002. Recurring Income For Maximum Profit That Funds Your Perfect Lifestyle – with James Schramko
James Schramko, a renowned entrepreneur, business coach, and podcast host. With a career spanning over a decade, James has carved out a reputation as a leading authority in online business strategy and lifestyle optimization. He is the founder of SuperFastBusiness, a business coaching community that empowers entrepreneurs to scale their businesses efficiently and sustainably.
James's expertise extends beyond traditional business practices; he's a firm believer in working smarter, not harder. His unique approach combines innovative digital marketing strategies with a focus on work-life balance, helping his clients achieve both professional success and personal fulfillment.
Links Mentioned:
- superfastbusiness.com
Timestamp:
Ash Roy and James Schramko Video Transcript (This transcript has been auto-generated. Artificial Intelligence is still in the process of perfecting itself. There may be some errors in transcription):
Ash Roy
Welcome to the Productive Insights podcast for entrepreneurs and professionals where we discuss how to leverage your business online and how to maximize your profitability. I'm very pleased to announce an excellent guest I have today, James Franco, who is the founder of Superfastbusiness.com. And today we are going to be talking about leveraging your business using recurring income. We specifically going to focus on small to medium businesses. We're going to talk about why recurring income model, what a recurring income model is all about, what would stop somebody from doing this and what actions they can take right now. Welcome, James.
James Schramko
Thanks for having me. Ash.
Ash Roy
You're welcome. So James, you have several businesses, but your most prolific one that I'm aware of is Superfastbusiness.com. And you have built an excellent asset using the recurring income model. Do you mind telling us a little bit about recurring income and why you went with that model?
James Schramko
That was something I discovered a little bit after I got going online. In my first iteration of selling online, I was selling an affiliate product, which meant that I was selling some software that some other company owned and I was basically getting a commission per sale. And I was selling one at a time. So each month I was selling initially one, and then two, and then three, and then five, and then ten until I built up the income each month. However, I really had to go and acquire sales one at a time. So it was quite a lot of effort. Then I thought as an affiliate, maybe I studied more of the profit formula. And the profit formula is traffic of your prospects, times your conversions equals customers. So that's sort of what I was doing. I had these prospects and I was turning them into customers. And then it's customers times the transaction value times frequency times margin. So I had the transaction value that was set because of the software I had, the margin was set. As an affiliate, the frequency was a part that I thought had huge opportunities for me. And frequency means how many times you can make a sale. And what I did is I switched to promoting a program that was a recurring monthly billing. So that automatically meant instead of one time sale, every sale was sort of equivalent to six or seven or ten or twelve, depending on how long a member would stay. So it's like selling ten to one. And I thought this is very powerful. And it immediately changed my entire position on what things I should promote and where I should focus my energy. So it was only natural as my business evolved, even though I was doing services for one part of the business and affiliate marketing for the other, and information products for the other part, I started creating products and services that were predominantly recurring services because I wanted to make ten sales in one. And now my average customer value is much higher. You don't need as many customers and you can do more farming instead of hunting. And by farming, I mean it's more like the vineyard where you're tending your crops and you're making great wine, and you can keep producing great wine and refining your strategies, and you get used to that same environment, and you get used to the process versus hunting, where you have to keep roaming around with your spear looking for tonight's dinner. And what I see is that most marketers out there are constantly focusing on these launches and big promotions and driving traffic through all these traffic channels and getting as many one time sales as they can. And then it all starts again the next time, you know, the next month or the next quarter or the next year. They have to do it again. I know one of the most prolific product launch marketers is up to, I think, the 10th or 11th big product launch of his huge product. And it's tiring and exhausting to even think about it. What I've found is a very low energy model that requires just nurturing and looking after existing customers and making sure that they stick around. And in some cases, these recurring programs can go on for years. The longest so far. Seven years.
Ash Roy
Wow. Yes. You make such an important point because it is nine times as expensive to acquire a new customer as it is to retain an existing one. But why would you go and try and acquire new customers every day when you just can look after your existing customers and as you said, use the farming approach rather than the hunting and gathering approach, which is a lot more energy intensive and far less productive.
James Schramko
Exactly. And big companies do this, ash huge companies do this, like Amazon do it. They have an annual membership called prime where people can get free shipping. And they have this recurring fee, WhatsApp had it? They charged, I think, a dollar subscription. But what they found is that gave them people tend to use things that they pay for and they tend to buy more. The statistics show that they buy more, and it also means you have a more qualified customer base because they're now paying to consume. And what I've found is that people who come to my live events, they're more likely to come from my existing subscription community because they already like and know the stuff. They don't hate me, and they're used to getting the information and they want more. So they're a really good group of people. So if you want to make sales before or after the subscription, that's a great way to boost your income as well.
Ash Roy
Right, so you already have an engaged community through your subscription model, and then you can create more high end products for them. And they already have bought from you. So they're more likely to convert into a paying customer for the higher end products as well.
James Schramko
Significantly more likely to buy other products. And if you happen to have a business structured like mine, where you have complementary products and services, you'll find that won't take long until people buy multiple different products, services, information, et cetera. Some customers will buy everything that I offer. They'll join my coaching to get information on how to run their business online profitably. Then they'll buy a website, then they'll buy traffic services to promote the website. Then they'll come to a live event to make the good contacts and to get some fresh information from the coalface and to meet other people who do what they do, who get it and are right at the leading edge. So that customer is a very high value customer. And it means that as the business owner, I've got one customer for the bulk of my products and services and I just have to focus on meeting their needs continually rather than always having to come up with new ideas to go and get a whole new bunch of customers.
Ash Roy
And the other thing that I think is really beautiful about this model is that when you have these customers in your subscription model or in your environment, you understand them because you have a long term relationship with them. So when you do build the high end products, you build far more relevant and targeted products that are really going to make a difference to their lives.
Yes, and you can actually do a little bit less because now you have the right offer for the right customer and they're basically buying unless they say stop. One of the great things about the subscription model is that for the billing to stop, the customer has to do something. The customer has to actually take action. They've got to overcome their inertia of comfort and stability. And if you think about it in terms of things that we all use utilities, we use telephones, quite often they're on a subscription plan. I know that I get a bill each month for my internet, a bill each month for my mobile phone. It would be quite inconvenient for me to stop that service. A I'd have to contact them to say please stop billing me. B I'd go without a vital service. So we wouldn't be having this conversation if I didn't have internet connectivity. So I'm actually happy to pay for that solution as long as they'll offer it.
Ash Roy
So a really important word you use there was inconvenience. Provided you're giving the customer a good service and you're doing it consistently and regularly, it becomes really inconvenient for the customer to say stop. And I think that's what makes the subscription model so successful.
James Schramko
Yes, and the official term for this one is called pain of disconnect. A good service will have a pain of disconnect not because the business owner is mean and nasty, but because the business owner is really solving a problem and they're genuinely helping out and the customer will ask himself the question, if I were to be in my buying shoes again today, would I repurchase this subscription or not? And if the customer can continually say yes, I would repurchase this, then that means you're doing a good job with some of the most fundamental things, which is retention. As a subscription model business, one of the big focuses you'll have to have is having people use and consume the subscription so that they would miss it if they don't have it anymore.
Ash Roy
Right? Exactly. If you're providing good quality services to the customer, then there is no question of them wanting to move. I mean, if I'm really happy with my mobile phone service, the risk of moving to another service and potentially finding that their service is not quite as good and then having to move back is too high, so I'm not even going to move.
James Schramko
Exactly. Now that brings up a few challenges around this. A lot of people get this part wrong because a business owner might be thinking that the customer values one thing, but the customer actually values something else and it's an easy mistake to make. So with a phone subscription it's pretty clear to see what the value is. The customer wants to be able to use their phone. But when you start getting into things like information product or services, you have to really be careful to make sure that you're focused on delivering what it is the customer wants. One example of that is a membership. There's really three main elements that a customer is getting when they get a membership. One is they're getting content. That's the information itself. Now, a traditional way of selling information is to just sell a course or a book or an audio as a one time and that's fine and you can buy content that way. But you're missing two of the other components that you get with an information membership. One of the other components is coaching. Now again, you could buy coaching by itself, but good coaching is working really well when you pair it with good content. So it makes sense to have coaching involved in a membership subscription. If you can have genuine experts helping people out, then they're more likely to get a result. And this is really the secret of membership subscriptions. The thing that people are getting but they're not looking for is community. And this is a bunch of members working together, reassuring, supporting, pulling together ideas and resources and helping people be accountable, but also having someone else who can relate to them. In that community you're going to get a really strong binding of culture and it's the culture that takes on its own personality. And that's what I think superfast business membership is. It's a culture of people who support each other and nurture each other and are genuinely caring about the results that people get. But the thing is, when someone's coming along to buy into a membership, they're not looking for community, they're looking usually for content and sometimes for coaching, but hardly ever community. But it's the community that is really probably the best asset of an information membership. And if you can get all three of those working, well, like a big Venn diagram, you'd have good content, good coaching, and good community. And you've got that little hotspot that someone will miss it if they're no longer there, because they're not getting the good information, they're not getting help from an expert, and they miss their friends.
Yes. I think humans are social creatures. Back in the corporate world, a strong culture was the make or break for a large company, or any company really. It takes a long time to build good culture. It doesn't take very long to destroy it. Companies like Apple, for example, has what I would call a very strong culture. And it sounds like that's exactly what you have in superfast business.
James Schramko
Yes. And you can do some things to really help that to stimulate the community. A couple of the things that we do local meetups where people can actually meet face to face. Once people go to one of those they can really get a sense of that there's actually people involved in this.
Ash Roy
Yes. That is such a differentiator, isn't it? Because most internet based businesses or communities don't think to have the in person meet ups. But that is the most reassuring thing, especially for a new member to meet people in person and see that there are other human beings just like you that are doing exactly what you're doing.
James Schramko
Yeah, and by far the most epic thing along those lines is the annual event where we have a couple of hundred people get together and the atmosphere is amazing because it's kind of like a huge family gathering. These people know each other, they know their pictures, they've had conversations with them all year long and then they get to have a form of reunion in a way. So it's a really interesting dynamic and a lot of online businesses aren't really thinking offline. But I think that's a mistake. I think a good subscription program could have some elements of online and offline. And I'll give you another example on that for my high level Mastermind, which is called Silver Circle. When someone joins that, I actually mail them a package and they get a Silver Circle t shirt and they get a Silver Circle workbook and it comes in a sort of bulky post package and that's combining what we call lumpy mail physical postage with an online purchase. And that brings some tangibility to it. It's saying, hey, this is substantial, this is real and welcome, we're inducting you into the club. Here's your uniform and your branded workbook is going to be a constant reminder of the investment that you've made in yourself. So if you can combine some online with offline, you're going to end up with a great program. And that's worked really well for my subscriptions and for my coaching side of things.
Ash Roy
Yes, the physicality of meeting people in person or receiving physical products makes such a difference. It's such a differentiator, it staggers me that more online marketers are not doing.
James Schramko
It and it's an easy thing to do these days. You can have your shopping cart or email system actually either send it automatically or you can have it notify you. It can actually send you an email with the name and address and t shirt size that you can literally just fill out onto an envelope that's prepared and ready to go. So there's options for it to be automated these days.
Ash Roy
That's so cool. Tell me a bit more about this event, James. When is it and where is it? And tell me a little bit about the Silver Circle as well.
James Schramko
One thing that's interesting about the event is that it's a great get together for the members, but it's also an opportunity for me to bring in experts who are at the cutting edge of their field, and I record it. And what I do is I take those recordings and I actually invest quite a lot in the camera crew and the staging and the lighting and the sound to make it top quality. That actually forms the basis for the content component of my membership, which I'll then sell after the event. So there's really two main parts to that. One is it's great value for live attendees. They get to meet these experts over a few days, they get to meet me, they get to get really good information. Right now they see other people doing what they're doing, but they also can make contacts. And then the other aspect is, as the business owner, I'm making sure that it at least breaks even, that I'm making a small profit if it all goes well, and that I end up out of this whole thing with a fantastic renewed community culture so people will stick around longer because of that. And two is I've ended up with this fantastic content that I can now put into the community and I stage it over a few months so that it's not too overwhelming for people all at once. And that way, it's a great way for people who came to the event to relearn by going back through the transcriptions which are fully transcribed and the audios and the videos. And it's also a great way for me to bring in new members so that they can start into the community in time for next use event.
Ash Roy
That's fantastic. So you record the talks and so on and the event and then you feed that back into the community. So you're using that content in more ways than one and beyond that I.
James Schramko
Even go to great lengths to curate that content. I spend a lot of time selecting the right people to present so that I make sure the topics have good content that they're contextually right for my audience where they're at. The other thing that I do is I help them out with their presentations to make sure that we remove all the backstory from when they were at high school to now because no one really cares about that. And I remove the selling part where they're trying to pitch something and we just go for the content and that way I end up with a much better product. The expert is coming here and sharing good information, but they also get to meet a couple of hundred of my best customers, so it's a pretty good pay off for them as well. And they have a lovely trip here to Manley, a beachside suburb in Sydney where I live.
Ash Roy
Oh, nice. So it's at, manley. And when is the event going to happen?
James Schramko
This event usually happens around March each year.
Ash Roy
Okay, cool. Well, it sounds fantastic. So we've talked about why someone should go into the recurring income model and we've talked a lot about what it involves and used some really clear examples, particularly with superfast business. Let's talk about some of the reasons that someone would not want to do this. What would stop someone from doing this, and how they can overcome those challenges.
James Schramko
Some people sell products and services that they might think is hard to turn into a subscription model. That's a pretty obvious one. There is a sort of side step around that one. So in the services side of it, my core service of Search Engine optimization is predominantly recurring services. We actually allow people to buy one time programs, but it's the sort of thing that people get great results from and they really should be doing on a recurring basis. The bulk of our customers take a recurring subscription, so that makes sense. We've packaged up pretty much taken tasks and time and bundled them into a package. We put a dollar value on it and we talk about the deliverables of that package and people sign up to that subscription, so that's great. But then there's other stuff on the other side of it. We have things like website development and it's much harder to have a recurring subscription business with that. It's certainly possible. I know some people who have done it fairly well with a low subscription price and they do fix ups, but they don't tackle the bigger jobs like the full website development. One way around that is what I call the recurring relationship model. This is where you have repeat business for your service business. We have the same customers, so almost exactly the same philosophy that you have the same people buying over and over again. But in this case they're tending to buy one time packages here and there but as they need. So the perfect customer for me would be a website agency or a digital marketing agency who has say 50 or 100 customers. And what we found is someone like that is going to be ordering websites all the time. Yes, they're going to buy them one at a time, but they're going to be constantly dealing with us. So we've become their preferred supplier and they end up buying over and over again and it averages out kind of like a recurring subscription customer. But what we're really focusing on is that recurring relationship. So the specific technique involved there is targeting people who have a whole bunch of customers who are going to have continuing needs as if it was a subscription service. And if you do get it just right, we could almost say hey, you buy two websites a month from us and this is your recurring subscription. It could almost be like that and I think we're not far off that. But that's one way that you can get around it. If you have one time products or services, try and find someone who has a whole lot of customers that you could deal with over and over again.
Ash Roy
Okay, so you go into the position of a wholesaler and you find somebody who has about 50 to 100 customers that use those services and then you create a recurring relationship with them.
James Schramko
Exactly. So if you have one time products then consider the wholesale or vendor position in the marketplace rather than the retail position because that way you might be able to get really solid recurring distribution arrangements up and running.
Ash Roy
Any other reasons that someone would not want to go into a recurring income and how they can overcome they'll be noticed. Any other challenges people have faced?
Sometimes it's things like tech challenges and that's to be expected. To run recurring subscriptions you will need a few bits and pieces. For example, you'll need a billing system that can handle recurring subscriptions. A simple way to do it is monthly subscription billing and even PayPal will do that. These days what you'll find is that there might be limitations like you might not be able to do annual recurring billing with PayPal, but you can with credit cards. So once you figure out some of the basic tech things like how to get a recurring order button, how to keep an eye on your subscriptions, to check for credit card or PayPal billing failure because that's quite an issue. How to support your customers so that you can continually add customers and grow the business. These are the typical growth challenges that people have with the subscription business once they've got the product or the offer that works well with the subscription model, right?
Ash Roy
And a lot of these things can be overcome using things like shopify. This is the kind of information somebody could get from the Superfast Business Forum because a lot of the people in your community, I believe are already doing this very successfully, a lot of them.
James Schramko
One of the guys speaking at my live event called Buck has an eight figure business selling health supplements. And the secret is business is recurring. Another thing that challenges people is that they might have to take a lower amount upfront or they might have to break even or sometimes even lose money on the first sale to get it back in the recurring part. And it does take a little mindset shift to adjust to that. So I'll give you an example. If you were selling information products for $2,000 a sale one time, you might not be comfortable with selling a subscription product at just $79 per month because you'd think, well, someone's just going to buy it for a month and then leave. That's sort of typical thinking. Or you certainly wouldn't want to do a seven day free trial or a one dollars 30 day trial because you'd think, well, they'll come and get all the good stuff and then they'll leave. But if you have your engagement techniques in place, if you have enough consumption of the product, what you might find is that the recurring billing can add up to substantially more. So instead of bringing forward all your profit to day one in the one time sale, what you're doing is spreading it over time. And the thing that that brings to your business that a one time business doesn't have is stability. It means that every month you know that you're going to have x amount of revenue coming in the door. And the main thing that you're focusing on now is a metric called churn and that is just having a good understanding of how many people come in and how many people leave. And if you can keep that churn rate under control, you can actually keep growing your business and you can very comfortably get the right staff and systems in place to deal with the expansion because it's happening on a stable recurring basis instead of that spiky seasonal one time thing.
Ash Roy
Yes, I know from my banking background that when a bank values a business they really value a steady income stream over lumpy income. So that also improves your chances of an exit strategy. Or if you want to sell your business at some point you're always going to get a better sale price for your business. It's much more saleable if you have recurring steady income as opposed to the one off payments.
James Schramko
Exactly. And the most important point here is you don't have to make your entire business recurring subscription. You could have parts of it that are and parts of it that aren't. You could have a nice upfront product that has subscription on the back of it. So for example, someone who's just coming to my live event and buying a ticket to that, they will get offered subscription to my membership as part of the sales process and I got the statistic today that 30% of the people that I offered it to took up the offer. So that's quite a nice sort of down sell or cross sell if you like. So you can combine one time pricing with recurring and you can dial in the mix right?
Ash Roy
So that makes it really powerful. Okay, so if I'm a small to medium business owner and I want to get started with a recurring business model, how do I get started? What actions can I take? Right now.
James Schramko
I would research your market and see who's offering the subscription model in your business, and it happens in all sorts of industries and see if you can gather some research on that, because you want to come up with ideas about how people like to pay for a recurring subscription in your marketplace in the online space. I was a member of several other people's communities before I started my own. And I made a list of all the things that sucked about those communities. And I'll tell you what the number one was that the person who started it never turned up to their own community. And that annoyed me the most, because that's what I felt. I was paying for access to somebody and then they don't show up. So I made a list of all the things that people are not doing right and then I went and set about having a solution that solves the problems in a better way. So market research on what's out there then creating your offer based on how you can come to the market with a differentiated better offer and then there's going to be just a little bit of tech. You probably have to set up a recurring billing mechanism and pay particular attention to the way that you gather your database. When people buy, you're going to have to reactivate and reengage people constantly. One way that I do it is sending them weekly news so that it engages them back in the content. It reminds them about their investment in themselves and they feel that they're getting great value and you keep an eye on your churn rate but it's really not that difficult to get going. The main thing is I think a lot of business owners don't think it applies to them and B, they might get a little frustrated with some of the setup parts. But I can tell you there's no greater return on investment once you have a recurring business in full swing. Because I can tell you it's probably going on to my fifth year now of recurring six figures a month in income coming through the doors. With over 90% of my sales recurring. I can tell you it's absolutely the best thing that I ever did in business.
Ash Roy
Yes, I believe you have a very laid back lifestyle and you have a very healthy bank balance which is very unusual.
James Schramko
Well, it does take a little. Bit of effort in the beginning. I put in a lot of hours and a lot of work to get to that point. But it is the kind of thing that it's kind of like a rolling freight train. You've got to shovel a bit of coal in the beginning and it's a little bit of hard work getting those wheels turning on the track. But once you've got momentum, this thing just keeps going and you can ease off the gas a little and it will still keep going. It'll take you out obstacles. So it gives you that confidence to be more creative, to work on projects that excite you more. And yes, I do get to surf every day and often twice, which is a very high motivation for me now. And I can only do it because I've created a system that works really well for me. It's extremely highly leveraged, but it's also very low stress, very low input required to keep going as opposed to the launch model.
Ash Roy
Right. So if I'm a small business owner, the best thing I can do right now is to go and start researching the market. And don't make the assumption that recurring business model doesn't apply to me. Don't just dismiss it without really thinking about it deeply and trying to understand it.
James Schramko
Yeah, and go and look at your own bank statements and credit card statements and have a look at how many subscriptions you already pay for. And not just software services, there'll be all sorts of things from utilities through to magazine subscriptions. I mean, that's a classic information marketing subscription that we're all used to. At some point the market is out there for it, especially taking your business online these days.
Ash Roy
Right. The other thing I really liked about what you said was you researched the market, you looked at what people were not doing well and then you went and reinvented that business and presented it in a much better way. You fixed all the problems that were not fixed. And that is very much what Apple did with the iPhone. I mean, they didn't invent the smartphone, but they reinvented it so much so that they pretty much created a new category. They did it again with the iPad and I think they're going to do it again with the Apple Watch. So I commend you for having really understood the problems in the market and then created a solution that really works.
James Schramko
And in most cases it was from the position of a consumer. I was consuming these information memberships and I wasn't happy with what I was presented. And from the search engine optimization service point of view, I wasn't happy with the quality of supply from my contractor to the point where my own team took over and did such a superior job that we switched all the business over within three months. And then we doubled the size of the business within six months just because we finally had a quality of supply that was really satisfying. And that's also been the foundation supply for many successful online agencies who have been using that supply. So one thing I will say is, regardless of which business model you choose, make sure you have a really good product. Because if you have really good product and you genuinely help people, the subscription model is going to be a massive windfall for you.
Ash Roy
How does somebody find out more about superfast business? If they want to join your community and they want to learn about the recurring income model, how does someone find out about it and how do they sign up?
James Schramko
I'll just go to superfastbusiness.com and you'll see an option there to join the membership. I think it's membership. And I'd love to see you inside superfast business where I can help you grow your subscription model business.
Ash Roy
Well, you've made a very strong case, James. You'll probably see me much sooner than you would imagine.
James Schramko
See you then.
