Consumer behaviors have changed. We live in a society now where ownership is being questioned. Consumers opting for convenience and access over ownership have driven the rapid growth of businesses who operate using recurring revenue based business models. Not all revenue is created equal. A dollar is a dollar, but a predictable dollar is better. While traditional financial models are built around one off payments, recurring revenue business models which bring in smaller recurring transactions are more predictable and sustainable. Recurring revenue is more valuable revenue. So while the value per recurring revenue transaction is lower, this blog post is going to explain why recurring revenue rules and how your business could stand to gain big from small recurring payments.

1. It decreases customer turnover

Consumers want flexibility and recurring billing gives consumers the control and convenience to pay for what they want when they use it. A business with the competencies to consistently deliver value to the customer will experience higher retention rates than those of other business models where purchase infrequency drives high levels of customer turn over. A sustainable business requires lifetime customers. Keep yours.

2. It increases brand loyalty

By default recurring revenue business models provide businesses with an excuse to engage with their customers more frequently, building brand relationships that create loyal customers. The increased frequency of communication and purchases allows businesses to capture more data around customer, trends, behaviour and preferences. Put this information to intelligent use and use customer data to further customize and personalize your marketing. This additional information can be used to significantly improve your value offering. Shopping gets personal with Birchbox’s subscription service below. Customers receive personal recommendations monthly based on their preferences. Give your customers what they want, some of what you think they might want and you’ll achieve relevance and that is what you’re competing for now. Like with any relationship, customers who are made to feel special and valued will stay.

3. It increases your revenue potential

Transitioning from a one off transaction model to recurring transactions can increase revenue. Recurring revenue models are not just for cloud services. Research by Gartner finds that 35% of 2000 global companies with non-media digital products will generate an incremental revenue of 5% to 10% through recurring revenue models. It is no wonder that 47% of US companies have adopted or are considering adopting a recurring revenue model. Feeling the competitive pressure, Microsoft and Adobe have transitioned towards a hybrid business model of one off transactions and subscription revenue models.

4. It is research gold

Frequent consumer communications and transactions means businesses with recurring revenue models collect large amounts of consumer data. This data can be used to generate valuable consumer insights to innovate the product, service, brand experience and even the revenue model.

5. It makes customer acquisition cheaper

Get more customers, get your customer’s friends Provided you have an amazing product or service that keeps your customers coming back you’ve got repeatable revenue and the cost to deliver an additional customer is just about nil at scale. Do the math here. Reward customers with credit off their next billing payment for each customer they send your way. Think of it this way, referrals are a cost effective way to acquire customers that translates to growth efficiency. Get on it.

6. It makes it easier to take your company public or sell

Investors when deciding to invest will value the business model above the financial model, here is why. By definition, a business model is the rationale of how an organization will create, deliver and capture value. Recurring revenue models demonstrate how a business will continue to generate revenues. It decreases investor or buyer risk. The more predictable your revenue, the more valuable it becomes.

7. You can predict what you earn

A predictable dollar is a more valuable dollar. Forget seasonal revenue variations and starting sales targets from scratch each year which are characteristic of one off transaction revenue models. If last year your business made $8 million and $7 million was recurring revenue, you kick off with your next fiscal year with $7 million. Since you can already bank on making $7 million, you only need to generate another $1 million in revenue to match the previous year. A business with no recurring revenue stream has to start from scratch.

8. It increases the opportunity for collaboration

Recurring revenue models have led to business partnerships and revenue stream sharing. A recent example is Scribd and their collaboration with HarperCollins. Bringing subscriptions to online reading, Scribd with HarperCollins is expecting to replicate what Netflex did for movies.

So to conclude

Having read the above, if you don’t offer a recurring revenue option you might seriously be thinking about it now. The convergence of consumer demand for flexibility and personalization and businesses recognizing the financial benefits of recurring revenue is disrupting traditional revenue models. Even within a brand different products require different types of monetization. How could you evolve your one time purchases into a recurring revenue model? If you currently have a recurring revenue model, how could you increase revenue potential?