In this episode, we explore the concept of Monthly Recurring Revenue (MRR) and its critical importance for businesses, especially regarding exit valuations.

Lani Dickinson, a former Fortune 175 CEO, shares insights on how MRR can stabilize cash flow and increase the lifetime value of customers. Discover the different levels of subscriptions and learn how to implement MRR strategies in your business to enhance growth and achieve financial freedom.

Don't miss this essential guide to making your business more predictable and valuable!

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>> Lani Dickinson: Today we're going to talk about monthly recurring revenue, what it is,

how important it is to your business, and how important it is to

your exit valuation, which is what we're all here to talk

about.

Welcome to the Freedom to Exit podcast. I'm Lani

Dickinson, former Fortune 175 CEO,

bringing you expertise in private equity

insights, turnarounds,

sustainable growth, and positioning your business

for exit. So let's dive in. Monthly recurring revenue

is the amount of predictable total

revenue that you can track to

subscriptions monthly in your business. It's a

beautiful thing because you get paid over and over

and over again for acquiring the customer one time.

Not only does this increase the lifetime value of

your customer, which anybody looking at your business is going to

wonder what that is, but it

also brings you a higher

valuation and, it makes your income easier

to scale. Imagine starting every single month with

all the company bills and your lifestyle

bills all covered by the first of month. That's exactly

what monthly recurring revenue does for you. And it

contributes very heavily to the predictable

repeatable sales process that is

evaluated in your exit multiple. Gives you predictable

cash flow, stable growth, and it signals to

the buyer that you truly have good product market

fit. In the exit process, you're going to get a

minimum of $2 for every dollar that you have

in monthly recurring revenue. So this is worth your time to

figure out how can I create some monthly recurring

revenue in my business? There is also a

hierarchy. At the lowest end, it would be

considered just a consumable thing like a yogurt

card at your local yogurt store or the

Panera soda subscription. We can get unlimited

refills. Those are ways to get

us spending a certain amount of money every

month to get some benefit. The next level would

be more true subscriptions,

like a car wash subscription. You can have so many

per month. They're just ways to get you coming

and using the product and you get a little bit

discounted rate. The next level up would be sunk

cost subscription. So sunk cost

means we've already spent some money on something like maybe

a Keurig machine or an Nespresso machine. There's

a consumable piece that we've got to keep buying each

month. So that'd be the Keic Pod or the Nespresso Pod.

Then there's auto renewal subscriptions. And this

is something like your Amazon prime

membership, your gym membership. This is something you

pay for every month or

annually, and it's something that the consumer

uses. Then there are contracts. This is

the highest level of monthly

recurring revenue rating. And this is

B2B. So it would be like a business to another business,

a business to a government entity, or a business to

a retail chain. It's really important as you look

at either version of exit, whether

that's time and location freedom, or whether that is to truly sell

your business and exit. For more, you want to think about

how can you add monthly recurring revenue to your

business or how can you strengthen the

kind of monthly recurring revenue you have in your business if

you have it already? If you are a coach, could you

add a SAS component or a CRM M component

and get people building their business into your

CRM M and in your back end so that you have

the ongoing revenue? Many alarm monitoring

companies actually outsource the install because

that's not where they make the money. Where they make the money is the

ongoing monthly recurce contract for the

monitoring One of the stories I've been most

fascinated by was this story of a flower shop.

Flower shops are dependent pretty much on Valentine's

Day and Mother's Day to make their money, and

it's said that they throw away up to 60%

of their flowers each month. And this one

group said, let's turn this into a subscription. They

went to the spas and the home decoration

companies and various big offices in the area where

they live and they offered them a weekly and every other

week subscription where they they would bring them fresh flowers

and do all the work for them. Now they only throw out 5% of

their flowers and every month they have their bills

paid and they've reduced risk, they've stabilized cash

flow, and they've proven that the market actually

loves their products. So they're no longer dependent on

two holidays in the year and they have

stable monthly income. If you're finding this helpful, make

sure you, like, share and subscribe. And of course, return next

week where we dive more fully into this freedom to exit idea.