program so you assume people aren’t going to maximize that. I had a friend of mine that had a very good business in regional Victoria here in Australia, where it was a home services business and he had people on retainer and on a maintenance program for your home.

So, you’d pay a certain amount every month. And if your light bulb blew or your heater went, or your drains got blocked, whatever it might be, you’d be covered by this. You pay a monthly fee every month that allows you to have up to two hours of on-site tradesman every month, whether you need it or not. Your roadside assistance companies, that’s how their model is, you pay that.

Your ambulance cover here in Australia, and in a lot of countries you pay for your ambulance cover and it’s only there if you need it- insurance policies are this sort of stuff. I remember an accounting company that I worked with a while ago that had this up-sell. I wouldn’t really call it a continuity program because you didn’t pay for it monthly, but it was an up-sell that he had which was that you paid a one-off fee that covered you for all these related costs if you got audited.

Obviously, if a certain percentage of clients took that offer up- let’s say hypothetically 1% of clients get audited every year; I have no idea what the number is, but let’s say 1%. But, if 5% of people actually took up the insurance policy, he’d be ahead financial. So it was more of an up-sell than a continuity. But, any sort of insurance policy or maintenance agreement you can put with the products and services you sell, is a great way to do that and have that residual retainer income coming into your business.

Dom: There are two things there. One, just to add another example from our own experience, because we all run Macs, the company Apple, Dell and other companies and computer manufacturers do this; but there’s a thing called AppleCare. When you buy a new Apple computer, you have an opportunity to pay an amount, a percentage of the value of whatever it is, to have AppleCare.

Now, AppleCare is quite unique in what they do in response to what you pay. It’s an insurance policy. Plain and simple, it’s an insurance policy. But Apple’s way of handling those insurance, or the claims against the insurance, are somewhat legendary. The number of people I know that have stories, personal experiences, of taking their machine in to an Apple Store with any and all a problem, and having the entire machine replaced.

And in some cases, basically, because that machine doesn’t exist anymore, they’ve had a new machine which is actually better than the one they took it. As long as it’s within that warranty period, your problem will be solved one way or another. But, because it’s Apple, you hear about these stories of people having these great experiences.

But if you do the numbers, just like every other insurance policy or anything else like that, they’ve done the numbers. They know the quality of their machine is so high that the likelihood of somebody needing that level of service is so small, that they’re on to a winner.

Pete: And this brings us on to a good point which I think is worth touching on: what’s not a continuity program or continuity product. Because, things like AppleCare, as much as it’s a great up-sell, I would say that it’s not a continuity because you pay it once at time of purchase. So, it’s an up-sell.

Dom: I guess you’re right. Because you can only pay for it and it’s a limited period and that’s it. You cannot buy any further version of that once that period expired. So yeah, it’s an up-sell. Sorry, good point. Well pointed out.

Pete: A lot of people confuse this in terms of what’s termed micro-continuity. And what that fundamentally is, is a payment plan. So, rather than getting people to pay $1000 for your product, they pay 10 equal installments of $100, and they get a 10th of the product delivered every month over those 10 months. That’s quite common in the information marketing space where, rather than buying a 10-module course, you get drip-fed over 10 months or whatever it might be. But, to me, that is not necessarily a continuity product or continuity program.

Dom: Not in the sense that we’re talking about, no.

Pete: Some people confuse this because all you’re doing is changing the delivery of the product and the payment plan for the product. Continuity is all about getting money on a regular basis that you can bank on. By taking a product that’s a once-off product and delivering it in a spliced up sort of way, like a 10-week training program and spreading that income out over 10 weeks, yes, you’re getting paid on a monthly basis, but all you’re doing is deferring the payment from that one sale.

It’s not actually a continuity where it’s going to happen over and over, and over again. And that’s kind of the whole idea in my mind of what continuity program is. It’s perpetual in the sense that it’s ongoing, never has an ending date, that’s one type. You’ve got retainers where people do pay over a period of time, and you could argue that a retainer is once-off sale paid over 12 months. So, you’ve got the perpetual-type of stuff, and then you’ve got the retainer.

But, obviously the retainer disappears and at the end of that particular 12-month retainer period, people will most likely subscribe again. Whereas, a micro-continuity program, they bought a product, it’s just delivered differently. So, you’ve got to be really clear in your mind of what is a continuity program that you’re adding to your business, and what is just a payment plan implementation to make more sales?

There’s nothing wrong, absolutely nothing wrong with changing the delivery method of a product and changing the payment plan against that product from a once-off payment to a payment plan to increase sales, because it reduces the friction, reduces the actual amount and easier to cash flow. So, there’s no reason that that can’t work, but the whole idea of a continuity is to sell somebody extra stuff.

So, that example I gave earlier about a mechanic who would normally, let’s say, get a car serviced twice a year. What you’re doing, if you put somebody on a continuity, you’re actually fitting in a third- you’re offering them a monthly payment plan, but they get an additional third service opportunity a year for the car. It’s actually changing the offer as well. It’s not just simply throwing money away in a different sort of avenue.

Dom: Yeah, and I think actually it’s a really go distinction that you’ve made there. That if what you’re doing is a payment plan- so, as you say, taking an object, an information product, splitting it up, delivering it over a period of time, and charging a regular fee, but with an end date that comes to the same amount or slightly more than the original, that is to remove friction and that’s a conversion ploy, a technique.

It’s a way of helping conversion; but it’s a payment plan, it’s not continuity. These one-off insurances like AppleCare is, as you pointed it out, it’s an up-sell. So, that’s talking to another one of the levers, but it’s talking to items during a sale. But again, it’s not continuity. Continuity is specifically that thing without end.

That thing where they are regularly paying you a predictable amount that doesn’t end. Because they keep paying it and you keep delivering whatever it was that they paid for, whether it’s a box of wine a month, cigar of the month, magazine subscriptions, whatever it might be. But, it’s just perpetual, or in perpetuity- there you go, big word of the week.

Pete: I think an easy way to look at it is it’s an automatic, continual, repeat sale system. Because obviously, part of the 7 Levers is getting people to come back and buy from you again. That’s what it’s all about. If you market a micro-continuity program with a payment plan, they aren’t buying from you again. They’re just buying that one item, it’s just the delivery and the price, payment plan has changed. Whereas, continuity is about having them purchase repetitively on a continual, automated basis.

Dom: Yeah. Because we are coming close to time, to give probably one of the wildest examples that I’ve seen of this; and, I think we’ve touched on a lot of examples, and I’m pretty sure that there’s something in there for everybody. The one that really inspired me this year was Dollar Shave Club, because they’ve taken this to the ultimate scale.

One person paying you $1 doesn’t seem to make any sense. But, when you scale it and you optimize the operation and you do things to benefit you and your logistics, then you end up with a model like Dollar Shave Club. And, that’s just a crazy, crazy business.

But, it’s based on continuity. It’s based on everything that we’ve talked about. It’s a consumable product, which is consumable razors. They get you to pay a subscription and as long as you keep paying, they keep shipping you razors.

Pete: Exactly right. And their other foundation was a very, very viral video. But before we close the show, there’s one more type of continuity program that I want to talk about. If people don’t have an idea or a spark right now of how they can create a continuity program in their business, start a VIP discount club. Simple, easy. People pay a fee. Ideally, it’s a continuity fee.

They pay a monthly subscription of let’s say $5 a month, $10 a month, $1 a month. Something even very small. But that payment allows them to actually get a continual discount. People sort of often say, “Hang on, why would I charge someone to get a discount? Why would someone pay to get a discount?” Well, from a business perspective, you’re locking that customer in.

Even a very low entry level of $1 a month, it’s going to stop that person shopping. You’re eliminating the competition, because they’ve got that VIP card. They’re going to come and use you and not a competitor. So, you can give that discount away because as we spoke about before, you’re removing the cost of acquisition in that scenario. If someone’s paying a $1 a month, but when you actually make a purchase- if it’s like, let’s say a Starbucks membership.

You pay $1 a month and you get 20% off Starbucks every month. That locks you in. You’re not going to go to Coffee Club, or any other franchises to buy your coffee every morning because you’ve got this discount at Starbucks. You are locking the person in, and the cost of acquisition that you factor into that cup of coffee every morning that you sell can be eliminated.

You can take that away, because that particular customer is already secured. The acquisition is already there, the costs are already covered. So, in any business you can try and work out a way to have some sort of membership program where they actually just get discounts.

Dom: I’m really glad that you said that one. One, it’s genius. Because as you say, for $1- yes, it’s a nominal income unless you have a thousand customers a month that pay you a dollar, that’s an extra $1000 on your bottom line. But, it does, it ties people into you. It means they’re going to come back and buy more things from you. It’s a great model. But, what I was waiting to ask you was, where does Amazon Prime fit into this? And, I think, that’s where Amazon Prime fits in, in exactly that model you just mentioned.

Pete: Well, let’s quickly describe Amazon Prime and we’ll wrap up the show on that. Dom?

Dom: So, Amazon Prime is where you can pay a flat free once a year to Amazon, and they don’t charge you for shipping, which seems like a major loss to Amazon until you realize that you start buying everything you can from Amazon because you’re not paying for the shipping. It works. It’s a great, great way to do it. It looks like, on the face value to the consumer, it looks like the greatest saving in history.

Whatever you see is the ticket price of the item, is exactly what you pay. You don’t have to worry about the shipping cost. You can buy as many things, in as many transactions as you want. And, it is just exactly as Pete says. It gets people to stick with Amazon. They go back and buy, and buy, and buy.

And because Amazon’s range is huge, it means that the turnover and the number of times people go back to Amazon has skyrocketed, just with this one technique. And just in case people don’t actually buy anything from them, well, then they’ve got the money. They’ve got your Amazon Prime subscription.

Pete: Exactly right. So, that is it, guys. That is this week’s continuity conversation on PreneurCast.

Dom: Action point for this week, Pete?

Pete: I think it’s just try and work out a way that you can start building some sort of continuity into your business. It’s something you probably can’t start next week and implement straightaway, but start constructing a plan and looking at your business and working out where a possible continuity income stream can come from.

It doesn’t have to be your core business, it doesn’t even have to be related to your core business, but there’s a lot of side things you can do. Like, a restaurant could easily do a wine of the month club chosen by the chef, or the head- what’s the word for the wine-

Dom: Sommelier.

Pete: That’s the one. There you go. But, if you’re a really nice restaurant, you can have that for people who come to your restaurant regularly. Offer them, if they love your wine and a big part of your dining experience is the wine, why not have a wine of the month club on the side, and have that?

You’re going to have that touch point with your customers, your restaurant guests, every month. It’s a continuity play, it ties into your brand, those sorts of things can really build up some substantial side income for any sort of business.

Dom: I think we could go on for ages with these ideas, so I think what we might do actually, is this might spark a conversation inside Preneur Platinum.

Pete: Absolutely. Let’s start a thread after the end of this show and we can have that conversation.

Dom: OK, folks. Well, that’s it for this week. Trying to really stick to time this time. I mentioned Preneur Platinum there. Just a reminder that the 7 Levers Home Study Course, is available at 7Levers.com. And, if you join that home study course, you get two months access for free to our Preneur Platinum area, where Pete and I are in there regularly discussing topics like the one we’ve just talked about, and anything that anybody has.

Any questions they have about their business, or about our businesses and how we run them, how we do what we do every day, every week. So, definitely worth checking out, definitely worth a look. So, pop over to 7Levers.com. And, if you have any feedback on the show, you want to talk to us, if you aren’t a Preneur Platinum member, then pop over to PreneurMedia.tv where the show notes will be available and the transcript, and leave us a comment there.

Or, you can leave us a comment on iTunes and let us know how we’re doing, and if you’ve got any ideas for future shows, things you’d like us to cover. Thanks for joining us this week, and we’ll see you again soon.

Pete: Sounds good, guys. See ya then!


http://www.dollarshaveclub.com – Dollar Shave Club is a great example of a continuity service.
http://www.7levers.com – The 7 Levers of Business Home Study Course is now live. Sign up today and get 2 months free access to our Preneur Platinum private members’ area.

PreneurCast Episodes:

These previous episodes are talked about in today’s show. If you missed them, go back and listen to them:
PreneurCast Episode 37 – The Preneur Hierarchy
PreneurCast Episode 52 – 7 Levers of Business Redux

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