Our clients at the OSU Advantage Accelerator are product oriented. In addition to products created on the internet, some of our clients work in the physical and life sciences. Among other things, they create spectrometers, legged moving robotics, and advanced arc detection systems. Some of our startups include econometrics companies, agricultural companies and software organizations as well. As far as innovation is concerned, we are technology without borders.

The question for all these companies is not just to make a simple sale from the products they create, but to develop annuity streams of future payments arising from these sales. How do we define annuity revenue? It is a predictable stream of income and profits derived from a wide variety of sources.

For example, one of my former clients sold a sophisticated piece of equipment used in forensics labs. While you might think forensics is a limited market, remember that not only local police departments have labs, so do the sheriffs and regional police, State police, Federal labs like the CIA, FBI, Homeland Security and many other law enforcement agencies in the United States, as well as within the international community.

Here is how they created annuity from the sales:

1. Warranty of the product after an initial period, and then renewed annually;
2. Providing training to staff using the product. The warranty is only effective if staff using the equipment receive proper training.
3. The training occurs once every three years, as the product is updated, and needs to be renewed.
4. Updates require an annual purchase.
5. The equipment needs to be certified and recalibrated every three years.
6. New versions and updates to the equipment are available at discounts to existing owners.
7. Updates on the software running the product must be updated.
8. Other annuity streams include remote monitoring, consulting and customization fees, forums and user groups, enhanced support, a collective knowledge base access, as well as maintenance.

To customers, these were all value-added services. How these reoccurring annuity revenue streams are managed is up to the company and the customer and should be validated and employed based on the customer’s ability and willingness to pay.

Revenue streams create another benefit. They offer an opportunity for more customer contact and product loyalty. Creating a high contact product strengthens the client-customer relationship and leads to a larger referral stream and enhanced sales. What are you doing to add value to product sales and increase customer loyalty?