5 Advantages of a Recurring Revenue Business Model

(4  minute read)

A recurring revenue model offers five distinct advantages over a standard transactional business. Firstly, it provides predictable cashflow, making it easier to plan expenses over a longer period. Secondly, it leads to better valuation, as long-term cashflow is more attractive to investors and reduces the risk of a drop in revenue. Thirdly, it enables scalability, as the consistent revenue and expenses make it easier to figure out how to scale. Fourthly, it is easier to sell, as recurring revenue eliminates the need to deal with lumpy revenue, saving time in proposals and avoiding scope creep. Finally, it expands customer lifetime value (LTV) by providing a reason to engage with customers, build a relationship with them, and evolve strategies to suit their needs.

Here are four great examples of recurring revenue models:

  • Subscription-based software, where customers pay a monthly or yearly fee for access to software as a service.
  • Virtual CFOs, Accountants, content developers, designers, marketing agencies, and other service providers can offer a productised service with a set fee, instead of billing hourly or by project.
  • Maintenance services can offer ongoing service and maintenance for products or equipment, charging a monthly fee.
  • Membership programs, where customers pay a monthly or yearly fee for access to exclusive discounts, events, content, or other premium features.

An example of a business that has changed it's operating model is the car wash business.  These businesses are typically paid for as required.  Acquisition entrepreneurs have seen this business model as sub par and have recently been buying up car washes, giving them a lick of paint, increasing marketing spend and creating a unique brand that has a point of difference and then offering customers various subscription options depending on the level of service and frequency they require.  

Obviously, per job costing is still required to ensure that pricing is optimal.  

A simple example is the gym membership that so many people pay for weekly and only turn up once a month.  

If you need more help developing your own recurring revenue model, here are some additional questions you can ask yourself:

  • What pain points or problems do your customers have that you could solve with a recurring service or product?
  • How can you make your recurring offering unique and valuable to customers, so that they will be willing to pay for it on an ongoing basis?
  • How can you price your recurring offering in a way that is both profitable for your business and affordable for your customers?
  • How will you market and promote your recurring offering to potential customers?
  • What systems and processes will you need to put in place to manage your recurring revenue model effectively?
  • How will you measure the success of your recurring revenue model over time, and make adjustments as needed to ensure ongoing growth and profitability?

When you’re ready to get what you want and truly deserve out of your business, we’re here to help.

  • Are you tired of playing small?
  • Do you want to create a real, long-lasting impact for yourself, your family and the community?
  • Do you feel like there are never enough hours in the day?
  • Do you struggle for clarity about your business performance and direction?

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The information on this website is general in nature and does not consider your personal situation. You should consider whether the information is appropriate to your needs and, where appropriate, seek professional advice.

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