Clinical Research Focus: Recurring Revenue
Not all revenue is valued equally. Owners and investors will typically place more value on revenue that recurs on a consistent, fixed, predictable basis because such revenue allows for:
reliable forecasting for revenue and billings over future periods
higher control of resourcing and cost management against future revenue
higher realization of the contracted budget
Contrary to popular association, recurring revenue is not limited to software companies.
Service providers, especially in the clinical research industry, have ample opportunity to increase the proportion of their revenue that recurs on a fixed monthly basis.
How? Examples below for a couple types of service providers:
Contract Research Organizations:
Minimize the number of time and material / hourly contracts entered into.
Convert certain usage based units like site management and document management (often "site month" units) to a "month" unit.
Roll units for one-time activities in the latter half of the project into monthly units.
Convert units for recurring meetings into flat fixed monthly units.
eClinical companies (technology focused):
Contract for implementation services on a fixed versus hourly basis.
Price technical support on a flat non-refundable monthly basis instead of buckets of hours.
Roll periodic, predictable units like training, data transfers, etc. into flat fixed monthly units.
The common thread across these examples is looking for opportunities to convert usage and hourly based units to flat monthly or annual units in your contracts. These examples are also cash flow neutral to positive. Notice a side benefit as well- these flat fixed units are far easier for your team to count and invoice than usage (often manual) or hours (how is your timesheet compliance?).
The above relates to how units are contracted and invoiced, while many service providers recognize revenue on a different basis (like percent complete on cost incurred). Contracting and billing units on a flatter / more fixed basis does not automatically create more recurring revenue- and this post is not accounting advice on revenue recognition- but here are steps you can take to align your revenue recognition closer to your invoicing in these scenarios:
Correlate percent complete revenue recognition on flat fixed units more closely to what's been invoiced to date, scrutinizing significant variances along the way.
Conversely, stagger your flat fixed units to reflect the different intensity of efforts at different points of long term projects. For example, a "project management" unit can be set at a higher flat rate for the first 6 months of a project, a lower rate for the next 18 months, etc.
Discuss carving out flat fixed units from your percent complete methodology, so that they are "output based" instead of "input based" and thus revenue recognized equals the unit completion.
Use the principles and examples above to 1) increase the value of your company and 2) reduce administrative burden on your teams by making more of your revenue recur on a consistent, fixed, and predictable schedule.