Recurring Monthly Revenue: The Modern Revenue Model


As consumers, we don’t buy much outright anymore; over the years we have learned to buy with monthly payments. Most of us recognize this when it comes to larger purchases; like purchasing a home, luxury goods, or a car. This article transcends what’s historically been an ‘ownership’ mentality to the service-based world we find ourselves living in today.


We need to look no further than our own smartphones. When was the last time you:

  • Bought a music album? Apple Music, Spotify, and many others provide unlimited access to nearly all albums for a monthly fee.

  • Rented a movie? Amazon Prime, Netflix, and many others give subscribers the ability to watch a multitude of new releases with a monthly or annual payment.

  • Paid upfront for a cell phone? Every single cellular provider out there will give you a phone at no cost up front with a 2-3 year contract.

If you really pay attention and look around, you will notice that nearly all the products or services we interact with on a daily basis on are morphing into subscription-based expenses that look to you for a monthly payment.


Welcome to the World of the Recurring Monthly Revenue: The RMR Business Model.


Companies are recognizing the power of the RMR and are shifting how they do business:

  • “Apple may be an iPhone company, but now it’s openly acknowledging how important services are to its business.” (1)

  • “Microsoft has already been moving more of its products from one-time purchases to subscriptions and Microsoft 365 helps take this further.” (2)

  • “7 Reasons Starbucks Launched A Subscription Service” (3)

Even Cadillac has launched a subscription based model where (in select markets) instead of buying or leasing a car you can buy a subscription to ‘Cadillac’ and switch your car up to 8 times per year. No oil changes or maintenance required – all you need to do is put gas in it. (4)


What is Driving the Increased Adoption of the Recurring Monthly Revenue Approach?


Many reasons.


First off from a consumer’s standpoint:

  • Attitudes towards ‘ownership’ vs ‘access’ have changed drastically.

  • Technology (be it software and associated hardware) is evolving faster than ever before.

  • Most consumers prefer to pay a little over time rather than all at once.

From a business standpoint, the Recurring Monthly Revenue business model can provide a company:

  • Predictable monthly cash flow

  • Peace of mind with more accurate financial forecasting

  • Enhanced enterprise valuation with future cash flows

Another significant advantage of recurring monthly revenue is derived from the increase in the lifetime value of a customer, or LTV. Contrary to traditional transactional business models, RMR based companies are not forced to constantly ‘re-acquire’ their customers, reducing ongoing marketing expenditures and churn rates, and increasing valuations.


A good example of this is Dollar Shave Club who sold to Unilever for 1 Billion. The Dollar Shave Club provides (aside from entertaining YouTube commercials) a wide range of men’s personal care products. They are not the only company in the space, but were one of the few that had scaled their business with a Recurring Monthly Revenue based model. (5)


There are many more examples of significant ‘multiples’ being paid for an established/growing client base (customers) accustomed to making monthly payments for services they regularly use.

  • Reliance Home Comfort sold for 2.8 Billion in early 2017. Reliance provides 1.7 million Canadian households with water heaters, furnaces and air conditioners. (6)

  • ADT sold in 2016 to Apollo Global Asset Management for 6.9 Billion. ADT provides millions of households with essential security monitoring and services. (7)

  • Vivint sold at a 2 Billion valuation to Blackstone back in 2012. Vivint provides security and automation services to households and businesses. (8)

RMR = Cash Flow


The methodology at Intelife Income Trust models itself around this thought process. Our customer facing offering is security, peace of mind, and convenience through smart home automation. The business model is firmly entrenched in building out a client base of tens of thousands of households and businesses across Canada.


Our partners at Intelife Security & Automation have already on-boarded over 10,000 households, many of whom have executed 60-month agreements. Like other services that you’re accustomed to, we charge most of our customers monthly through auto debit or auto credit. The average monthly charge is just shy of $60.

  • ‘Smart Home’ technology adoption is as high as 40% in some parts of the world.

  • Canada is currently sitting at 5.1% and is expected to hit 27.7% by 2021. (9)

As with your cell phone, other technology, or hardware based purchase, we do not charge our customers much (if anything) up front. Instead, they sign long term agreements in exchange for the latest hardware and ongoing services and monitoring.

Whether it’s your music collection, cellular service, home security or just about anything else you can think of; the business world is progressively moving towards a RMR model.

How will you take advantage of it?


Marcin Drozdz is currently Chairman and President of Intelife Income Trust. An entrepreneur at heart Marcin began his professional career rising through the ranks in the private capital markets in Canada. Marcin has since helped build several companies including a commercial real estate acquisitions company and an alternative business funding group. Marcin also brings awareness to the alternative investment industry through various events, public relations campaigns and educational forums. Some of these campaigns have been featured in Advisor.ca, Canadian Real Estate Wealth Magazine, The Calgary Herald, Edmonton Journal, The Winnipeg Free Press and The Private Investor.


(1) Apple Makes it Clear Services are a Key Part of its Business Model

https://www.macobserver.com/news/apple-makes-clear-services-key-part-business-model/

(2) Microsoft has already been moving more of its products from one-time purchases to subscriptions and Microsoft 365 helps take this further.

https://www.axios.com/microsoft-will-sell-office-and-windows-as-a-bundled-subscription-2456397433.html

(3) 7 Reasons Starbucks Launched A Subscription Service

https://www.forbes.com/sites/johnwarrillow/2017/02/26/7-reasons-starbucks-launched-a-subscription-service/#2f8a4b791964

(4) Cadillac Car Subscription Service

https://www.bookbycadillac.com/

(5) What All Product Entrepreneurs Should Know About Dollar Shave Club's $1 Billion Sale

https://www.forbes.com/sites/johnwarrillow/2017/01/11/the-entrepreneurial-gamble-90-million-or-bust/#6094eb753938

(6) Li family buys Reliance Home Comfort for $2.8-billion

https://www.theglobeandmail.com/report-on-business/li-family-buys-reliance-home-comfort-for-28-billion/article34515402/

(7) ADT sale 6.9 B

https://www.nytimes.com/2016/02/17/business/apollo-global-management-to-buy-adt-for-6-9-billion.html

(8) Blackstone buys Vivint 2B

https://www.wsj.com/articles/SB10000872396390443816804578004762456374942

(9) Household penetration is at 5.1 % in 2017 and is expected to hit 27.7 % in 2021.

https://www.statista.com/outlook/279/108/smart-home/canada

62 views
  • White Facebook Icon
  • White LinkedIn Icon
  • White Twitter Icon

Disclaimer: The material contained herein is for information purposes only and does not constitute an offer to sell nor a solicitation of an offer to buy the securities. An offer can only be made via the appropriate documents being provided to prospective purchasers. This information is inherently limited in scope and does not contain all of the applicable terms, conditions, limitations and exclusions of the investments described herein. Prospective ‘investors’/purchasers should aware of the risk of this investment and seek appropriate advice as required before making an investment. This material is in no way a complete description of the proposed investment. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, expressed or implied, may be made as to the accuracy or reliability of the information contained herein. The only representations and warranties made by the Partnership would be those contained in a definitive Subscription Agreement. This Offering may be subject to potential risks associated with the investment, including market, liquidity and investment return risk. Please consult with your advisor regarding these potential risks. Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remain the same even if the   value of the securities purchased declines. In order to be eligible for subscription in this Offering, individuals must meet the requirements as outlined in the Subscription Agreement.

* The Preferred Return is a preferred return, but is not guaranteed and may not be paid on a current basis in each year or at all. The return on an investment in the Units is not comparable to the return on an investment in a fixed income security. Cash distributions, including a return of a Unitholder’s original investment, are not guaranteed and the anticipated return on investment is  based upon many performance assumptions. Although the Partnership intends to distribute its available cash to the Unitholders, such cash distributions may be reduced or suspended in the    sole Discretion of the GP.

 

**The ability of the Partnership to make cash distributions and the actual amount distributed will depend on the ability of the Intelife Partnership to successfully operate its business, and will be subject to various