Transforming your small business or professional services business into a recurring revenue model business? Smart.
Carefully managing that transition so existing customers will accept the change? Very smart.
Alienating an existing customer while your company makes this switch is all too easy to do. A few proactive steps can make sure that customers — perhaps the same customers you have faithfully served for years — won’t feel any pain.
In this post, we’ll assume that you have selected your recurring products or services and priced them.
What lies between your business and recurring revenue now? Customers.
All you need to do now is tell customers that your business model is changing, right?
As accountants, chiropractors, and small business owners of all kinds can attest, that “telling customers” piece is harder than it sounds. What should you tell them? When? How?
When and What to Communicate During a Transition to a Recurring Revenue Business Model
Send the notice well in advance of the business model change
Six months is reasonable for professional services that will require an in-depth search and handoff if the customer chooses not to retain you. Accountants, healthcare professionals, and lawyers would fall into this category. If your product or service is easier to replace, 2-3 months is fine.
Use the right tone and language
Adopt a low-key but confident tone throughout your notice. Indicate that the business model is changing — not that this is something up for debate. You’ll need to portray that the only way to continue working with your business is through your subscription model plan(s).
Resist the temptation to use celebratory language. Your “proud announcement” will come off as self-serving when customers realize there’s nothing for them to celebrate.
You don’t need to go too far the other way, either. Overly formal copy can sound like a legal document and raise unfounded suspicions.
Don’t forget to explain the why
Customers will know that you expect to benefit from the new recurring revenue business model. So briefly tell customers why you’re making this change.
Share the benefits you expect to see for both parties. It can be appropriate to share your personal motivations here, such as “spending more time with our kids.”
Use the data you have
If you can estimate the cost to your customer under your new pricing scheme, then consider providing an estimate along with a year over year comparison.
Be as specific as possible in the notification letter. Telling a customer that you’re switching to a recurring revenue model and not providing the pricing can cause panic. Unless you need to negotiate pricing with a specific customer, provide as much detail as you can up front.
How to Communicate During a Transition to a Recurring Revenue Business Model
Keep a lid on it until customers are notified
Do your best to manage the information flow. Any news that impacts a customer account is best delivered from the business to the customer directly, and in full.
If “word gets out” that your business is changing, customers can get anxious. Worse, opportunistic competitors can appear from out of nowhere.
You may need to restrict information about the change to your business partners only. This may not be how you usually conduct business. It is, however, better for your customers and your company this way.
Start with written notifications
Send customers written notification. For some businesses, email is the most appropriate format. When in doubt, get the snail mail out. And hand-sign those letters.
If you have staff, provide them with a copy of the notice. Also, give them instructions about how to manage inbound questions. Respond to all inquiries promptly, prioritizing them over other business.
Closely monitor your social media channels, too. Try to answer business model questions off-line if you can.
Get cozy with the phone
You will hear from your most concerned customers first. Some will not understand the change. Others won’t accept it. Another group may have too much time on their hands. (We can address how to handle these situations in a follow-up post if there’s interest.)
Don’t just wait for customers to call you. Make follow-up calls starting with your most important customers first. When you open the call, do not assume that your customer has read the notification that you sent. If they haven’t, ask them to do so and get back in touch with you.
Treat these early calls as listening calls as much as you can. It’s impossible to predict what kind of response you’ll encounter. Some customers might think the change is not a big deal and wonder why you’re calling.
Other customers might be angry and attempt to push you into ultimatums. Remain neutral, acknowledge concerns, and move on. They will have time to consider more thoroughly, and you will have time to respond to their objections. Take detailed notes.
Afterwords
Traps are a bad thing
It’s important to avoid making existing customers feel trapped. Giving customers plenty of time to make their stay/go decisions helps avoid that. You can go one step further: offer to find clients a new provider if they decide to leave you.
Making this offer (and perhaps fulfilling it) serves several purposes. First, it’s the right way to end your service to a valuable client.
And when you make this offer, the perception of your value grows. You are connected to the professional community. You are willing to do whatever it takes to keep a customer happy. “Whatever it takes” includes helping a former customer find the best competitor to work with.
Be boring for a quarter or two
After your clients have transitioned to your new recurring revenue model, avoid making changes to your client-facing processes for a while.
This includes payments. If your customers have been paying by check, let them pay by check. You can mark and track check payments in a recurring revenue billing system like ChargeOver. Eventually, you can transition the customer to an ACH (e-check) payment.
Keep those bridges up
Finally, never burn a bridge. An otherwise-happy customer who dislikes the recurring revenue arrangement might refer a customer to you someday — or even change her mind entirely.
NB: Accounting, legal, and other professionals refer to recurring revenue models as “value pricing.” (See also Marnie Stretch’s insightful discussion of value billing vs. value pricing.) The value pricing model itself is a bit different that a standard “recurring revenue” model in theory, but the advice above applies to both. For consistency, we have referred only to recurring billing and referring revenue in this post.
