Subscriptions are the Best for Residual Income Streams

Of all the opportunities I explored, subscription-based business models are easily the best I found. Interestingly, almost everything can be positioned as a subscription. In fact, I’ve even met people selling financial intermediary services on a subscription basis.

Subscriptions are essentially rental payments.

The nice thing about rental payments is that they’re a “bondable” cash flow. That is, they’re contracts that you can take to the bank, which opens up a tremendous balance sheet opportunity for business growth.

Steady Revenue

The most obvious benefit of a subscription-based business model is the steady revenue. 

Beware, though, as not all revenue is created equal.

Steady revenue streams are great so long as they’re diversified and resilient. For example, there’s a big difference between getting $10,000 per month from two customers compared to $10,000 per month from 200. You’re exposed to a ton of risk in the former case, and that is lessened substantially in the latter.

Of course, service delivery is a critical component of this model’s design. As your customer base grows, you simply can’t provide the high-touch service that you can with a more focused crowd. Depending on what you’re selling, that could be detrimental.

That said, everything can be worked out by designing the right system to ensure you meet or exceed customer expectations. It all comes down to combining the right amount of integration, automation, and intelligence to streamline processes.

Predictable Expenses

If revenue is the blood that runs through your system, then expenses are the blood vessels.

Each expense represents a service delivery channel.

These expenses take the following forms:

• Payroll or contract labor
• Team building and development
• Service delivery tools – digital or analog
• Risk mitigants – e.g., insurance, security tools, etc.
• Growth tools – e.g., market intelligence, sales enablement, marketing automation, etc.

While I’m probably missing a few categories, you probably get the idea. The more stable your revenue stream, the more you can design efficient systems. For example, when you understand your churn and customer profile, you can design a sales and marketing funnel to maintain or expand the customer base. No more, no less.

Bondable Cash Flow

I had an analyst once tell me, “Hotels are hard. There are so many factors to consider. With other commercial real estate assets, it’s just revenue minus expenses.” I explained to him that it’s the same in hotels and any other business.

Cash flow is cash flow.

Maximize revenue and minimize expenses.

That’s the game.

Subscription-based models are nice because you can build a machine around them. With predictable revenue and expenses, as described above, you can go to the bank and monetize future cash flow.

Borrowing from a bank is scary because you may need to put up a personal guarantee, but that’s not your only option. Steady cash flow also allows you to take on investment partners. A quiet, cost-effective partner may allow you to take some chips off the table to grow the business or improve your lifestyle.

All of these benefits depend on building steady revenue and predictable expense systems.

I’m working on a recruitment process outsourcing (RPO) business line using this model. It will take a moderate subscription fee from hospitality companies to fill high-turnover positions, such as housekeeping and maintenance staff. The service delivery will be optimized using digital tools and offshore labor.

Over time, I plan to add accounting-as-a-service, sales-as-a-service, marketing-as-a-service, and others to further enhance the offering without changing my target audience. Each will build on the others to form a complete property management company.

What are you building?