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RANT – Payment Plans Are NOT Recurring Revenue

I was SHOCKED when a seasoned business owner claimed that his 12-month payment plan was just like having a recurring membership. Uhhh no! I explain why in this episode.

Big Ideas

New Recurring Payments Versus Delayed Payments [3:08]

Distinction number one is that with a payment plan, you are simply delaying payment versus getting paid more. If you had the choice of being able to receive all of the money upfront for a payment or get it delayed over time, of course we would all want it upfront. The only reason you have a payment plan is to make whatever it is you’re selling more feasible for people to be able to afford it, so you are simply delaying the payment. With a membership site, you’re not delaying payment, you’re getting paid continuously. And those are new payments, not the payments that are owed to you from the past.

No Specific End Date [4:16]

The second distinction is that most memberships do not have an end date on them. Think about Netflix, how long have you had an account? For our family, it’s been at least 7 years. And it doesn’t end. It’s not like a payment plan where after 12 payments the payments stop. When you’ve set up a great membership or subscription, those payments do not end. They keep on going and tracking.

Continuous Compounding Effect [5:06]

Distinction number three is that with a payment plan there is zero compounding effect because of the fact that there is an end. After 12 payments, that customer stops paying you, and the only way to get more revenue coming in is to go out and find new customers. But with a membership site, when you find new customers you start to have a compounding effect. You don’t need to go out and find new customers once you’ve got them in a membership, because they’ll continue to pay you month after month. And even when you find more customers, you have a compounding effect where your monthly recurring revenue significantly compounds month after month, because both your existing and your new customers are still paying you. Whereas with a payment plan, those payments will come to an end, and you’ll be stuck at the same level by having to go out and find the same number of customers every single month.

If you were to ask an investor who is looking to buy your company if they would rather have a company that has accounts receivable or monthly recurring revenue, by a landslide you would get far more investment from a business that gets monthly recurring revenue.

Memorable Quote

“Monthly recurring revenue is the most stable source of revenue there is.” – Stu McLaren

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