The economy of recurrence is a concept that is still being disseminated in many countries. Companies that adopt this business model should deliver the best customer experience and charge monthly for it. Also called access economics, it is changing the relationships of consumption and the way of doing business.
If you do not know what I’m talking about, just mention the names of some companies that have become global giants for acting on this model, like Netflix and Spotify. And if you’re an entrepreneur and you already have that model, or if you think you can do it, learn from the big ones: Get to know the metrics used by the world’s biggest companies and look at how your business is doing.
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KeyBank’s “Capital Markets” study brings the financial performance of America’s most successful SaaS (Software as a Service) companies (good examples of companies in the recession economy). This is a golden opportunity, as the major companies in this market operate in private capital. The main conclusions of this study are summarized in the analysis of the study. I divided the tips for two sizes of company: with a turnover of up to R $ 1 million and between R $ 1 million and R $ 5 million.
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The challenges of companies with revenues up to R $ 1 million
These companies have more challenges related to the validation of the service offered. There are a lot of uncertainties in this step, so it’s the best time for you to learn. However much money is short, entrepreneurs need to take advantage of this momentum to accumulate as much knowledge as possible and find out if their solution solves a real market problem.
Among these metrics, one of the most important for those who make up to $ 1 million is the average ticket, because it will talk a lot about the financial health of the company. It defines your distribution channel, how much you will invest in marketing, how much you will invest in sales, in product, whether you will have a higher investment in customer success. The higher the average ticket, the better and easier the entrepreneur will be able to define the growth strategy of his company.
Another key metric for this entrepreneur is the engagement rate. It’s no use having a product, sell it and the customer does not use it. You need to solve a real customer problem. Only then does he continue with you. If it pays dearly and sees no use for it, it will end up canceling quickly.
Tips for companies with revenues between R $ 1 million and R $ 5 million
When companies advance a little, it is possible to find some patterns between them. At this point, the market is probably defined, but it is still necessary to evolve the product / service. You must have a growth roadmap for your business. In this case, the entrepreneur has to define whether or not he needs investment. This will depend on sales, current growth and what your business plan is. If you need more money to grow properly, it’s time to seek capital to accelerate.
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The study showed that companies at this level of the United States have the following indices:
- Annual growth rate: greater than 100%;
- Average annual turnover of employees: R $ 73 thousand;
- Average number of employees per company: 68 employees.
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Distribution models, on average, are divided into:
1) 35% – inside sales (sales made by remote technologies)
2) 31% – field sales (seller visits the client)
3) 18% – mixed
4) internet sales (sales via web) – 11%
5) channel – 5%
The composition of revenue for this company size is still extremely focused on acquiring new customers: 91% of revenues come from winning new subscribers. The remaining 9% are from upsell (sales of new plans at higher prices). Therefore, the main focus is to accelerate sales.
At this stage of business, you have to be careful about the cost of acquisition per customer (CAC). This index should be closely monitored for the entrepreneur not to lose control of how much he needs to raise – and in how much time – to recover what he spent to get this client. According to the study, the time to recover the amount spent to acquire the client in the United States is 18 months, a very high index, which can work for companies with a lot of available capital. But for the Brazilian economy, this figure would be economically unfeasible. For a company of this size to remain healthy in the national market, for example, it needs to recover what it invested to get its client in at least six months. To calculate your CAC, do the following calculation:
Cost of marketing + Cost of sales
—————————— ——————– ——- = CAC
Total new customers
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Finally, for those who work in the economy of recurrence, there is nothing more valuable than churn care, the index used in this type of business to calculate the percentage of loss of customers. On this topic, the study reveals some reference values:
- In inside sales, the average cancellation rate needs to be around 13%
- In field sales (salesman visits the customer), 8%
- In internet sales (sales via the web), it is around 25%
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There are many other metrics and parameters available in the market to consider, but the fact is that if you act or intend to operate in the future in the economy of recurrence, the fastest growing model in the world, know that you are on the right track, blue ocean to be explored. The dizzying growth of companies like Netflix and Spotify speak for themselves.
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