The Benefits of Recurring Revenue Streams

Illumeo Customer Success's Profile

In the past few years there has been an abundance of new types of subscription services available to consumers.  The concept of subscription services is not new...service contracts and leases are common recurring revenue streams that have existed for a long time; however, there has been a proliferation of monthly subscriptions for both necessary and luxury goods and services.  The type of earnings from these sales, the recurring revenue stream, is an attractive type of income stream that has come to the attention of many different types of companies with non-recurring revenue streams as a new and different way to earn money.  Recurring revenue streams provide steady cash flow, better budgeting options, and satisfaction of both the company and the customers.  Below we will cover some of the basic benefits of the recurring revenue model. 

Predictability

Recurring revenue streams guarantee that a company will receive a set amount of revenue from existing customers on a regular basis/interval (most often monthly).  This guarantee provides a high degree of certainty to the company and allows them to divert the scheduled revenue to cover different operational costs.  Because a minimum amount of revenue is almost a certainty on a regular schedule, development, production, and operations can be carried out smoothly. 

Stability

Recurring revenue provides a baseline of revenue as a starting point for each month.  Financial planning is made easier as monthly, quarterly, and annual budgets can be prepared with regular predictions.  In turn, the business gets clarity on its busiest and its slowest times during the year.  Additionally, the revenue is most likely to flow in at the beginning of the period which alleviates the stress of earning new sales quickly to increase cash flow. 

Convenience

Offering subscription services on a regular schedule is helpful for both the customer and the business.  Recurring revenue is usually collected through paperless deposits via auto debit, eliminating some of the reconciliation work from single entry transactions.  Customers appreciate automatic transactions that eliminate the need to remember to pay something monthly.  The retention rate of subscribers is very high and because the entry point is often a lower amount, customers aren’t likely to go through the process of canceling a service even if they aren’t currently using it. 

Possibilities

The recurring revenue model can continue to evolve based on customer needs and wants.  Besides regular interval payments, such as monthly fees, there are annual payment opportunities as well as special offerings and bonuses that can entice customers to extend their subscriptions and purchase services and goods in addition to what is offered through the regular interval service.  Tailored offerings can be used to increase the number of customers using the service.

Research

The customer base built through subscription offerings creates a strong market research group for product development.  The customer base is a clearly defined group and lends itself to providing reliable information for expanding offerings and tailoring current goods and services.