From volume-based revenue to recurring revenue — What could be learnt from other business models?

The last decade has seen the emergence of subscription-based business models, where many industries have shifted from one-time sales models to recurring revenue models, allowing businesses to generate consistent revenue by granting ongoing access to their products or services in exchange for regularly scheduled payments.

Interestingly, this business model is no longer limited to music, movie, software or press subscriptions. It is becoming increasingly popular in broader domains such as clothing, services, and entertainment.

While we have discussed techniques to compensate for a reduction in volume or capacities in our previous Blog Post Mini Series, this third article aims to explore a different perspective in order to increase the sustainability of your business model.

Recurring revenue in the leisure, cultural and entertainment industry?

On the one hand, while fitnesses are probably on the forefront of recurring revenue techniques with their membership model, theatres, nightclubs and sports clubs are also familiar with these principles, but to a lesser extent. On the other hand, other verticals such as museums, attractions and tours have never really taken the step into that direction.

The key advantages of recurring revenue

Some of our customers have asked us why they should think more about transforming volume-based revenue into recurring revenue, and we have compiled here a short summary of the main advantages:

1. Predict your revenue

One-time sales are prone to market-based fluctuations, while recurring revenue models guarantee a certain amount of revenue at scheduled intervals. This predictability helps budgeting and investing in growth and expansion.

2. Expand your customer base

By offering your services under a recurring revenue model with several payment options, your services can be made accessible to more people and thus expand your customer base.

3. Drive more revenue

Upselling and cross-selling are a lot easier with a recurring revenue model, where businesses have ongoing long-term relationships with the customers. Continuous contact with customers provides room to build bonds of trust, which makes it easier to sell additional services. Also, people will tend to spend more on-site as they have already assimilated/forgotten the cost of their subscription.

Transforming one-time revenue into recurring revenue

What should you do now in order to convert some part of your business into recurring revenue? First, and this is probably the most important step, you need to carefully analyse the different cohorts that compose your public, audience, etc.

• What is the cost of acquiring a new customer to your business (CAC)?
• How many times per month/year/lifetime do customers visit your business?
• How much do customers generate on average per month/year/lifetime (ARPU)?
• At which pace do customers lose interest in your business (Churn rate & LTV)?
• What advantages could you offer them beside your standard service offering?
• Would they be interested in getting regular content outside their visit?
  

Case studies

In order to illustrate this article with some concrete examples, let’s probably take a look at the two different cases below.

1. Well reputed theatre

For several years now, this theatre has been offering season passes to its public. The sale of season tickets starts in June and ends in September. Customers choose a season pass that gives them access to 10, 20 or 30 representations and while booking, they choose in advance the exact representations they will attend.

Historically, it has been the rush to sell these season tickets as the sale's period is relatively short and happens in the middle of the summer when most of the theatre's audience is on holidays. The theatre is also experiencing every year an important churn as around 25% of its members simply do not renew their membership, provoking by the same occasion important administrative work.

If the sale of these season tickets is already a step in the right direction in terms of recurring revenue, we do believe that more can be achieved in order to.

1. decrease the non-renewal rate and
2. allow a wider audience to become happy season ticket holders.
   

First, we would recommend this theatre to create a new and more flexible type of season ticket, where people purchase in advance the right to book a defined number of representations during the season (instead of pre-defined representations since the beginning). This way, the customers need to book a new ticket, free of charge, for each representation they will attend until they reach their maximum amount. It is likely that after a few representations, some customers will forget to redeem their free ticket, hence, making more revenue to the theatre.

Second, we would make this second type of season ticket totally digital, hence automatically renewable and charged on the given credit card in order to make the non-renewal rate drop down close to zero and reduce the administrative work of the theatre (instead of manually managing every subscription, payment and cancelation). 

And lastly, we would also allow this new type of season ticket to be charged on a monthly basis in order to allow smaller budgets to also become members. Indeed, the upfront price that has to be paid to become a season ticket holder might discourage small budget families and young people. Splitting the subscription fee is now the norm for most entertainment services.

2. Important museum with an international frequentation

Until now, season tickets have never been in question for this museum, since most of its visitors were international guests visiting the museum on average once in their lifetime. However, with the recent changes induced by COVID-19 and the refocus on domestic travel, the museum is keen to re-explore the notion of memberships.

They determined that local visitors might become an important part of their audience going forward and that they needed some special offers to appeal to them and build strong relationships with this type of visitors.

They decided to launched three different kind of memberships to appeal to different targeted groups of visitors:

1. International visitors

With a number of visits during their lifespan standing around 1.5 times, the museum launched a membership where members can come once per year to the museum. When purchasing this membership, which costs a little more than one regular entrance ticket, the members are also granted with some exclusive content that is delivered on frequent intervals by email. They also benefit from special offers on the museum online store.

2. Locals with a high appeal for the museum

With a number of visits that averages around 3 times per year, the focus of this membership is to swap one-time sales against recurring revenue with a discount. Members of this category can now come an unlimited time to the museum, while paying only a little fee per month that is automatically debited from their credit card. They also benefit from special offers on the museum online store.

3. Locals with a low appeal for the museum

‍With a number of visits that averages around 0.5 times per year, the focus of this membership is to incentivise members to come more regularly to the museum by granting them access to some special and private events.