Capturing recurring revenue in OCS and micro markets

Business broker Mike Kelner has been selling convenience services operations for almost four decades. “There is a difference between repeat business and recurring revenue,” said Kelner, owner of VBB Advisors. “We are in a route business, so everyone has repeat business. Recurring revenue is different, something every operator should strive for. Operators and business buyers love recurring revenue.”

Recurring revenue in OCS

In the past, recurring revenue opportunities were reserved for office coffee service (OCS) operators. Since the industry slowdown brought about by the pandemic in 2020, OCS operators have increasingly focused on the importance of recurring revenue sources.

Because of a quickly emerging opportunity pertaining to advertising in micro markets, recurring revenue is now available beyond OCS, which is still leading the way.

In a recent Automatic Merchandiser webinar exploring the state of the OCS industry, Judson Kleinman of Corporate Essentials in New York stressed the importance of recurring revenue in OCS.

“How many times do we go out to see a bean-to-cup machine that is a disaster because nobody has cleaned the machine? I think there are a lot of customers out there who are very open to a maintenance program on their bean-to-cup machines,” said Kleinman. “We can come as often as you like. Every week, every month — we will come in and clean your machine, and here is the charge for it. The person who is supposed to be cleaning the machine will say, ‘Where can I sign?’”

Little resistance to service fees

Arthur Siller, senior vice president of operations and business development at Evergreen Refreshments in Seattle, noted that customers expect to pay for additional services, including delivery charges, equipment rentals and other fees related to providing optimum service. “There is very little resistance today,” he said.

While recurring revenue can add up fast for an OCS operator, Kleinman pointed out that providing additional services that result in recurring revenue can also strengthen the relationship between an operator and their client.

Longtime operator and industry consultant Orrin Heubner offers his operator clients a good gauge for recurring revenues. “For OCS, you should have at a minimum, 10% of your total revenue as recurring. The real target is 15% to 20%,” he said. “Recurring revenues for OCS include point-of-use water machines, ice machines, Bevi units, kegerators, coolers and bean-to-cup machine rentals. All of these translate into filter changes, periodic maintenance and line flushes.”

Think of recurring revenue as an annuity

Heubner said that the recurring revenue associated with OCS is nothing less than an annuity, and he has some specific strategies for selling it.

“Sell the rentals at the lowest common denominator. A charge of $12 per week for a water unit is not a lot of money to pay for healthier, filtered water,” Huebner said. “What sounds more enticing, $12 per week or $40 per month? Charge every 4 weeks and get 13 rental periods per year. All rentals should be at weekly denominations instead of monthly. Make sure all fees are discussed up front and put into the agreement.”

“Upsell the equipment and the rentals will go up. Provide as much rental equipment as possible. We must continually look at ways to monetize the services we provide. Gold standard service is then expected by the client and must be supplied by the operator. All of this will work, but an operator also has to focus on maintaining the best and most consistent relationship there can be. Visiting the client just once a year will not cut it,” Heubner added.

As enthusiastic as Heubner is about recurring OCS revenue, he said he is equally excited about the newest opportunity for micro market operators: Advana from 365 Retail Markets and Cantaloupe Advantage. Under these programs, operators receive monthly checks for allowing advertising in their micro markets on screens, kiosks and other devices.

Advana from 365 Retail Markets

Jacob McNulty of 365 Retail Markets is working on the Advana program, and he agrees with Heubner: Involvement in micro market advertising makes sense for operators.

“It's a consumer engagement opportunity for an operator and the side benefit — it is revenue generating.” said McNulty. “If you're an operator, you can take the easy button by allowing ads to be deployed on your screens. They could be from an insurance company, from a technology company, from any advertiser that wants access to the employees that are sitting in the break room every day.”

McNulty said that with this simple program, which requires no involvement from the operator, revenue ranges from $5 to $30 per month per location, depending on the city. New York will generate higher revenue for example than a rural area in Indiana.

“Advertisers love this, because the people seeing the ads are employed, getting a consistent paycheck and will typically be returning to the market multiple times per day or per week,” he said.

If an operator is willing to add additional screens or work closely with CPG brands to launch products, show video, display other rich media or engage in a more targeted advertising program, the revenue potential grows significantly. According to McNulty, four to five times the revenue is potentially available. “Just about everyone starts out with the easy button,” he added.

Cantaloupe Advantage

Elyssa Steiner, chief marketing officer for Cantaloupe, a payments and software services company that provides end-to-end technology solutions for the self-service retail market, said her company has launched the Cantaloupe Advantage advertising program to serve their clients.

“It is designed to be easy. Operators simply sign up to allow us to deploy advertisements onto their qualifying Cantaloupe card readers or kiosks,” she said.

The feedback from operators has been nothing but positive, according to Steiner. “They love the seamless deployment with little to no effort to participate. I think the simple fact that we are working on their behalf to get the programs with the various brands and then deploy the ads to their Cantaloupe card readers and/or kiosks makes the program a no-brainer,” she said.

“We do have a specific program that we are launching tailored to just our micro market kiosks, and this one does require more onboarding and location level data of the market or kiosk. But the opportunity to earn even more revenue is substantial and well worth the customer’s time and effort,” she added.

Creative and lucrative

From all indications, the advertising opportunities will become increasingly creative and lucrative. “We’re really excited about our Mastercard digital ad campaign, tailored toward helping us collectively restore millions of trees across the globe. For every $4 donation a consumer makes to plant a tree, it will give them a chance to win a prize, including trips for two with select events at a Cantaloupe-powered venue. There are also 90 daily first prize winners of $100 digital Mastercard prepaid cards,” Steiner explained. “We’re just getting started, but the customer experience is at the forefront of what we’ll deliver as we expand this program and offerings to our network of customers.”

Huebner said this type of promotion is a no-brainer indeed. “Why would any operator not want to jump on board with this?” he asked. “I will be advising my clients to maximize the revenue opportunity associated with these programs.”