What is recurring revenue?
Recurring revenue is when clients pay you monthly, (or weekly, fortnightly, depending on your setup) charges instead of a one-off payment. This model is preferred by clients because they pay only for services that they actually use. It also benefits customers because time-period-based charges are low compared to one-time costs. This helps buyers pay for expensive software and other services. As time passes, the client’s business expands, enabling them to pay service charges with greater ease.
For service providers, recurring revenue provides a predictable, stable income which is likely to continue in the future. It reduces the risk in the business. This is because if providers focus on client retention, they can be sure that the income will last over the client’s lifetime.
- Revenue can consist of one-time purchases or a pipeline, known as recurring revenue, of projected periodic revenues.
- Recurring revenue through multiple sectors can occur in numerous ways.
- Recurring income is viewed as a particularly valuable quality for a corporation to have.
- There are no promises, though, that recurring revenue can last for an unlimited duration.
Examples of Recurring Revenue
Recurring revenue occurs in numerous ways.
For example, Adobe, through Adobe Creative Cloud allows creators to use its programs such as Adobe Photoshop and Adobe Illustrator if they pay a monthly fee to use the suite. This is an example of recurring revenue. If Adobe launches an event and sells 1000 tickets to attendees, the revenue from this event is non-recurring because it’s hard to predict if attendees will return next year.
Advantages of recurring revenue
- Companies with recurring revenue are more attractive to investors and buyers
Recurring sales make small businesses more enticing to prospective investors and buyers. For firms that can show stable sales sources, there is simply more demand. And we don’t just speak of tiny changes. In certain cases, the value and purchase price of the corporation may be greatly improved by recurring sales.
Companies who can show recurring sales for SaaS applications average a 6x multiple incomes for valuation in the software industry, opposed to a 3x multiple incomes for software companies that offer permanent licenses. Recurring sales effectively doubles the income of tech firms.
Although the effect of recurring revenue varies by market and business model, for enterprises with proven recurring revenue sources, there are many explanations for why buyers are able to pay more.
- Increased Predictability and Stability
Companies with ongoing sales are more predictable than other business models. Owners estimate sales months ahead of time and produce budgets with a greater degree of accuracy. This is because customers who are paying for your services now, will likely continue paying you in the
If you run a pay-once model, in order to gain sales, you must consistently attract and convert consumers. It can be costly. One negatively performing month will put you back and restoring the investment you have already invested in order to gain consumers will be more challenging for you.
For a business model focused on subscription, consumers make payments to you on a monthly basis. At the time of the initial sale, the number of recurrent payments is settled on. This helps you to estimate your income per month. It also means that more materials are not purchased or more product is not stored than you require.
There are smaller delays between billing periods, with ongoing billing. This can plug leaks in income.
- Increased Revenue and Upselling
Right out of the gate, you can rely on recurring sales. You can sleep better with fixed cash flow, confident that you can repay debts and satisfy other financial commitments.
You are establishing a solid bond of loyalty and you have constant contact with your customer base. This makes additional and complementary offerings easier to sell. For a subscription company, upsells are typically smoother since the buyer has previous experience with the company and would be open to any added benefit you can offer. Furthermore, as subscription fees have become part of the planned monthly or annual budget of users, it becomes simpler for them to see new functionalities as more accessible. This is particularly true for customers who use your subscription to learn and/or expand, who may find that add-ons help them to more effectively accomplish goals. Various pricing structures, such as tiered pricing and volume pricing, will make it easier for consumers to upgrade when they are ready.
For example, Adobe Creative Suite gives options for hobbyist creators and creative professionals- they can start with a basic low-cost plan, and as their needs increase, they can choose other programs too.
Disadvantages of recurring revenue:
- Slower growth
Since you’re not charging a one-time fee, (you’re charging less over longer periods of time) you can’t charge more, which doesn’t give you more immediate money that non-recurring revenue would be able to give you. This makes the initial leap off the ground more difficult that one-time selling would bring faster.
On April 23, 2012, when it unveiled Adobe Creative Cloud, Adobe switched from a non-recurring revenue-based product model to a recurring revenue-based membership model. The next year, this move resulted in a 35% drop in sales. According to the Harvard Business Review, however, “in April 2016, the stock price of Adobe almost tripled from its valuation four years earlier.”
The business recognized the long-term importance of transitioning to a platform that provided greater predictability, even as Adobe suffered short-term losses.
- Increased time spent on constant updates and management
Many services eat up a lot of time and need continuous maintenance.
For example, if you are helping a customer with social media management, you would need to:
- Provide their social media networks with regular reminders
- Manage and create ads regularly on social media sites
You’re expected to manage them 24/7. This revenue stream will become a liability for your agency if you don’t have a structure in place, or you haven’t invested in the right platform.
You have to take into account staff time and the expenses of administrative software (which are often dependent on subscription). For each employee of the department who can use them, it can include an extra fee. When you have ten employees and you pay ten separate fees, that easily adds up to the expenses of handling recurring revenue customers.
Complex sales and resource tracking include periodic billing. Each consumer is in the subscription loop at a separate stage. You would need to manage money to ensure that all new subscriptions can be met in the long run.
- Runaway Success:
The challenge of runaway success is on the flip side of scalability. Sure, immediately getting a massive explosion of subscribers will be terrific, but can the servers accommodate the traffic? Do you have enough people for the volume of work?For example, Adobe Creative Suite gives options for hobbyist creators and creative professionals- they can start with a basic low-cost plan, and as their needs increase, they can choose other programs too.
9 Best ways to make recurring revenue
Although this shares certain similarities with reselling hosting, there are very distinct packages for website maintenance. When creating WordPress client websites, plugin updates are important on a continuous basis. Whenever a new version is released, you have to upgrade WordPress.
Different upgrades, patches, and security changes are included in new releases. An outdated site is vulnerable to cyber-attacks and hacking. This provides an incentive for your organisation to handle all WordPress pages for your customers; you can charge a monthly subscription fee. For example, for “hosting and upkeep,” you can build a package and charge a monthly fee.
Via website-maintenance bundles, you can generate recurring revenue. These guarantee that the websites of your client are running and functioning to the best of their ability. These packages include regular back-ups, updates to the plugin, and more.
At BionicWP, we make ìt easier for freelancers, businesses, agencies and super-achievers to earn recurring revenue through locked-in customers.
The value of using social media is understood by most modern firms, but they still face difficulties in communicating with their audience and having a clear brand image. In a social media management position, you can conveniently charge your consumers a monthly fee and thereby add to your monthly recurring income. Depending on the amount of flexibility they are able to provide, you can even sell various types of services to your clients.
Content services are only going to grow in the future, so you can rest assured that money will continue to pour in by opting to go in this direction.
At this point, it’s almost cliche to say that content in the digital marketing landscape is king, but it remains as real in 2020 as it did in 2016. Some digital companies supply their users with content marketing programmes, but they mainly work with one-time ventures. They complete one campaign and move onto another.
Why not build a reliable monthly marketing plan and sell it on a recurring basis to your client? By offering the same surface in a different kit, it’s a smart way to produce more sales.
Google Ads management campaigns are one of the most profitable niches for recurring revenue, because you can charge based on the number of clicks, site visits, sessions or conversions. Since companies employ Ads throughout their lifetime, one perfectly handled campaign could lead to another and so on.
In this way, you can create and offer fixed packages to clients.
Here’s another model that’s more niche.
Kudu charges a monthly fee to manage their clients’ Google Adwords accounts. They offer various pricing options to cater to clients with different spending capabilities.
Another way of providing existing services to former buyers or prospects is to explore their website or digital plan by ongoing annual, bi-monthly, or weekly calls with companies.
With topics like internet marketing or helping other web designers develop their careers, you might also spread out further. It depends on where you want your company to fit in and what your experience is. However it could look like:
- Consulting with a less seasoned, in-house developer with an overall plan
- Helping an organisation optimise conversion rates (CRO)
- Offering publicity or social media campaign tips.
It is necessary to periodically optimise websites. It is important to incorporate keywords and repurpose old content. In order to take care of this stuff, you’ll want an SEO specialist at your digital marketing firm. You can also build bundles for search engine optimization and market them to consumers to improve their search rankings.
Researching and targeting the right keywords for clients on a monthly basis, is an excellent way to earn recurring revenue.
Unfortunately, the freelance designer’s income can be volatile. Sometimes, the cash will come easily and without significant effort, and some months you might struggle to find a single project. This is why creating a stream of recurring revenue is essential for designers.
You can do this by signing contracts with companies for creating social media and website graphics and so on.
You can set up your own server, or you can resell hosting services from one of the existing vendors, if you are technically savvy and able to invest a little on the required hardware.
Owners of agencies are now looking at various ways in which they can earn recurring revenue. You will be able to provide a stable platform for your agency to expand on, by following the techniques presented here. This will allow you to produce ongoing income for a long time to come. This will eventually encourage you to expand your company and scale it up. Nothing will set you down as long as you are pumped up and ready to face the obstacles.