I bought a lottery ticket today. I’m admitting it publicly at the risk of ridicule from my engineering friends who call the lottery a tax on the mathematically inept. But hey, this was research. And what the heck, last week somebody won $400,000,000 on Powerball. Why not me this time, right? I’m feeling lucky today.
The lottery provides a pretty good example of why businesses should be looking at a recurring revenue model. As a business entity, the lottery in my state has a problem. I had to get up out of my comfy chair, get in my car, and drive to the local convenience store to buy my ticket. And if I want to play next week, I’ll have to do it again. I’m a bit absent minded, so the chances of me remembering to stop and buy a ticket on the way home from visiting a client or buying groceries or playing golf are pretty low. The result is that I’m a very intermittent player, and that’s not good for the lottery, or for the folks who are dependent on that ‘math tax’ revenue.
In a previous post, I talked about the characteristics of recurring revenue products. Something is consumed. The consumption is measurable and it occurs on a repetitive basis. Products can be sold on a consumption basis, as a subscription, or as a hybrid of the two. That model would work really well for the lottery. So when I saw a news headline last week that North Carolina was adding play on a subscription basis, I got curious. I found that North Carolina is actually the 12th state to offer lottery subscriptions.
If you think about it, this makes perfect sense. Look at the model. Every lottery ticket sold provides a chance to be a millionaire. That chance at fortune is what is being consumed. It has a finite end date (the drawing), and if you want another chance, you need to buy another ticket. There are multiple games with two or more drawings each week. If I don’t win this time, I can come back again. Lottery play by its nature is repetitive. The number of lottery tickets sold is measurable and is the metric that drives the value of the jackpot. It sounds like this ticks all the boxes for recurring revenue.
So, in practice, how does it work? I took a look at several of the states providing subscription play, and found that the model is similar from state to state. Lottery players go online and select one or more sets of numbers (or plays) and the number of drawings (subscription length). There are generally a set of defined plans, based on the number of plays and subscription length. Choose your winning numbers and your plan and provide a method of payment. Fees are collected in advance at the start of the subscription. At least one enterprising state, Illinois, even allows for automatic subscription renewals. Check the box and your subscription auto-renews.
So, why are we talking about the lottery? Well, there may be a lesson here for your business. Lottery operators realized they had a business problem – they were living in a world of one-time purchases. Revenues were volatile, spiking when jackpots were high and bottoming out when jackpots were low. Lottery operators realized that they could capture more overall revenue, reduce revenue volatility, and improve cash flow by locking a portion of their customer base into a recurring purchase. Many ‘regular’ players who were playing 70% or 80% of the time are now playing 100% of the time. Customer satisfaction increases for those subscription players who now never miss a chance to ‘get lucky.’ Customers like me who make an occasional purchase will still make that occasional purchase.
This is just another example of how adding a recurring revenue model can help a business provide a better service to customers and increase its bottom line at the same time. It can be a win-win for a business and its customers. What about your business? I once heard luck described as the intersection of opportunity and preparation. Is there an opportunity to grow your business by converting one-time purchases into recurring revenue? Are you prepared to take advantage of it? Are you feeling lucky today?
Bob Harden, Former Director, Global Billing Solutions, Experian
Just learning about subscription billing? Download the new Subscription Billing for Dummies book and learn more.
To find out more about how adding a recurring revenue option to your business can generate new income streams and improve customer lifetime value, consider downloading the recently released ePaper The Right Recurring Revenue Model for Success.