RECURRING COSTS – ANNUAL REVIEW SAVES BIG

RECURRING COSTS – ANNUAL REVIEW SAVES BIG

❏ I’m speaking about recurring costs: An annual review saves big bucks. You could save yourself thousands or tens of thousands of dollars in under an hour each year! Check if your financial calendar has an MRC review. If not, you could have a significant leak in your financials! I will explain why you could lose hundreds, if not tens of thousands, of dollars annually. Then, you’ll learn how quickly you can plug that big financial leak!

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Monthly Recurring Costs (MRC)

Most of us have many monthly recurring costs (MRC) in our businesses and personal lives. For example, nearly all the software that we use is subscription-based. In the past, this was only sometimes true. In the past, you could buy a copy of Microsoft Windows or Office and use it forever. This business model proved not to be sustainable. When a newer software version launched, many customers would not upgrade if they deemed a product “good enough.” Good enough mindsets sometimes lead to a business dying of a lack of revenue. The solution was the software-as-a-service (SaaS) business model. The SaaS business model is now standard for virtually every software company.

Fire and Forget Lockup Strategy

Most subscriptions get quoted as a monthly use fee. Sometimes, the subscriptions can be paid annually for a discount. Typically, the annual quote is “Get 12 Months for the Price of 10 Months.”. This pricing method locks in customers for 12 months by offering a discount. Often, this discount is tied to a personal or corporate credit card. A discount component includes contractual wording that “auto-renews” the service at the “then-current price” until the service is canceled in advance. It’s a “fire and forget” method of getting a customer to use your software. Once they sign up for a year, when renewal time comes around, it happens without the customer thinking about it. Great for the SaaS company. Not necessarily so great for the SaaS customer—you

MRC – Expense or Capital Items

Over time, a company’s MRC can become a significant part of its budget. SaaS is often treated as an expense rather than a capital item on a budget. Capital items get a much closer look at the annual budgeting process than expense items. The annual budgeting process is too deep of a subject to cover in this post, but it was essential to mention it herein. You should review with your CPA if your MRC items are being correctly categorized as expense items or should be listed as capital items.

Recurring Costs Review Strategy

I firmly believe in adding every MRC item to your financial calendar. Most business economic calendars only include a few things. The most common are the IRS and state taxes, quarterly and annual budget reviews, and financial press release dates. Add the MRC review date to it. If this is your first time doing this, start today. Later, could you schedule it as part of your annual budget creation process?

You can start today by creating a list of your monthly recurring charges. Your bookkeeper should be able to pull most of this from your credit card statement if you’re paying monthly. Your bookkeeper may need guidance from various department heads for those MRC services you’re paying annually to get a discount.

Could you put each item on the calendar and mark it as a monthly or annual recurring cost? Could you include in the calendar what you paid initially and now that the discount period has ended? You should investigate if the difference in yearly dollars is a hundred or more. How does one best look at a better price? Check online for any current discounts. Call the provider and tell them the rate is too high and you need a better price, or you’ll have to investigate taking your business elsewhere. Do they have a non-profit discount you are not using if you are a non-profit? Can you switch to a competing service quickly without significant retraining or disruption?

Conclusion

I hope I have educated you on Recurring Costs: An Annual Review Saves Big Bucks. Nearly every company that I coach was not doing this practice before my suggestion. All of them who looked at their MRC found hundreds to thousands of dollars in annual savings!