Easy 21% Profit Increase For Recurring Businesses

Words I like: “If you grow your business without fixing your problems, you grow your problems instead.”

Mozi Money Minute - Annual Renewal Fees

If you have a membership or recurring revenue model, and keep people over a year, a great profit tactic is to add in an annual renewal fee. It's a one time annual fee on top of the monthly. It doesn't interfere with front end sales because it’s a year away. And if someone stays a year, they’re unlikely to leave. The fee is usually the price of 1-3 months. By adding this in, you add 8%-24% to your revenue without incurring any costs. In a business with 20% margins this could add 50% to your profit. This also allows you to keep your advertised (and sold) monthly rate lower, while still having a higher blended rate. 

For example, if I charge $39/mo, I might make my annual renewal $99. This takes my annual revenue per customer from $468 to $567 (a 21% increase). This makes my effective monthly rate $47/mo rather than $39/mo. So I get the sales (and churn) of $39 price point but the revenue and profit of a $47 price point. Effective. Use it well.

See you soon, 

Alex Hormozi

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PS - How I feel when people say giving away free stuff devalues your brand.