Recurring revenue is the portion of a company’s revenue which is expected to continue, on a repetitive basis, in the future. These revenues are predictable – unlike one-off sales – as well as being stable. Recurring revenue can be counted on to occur at regular intervals going forward, with a relatively high degree of certainty. Having recurring revenues helps a company or organisation in many ways.
Benefits of recurring revenue
In a traditional business model based on one-time sales, revenue is prone to market-based fluctuations. The recurring revenue model will guarantee a business a certain amount of revenue at scheduled intervals. Predictability affords the business the opportunity to budget expenses, invest in growth and expansion and stock inventory accordingly.
Traditional business models follow a specific formula: a customer is acquired, the product is sold once and you find a new customer to make a new sale. Though acquiring a new customer generates the initial sale, making new sales to existing customers is simpler than finding entirely new ones that are yet to discover your product.
Drive more revenue
Up-selling and cross-selling is significantly easier within a recurring revenue model, where businesses have ongoing relationships with their customers. It is easier to sell additional services, with continuous contact with customers providing room to build bonds of trust. Implementing strategic price models like volume pricing, tiered pricing, and bundled pricing allows your customers to upgrade on their own.
Expand customer base
Recurring revenue models are successful among customers due to the flexibility they offer. Smaller recurring payments reduce the price barrier for potential customers, making it easier for them to make a purchase. Customers may pay more over the term of the subscription, but smaller monthly payments enable them to spread the financial impact while enjoying the benefit of the product or service as soon as they sign up.