MRR vs One off jobs – which is more profitable
Having recently kicked off my new WordPress support business WP Master, I’ve been sharing content around the subject on my weekly email list. Last week I got a reply asking the following question:
“Is it more profitable to structure a business so it’s recurring each month, or basing it around projects or one off jobs” was more profitable” (thanks for the question Paul).
Historically, software and services businesses mostly sold things in one off sales, but more and more in recent years businesses have moved to recurring offerings. You used to buy Photoshop in a box for a one off price, then buy it again when they upgraded it. These days you buy the suite and you pay each month. Same with services, agencies historically used to do projects or hourly work. When I launched WP Curve in 2013 it was the first service of it’s kind only doing monthly recurring work. I said no to tens of thousands of dollars worth of work, to build a recurring business.
There’s no doubt that having a recurring business is better in many ways for the service provider. But if it’s not also better for the customer, customers are going to look for one off options. Think about your own buying habits. It’s a big deal to sign up for a recurring commitment. There has to be a huge amount of value there. One off purchases can be impulsive and you don’t need to consider them anywhere near as much.
All of that said, the original question was ‘what is more profitable’. When I built WP Curve I had some very specific goals in mind:
- I wanted to build something more like a startup and less like an agency. I wanted it to have a consistent growth path and I wanted to remove the things I hated about running an agency to enable me to build something that was ultimately more valuable.
- In the end I wanted to have an asset that was legitimately worth something. My agency was valued more like a traditional business at a multiple of profit. WP Curve was ultimately valued more like a startup, at a multiple of revenue.
If the business was not structured in a recurring way the way it was, it would not have achieved these goals.
Similarly with WP Master I have some very specific goals I’d like to achieve with it. These are very different goals to WP Curve, but one is to have a business that doesn’t require me to do sales and has a super consistent and reliable income. For me to achieve this, the business has to be a recurring business, so I have to figure out how to provide a great ongoing service to customers.
Related: WP Master Business Plan and First Update
All of that said, that doesn’t mean the recurring business will be more profitable. Maximising profits above all else is not my goal here. It’s very possible that depending on the founder, focusing on one off jobs would be more profitable. You’d turn down way less work and you could sell much bigger projects. But this is not a good fit for someone like me who doesn’t want to invoice people, doesn’t want to do sales and doesn’t want to have the inconsistency of project based work. Plus I don’t have the type of audience who want me to do large projects for them. For the right founder, and the right audience one off jobs very well may work even better than recurring services.
Related: Product / Audience Fit
For me, the decision to build a recurring business is not just about maximising profit. It gives me the following benefits:
- You can build it to a certain amount per month and be comfortable each month that you are going to make ends meet without requiring you going out hustling for work. I’ve spent years of my life living month to month financially and under financial stress. I don’t want that anymore. If I know my bills are paid via upcoming subscriptions, then I’m much happier even if the money is less.
- Subscriptions are a good way to qualify customers. Most businesses who are tiny and don’t have much money won’t sign up for a reasonably-priced subscription. I ideally don’t want to be working for penny pinching individuals or micro businesses, so a subscription is a good way to qualify them without me needing to do any qualifying work myself (which I don’t enjoy).
- If you want to scale, you will ultimately have to hire people and doing that without any guaranteed revenue is extremely stressful. You can hire virtually risk free when you have a business based around MRR and not projects.
- It’s a very simple offering that you don’t need to sell people or quote etc. I don’t want to do any of that work so it takes out all the guessing. Answer a few questions on live chat and either the company is a good fit or not.
- MRR means no invoicing which means no chasing up invoices. If you’ve ever done this work you’ll know how awful it is. Never again for me!
- MRR also makes the company more valuable for an acquisition and I know this first hand having sold my last business for a multiple of ARR.
- If you have a recurring service it requires you to do a great job for every customer or else they will churn. This may not be up your alley but for me I think this is one of the great things about the model, it puts pressure on the service provider to prove their value over and over.
- Having set monthly plans means you need to be very specific about what work you do and what work you don’t do. This leads to you becoming good at a small subset of things. Again to me this is a great thing, you can focus on a specific service, get so good at it that your clients won’t leave, and you don’t have to stay up to date with the thousands of other things customers need people for. The better you get at the service, the more likely clients are to stick and the more reliable the income is.
I hope that was useful. If you are interested in suggesting a topic for future releases, jump on my email list here and reply to my weekly email on Fridays.
Cheers and happy creating.
Photo by Austin Distel on Unsplash
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