Many medical device consultancy practices work on a fee-based model, helping clients with regulatory and quality compliance when the need arises. It could be anything from assisting clients in setting up their Quality Management System (QMS), so they can gain ISO 13485 certification or meet the requirements of FDA CFR 820.
These essential consultancy services allow clients to sell their medical devices. But for the consultancy, this fee or project-based work brings some serious disadvantages that can prevent them from ever scaling. In this article, we examine the problems with the fee-based revenue model and why moving to a recurring revenue model could be the answer to your growth ambitions.
Why fee-based projects don’t work, long-term
Fee-based revenue models have been used by consultancies for years. But it’s a highly volatile way of running a consultancy, consistently throwing up risk and uncertainty regarding forecasting and growth. The biggest problem with a fee-based model is once you’ve completed the project (for example, setting up a client’s QMS and advising them on best practices), your work is done. Maybe you’ll get the odd bit of advisory work - but once you’ve submitted your fee, that’s it.
What this means is, as well as completing projects, you constantly need to market your services to try and attract new clients and keep your pipeline full. If new clients dry up, your consultancy’s future is at risk.
But you also don’t want to become too busy.
Winning a lot of new business in a short period can put pressure on your resources, and you could end up with more demand than the capacity to complete the work. At this point, you risk disappointing clients and providing poor service because you can’t keep up.
You could, potentially, hire more staff. But this can take a while, and you need to ensure you’re hiring at the right level to maintain your service - and that can be expensive. Think about how much training and expense it will take to replicate you and the level of service you can offer to clients. And what do you do when you’ve completed your influx of projects and are left with a larger, more expensive team with nothing to do?
Relying on project-based work is essentially running your business in a constant catch-22.
To expand, you need to hire. But hiring without accurate revenue forecasts will drive up costs, with no guarantee that the demand will follow. Then, there are market conditions and other external factors outside your control that can determine the demand for your services.
So, what’s a better way to run a medical device consultancy firm?
Moving from project fees to monthly recurring revenue
Monthly recurring revenue is the holy grail of consulting businesses. It can solve many of the problems we’ve outlined around fee-based work. By far, the biggest benefit is that recurring revenue is a predictable stream of monthly income.
Having oversight of how much revenue you can expect months in advance gives you a better chance of forecasting your own growth and predicting demand on your resources in a way you can’t when working on a project basis. Rather than planning business spend on a whim or a hunch, you can build an accurate picture of what your revenues will look like in the future and plan your requirements and resources as necessary.
A recurring revenue model also allows you to change how you sell your services and provide better client value. Instead of constantly pitching for short-term projects, recurring revenue gives you time to develop long-term growth strategies and focus on key accounts that will help you scale consistently.
This model isn’t just better for your business; it’s better for clients too.
First, they can benefit from your services with a lower upfront cost. When developing medical devices, clients want to put as much of their investment into product development as possible. Pouring large upfront costs into a compliance project takes away from that, regardless of how important it is. Paying a lower monthly fee for their QMS reduces those upfront costs, allowing clients to spread their investment over a longer period, meaning they can maximise cash flow and put more investment into creating better, more profitable products.
Monthly fees also provide reassurance for your clients, and positions you more as a strategic partner rather than a consultancy. Instead of simply getting a QMS and being left to figure the rest out on their own, your client knows you’re there with them to help keep on track, making sure they’re getting the most out of their system.
In the long-run, this added value increases your chances of growing accounts with additional services or consulting.
Finally, with you as a partner, taking care of any QMS compliance and making sure they’re adding and updating records, your clients can focus on product development and getting to market quicker.
So, now you understand the benefits of using a recurring monthly revenue model, how do you get there?
Creating monthly recurring revenue
The first step to becoming a recurring revenue business is to simply reframe how you think about and sell your services. Rather than offering to set up a client’s QMS for them and let them run it on their own, offer to run their QMS for them based on a monthly fee per user.
You can provide a hosted eQMS platform - similar to any other cloud based platform - that your clients can easily access with their own secure log in.
In the background, you can set up their QMS compliance by creating templates, records, procedures, quality modules, training records and other tools that your client will need - all using an adaptable way of working, rather than restricting yourself with a ‘one size fits all’ eQMS that defines the way you have to work.
Working this way means you can also improve the way you design and market your services to clients.
For example, by selling a hosted QMS and creating templates and other tools, you can help your clients be fully compliant with ISO13485, FDA CFR 820 and FDA CFR 21 out of the box.
That means no more issues with audit trails and compliant e-signatures.
Finally, you can improve your own client management and streamline the way you work with clients on an ongoing basis. You can predict the level and expertise of the services needed to be delivered and hire appropriately. This will enable you to bring down the overall average cost per client for your consultancy business.
By providing a hosted QMS, it means you can manage all your clients from one place (while ensuring they can only see the information relevant to their account)
Shifting towards this model means you can start to create efficient onboarding processes that can be used for every new client, rather than spending more time starting from scratch every time you win a new project.
Improve your medical device consultancy with the right QMS platform
Cognidox provides the ideal cloud-based QMS platform from which to launch your new business model. With our platform, you can build and store client systems within a single, easily manageable and secure environment.
The great thing is that, with Cognidox, you clone common features and roll them out to all clients during the onboarding process, meaning you can have new clients set up and ready to go in minutes, rather than days. All regulatory and quality tools come as standard and all within a fixed yearly fee, allowing you to add and remove users as needed within the subscription period.
By paying a fixed fee you can be confident over your outgoings and create more accurate plans and forecasts to help grow your business against regular recurring revenue from clients.
Find out how Cognidox’s QMS can improve your medical device consultancy and book a demo!