How to Enable MRR & Grow Customer Lifetime Value

I want to share three ways to enable monthly recurring revenue and three ways to grow customer lifetime value, regardless of your business model.

You can listen to an extended version of this article on the podcast:

3 Ways to Enable MRR

Investors, acquirers, and often customers prefer recurring revenue models to one-time big-ticket purchase businesses.

There’s three primary ways to enable recurring revenue: a full-fledged subscription or membership business; what I call a “perpetual performance-based” pseudo subscription option; or optional add-on recurring products that customers can buy after a one-time initiation.

Subscription model

There’s nothing more valuable than a contingent of repeat buyers who make up the majority of your database.

Subscription businesses like Netflix, WHOOP, FabFitFun, WP Engine, and Canva Pro know that value-per-transaction will be lower than a single-transaction business. They’re going for compounding, continual, dependable monthly revenue. Single payment businesses have sporadic customers with no guarantee of repeat purchase; subscription businesses with repeat customers might sell at a lower transaction value but they have a higher probability of retaining signed-up members who are on auto withdraw.

While most people don’t stay on subscriptions forever, this structure does extend your CLTV light-years beyond a business without it who, in order to drive subsequent purchases, must rely on either brand loyalty or discounts and coupons.

While you won’t make bank on any single customer, the value is in the accumulation of new customers all signing up (at a relatively lower price point), as your install base grows over time. Compounding and consistency is the name of the subscription game.

Perpetual performance-based

In lieu of running a full-fledged membership model, you can build a pseudo continuity into your single-transaction business. These methods offer the ability to activate different kinds of recurring revenue without switching your business model fundamentally. They include things like:

Payment plans following a down payment for high-ticket products
Selling to businesses and getting on a retainer for ongoing work
Participating in a revenue share or taking a royalty

Enabling creative financing for higher-priced products will incentivize more people to enroll and give them more options to decide how to pay.

Retainers work well for defined work where you’re actually producing something, some kind of deliverable, for another business. The expectation, or the plan, is that as long as a certain standard is met (or the work remains needed) month-over-month, you will continue to be called upon and compensated.

Rev sharing, royalties, and residual income are all emergent options as well. For clients who are interested but simply do not have the budget to invest in certain services, taking a cut of the future yield can be proposed in lieu of up-front payment.

Add-ons

The third option is to offer an optional recurring product that becomes available after an initial purchase of some kind. This is a good model particularly once you’ve established your customer base and can effectively enroll customers into upgrades, spinoffs, or more specific “point solutions.” It also works well for free or freemium consumer apps that let you use a basic version then buy additional credits and more storage, for instance.

3 Ways to Grow CLTV

Customer lifetime value is an extrapolated metric that defines the anticipated monetary worth of an individual to a business over the course of their lifetime. This calculation is not a perfect science because, unless you have customers tied into actual long-term contracts, people can choose to stop doing business with a brand for any number of reasons and never return.

So you have to know how long the average customer continues doing business with you in order to figure this out on an individual level.

The intent, of course, is to extend that average duration of service across the database, and then to guide people to spend more the longer they stay.

Increasing CLTV—individually and in aggregate—is achieved by providing escalating levels of value to correspond with an ongoing extraction of cash by the business. There are essentially three levers you can pull here. You can:

Raise prices incrementally (the quickest and easiest)
Launch new products (enabling alternative purchase options)
Speed up your Retention Point

Raise prices

The good news: incremental price increases are the quickest way to increase CLTV. The bad news? You probably can’t (or shouldn’t) do it until you have a bunch of long time, locked-in customers.

Moderate price increases only work for subscription companies whose customers are, for lack of a better word, dependent on them, and who play in a small pond where they have market dominance with a clearly superior product. In other words: it better be really hard for customers to walk away if you’re going to raise prices on subscribed members.

Until your book of business truly depends on you to fulfill a very particular emotional or functional need and has little optionality to make a jump (or cancel), it won’t do much for CLTV. Instead, people will just walk away and look for someone else. So, this one is extremely difficult and delicate.

Launch new products

This option is probably the most feasible for most content entrepreneurs—releasing different programs, additional features, and new SKUs for your clients to take advantage of.

New offers can be used as cross-sells, up-sells, or just novel/alternative products.

These can be completely optional (separate value) or basically required (needed in order to gain full value from an existing product).

Google does this. Apple does it. Zoom does it. Hinge does it. All of these companies enable access to their main product either for free or at a very low-cost, and then they monetize with a required “upgrade.” The basic version is strategically inadequate, requiring customers to pay for add-ons.

Quicken retention point

How—and how quickly—can you become the default solution when your customers have an impulse to solve for a specific need?

The retention point is the moment in which a brand becomes synonymous with an impulse, or an action itself.

Rideshare = Uber

Burrito craving = Chipotle

Infinite scroll dopamine hit = Instagram

Video search = YouTube

Music streaming = Spotify

Recently, ChatGPT hit this point within days—one or two uses and people were hooked. So did Facebook in its early days. Of course, these are consumer apps which are built to be sticky and which enjoy integrated network effects at unprecedented scale.

For creators, coaches, agencies, and small businesses, there are other tangible, tactical ways to mimic the effects without the size. For instance, anyone can:

Differentiate their delivery or create a new category (like I did with my platform)
Share their unabashed personality on a podcast, attracting a devoted tribe
Generate anticipation week-over-week with 1:1 check-ins early and often

As the extent of engagement and length of time with your company grows, affinity increases until a tipping point where a customer becomes brand-loyal.

These levers (enabling recurring revenue month-over-month and expanding lifetime value with strategic business model planning) can help get there.

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