Common subtypes of recurring revenue models
Recurring revenue has become one of the smart ways of doing business. This business paradigm is usually subscription-based and yields a stable and regular income. Being a fairly convenient business model, it has become extremely popular among businesses as well as customers.
Although much deliberated these days, the recurring revenue model dates back to more than 550 years ago. Some of the earliest products which were based on this model are newspapers and magazines which are equally prominent in this era.
Being ages old and yet not being obsolete speaks volumes about the viability of this model. It has now penetrated widely into e-commerce and is utilized by almost every other user. From Netflix and Amazon Prime to Spotify Premium and Zomato Pro, a lot of successful businesses run on this basis.
There are in fact, various subtypes of this recurring revenue model which include, but are not limited to:
- You can build products and consumable goods, the delivery of which will be auto-renewed every month. This can include goods that are consumed within a month or are simply worn out after some time. Be it a pack of green tea or a subscription to a lifestyle magazine, it can be renewed every month to suit the wants of the consumer.
- SaaS products have gained immense popularity in the present time, and rightfully so. They provide the user with the autonomy to use it according to their convenience. They are either based on subscriptions or pay-per-use, which is usually repeated by customers, thereby generating recurring revenue. Therefore, if you build a SaaS product that could pave its way into the market, the prospects of earning some stable and regular income every month increase by building a SaaS product.
- Developing software and licensing its use to a business or directly to consumers is another way of earning recurring income. Licenses are renewed after a period of time; therefore, each renewal will bring you new income, with the product being the same.
- Being an affiliate to other companies can earn you money while you are asleep. You can build your blog or website and promote the relevant products or services on the same to earn an affiliate commission. All you have to do is direct the traffic on your page to the landing page of the advertising company by placing conspicuous advertisements on your website. This product development can generate a healthy passive income stream.
- Several consultancy service contracts are based on recurring payment systems. This type is slightly distinct from the others, as here, the clients can either pay lump-sum or on a recurring basis, and the service rendered should be continuous; for instance, in the case of legal services or chartered accountancy. Leveraging any of these models or one of several others can result in you living off on recurring revenue. It provides a sense of stability in the professional sphere and gives you ample time to focus on customer services once major work on the product is done. Moreover, repeated transactions build brand loyalty and credibility.
- You can constantly come up with ideas to make the product or service better, incorporate the necessary changes, align them to the changing market and advancing technology, and serve a better experience to your customers.
- This model is for you if you are planning to make an upfront investment in developing the product, market it to help it make a place among the myriad existing products based on the model, earn a stable and regular income, and in most cases, cover your expected costs.
Like any business, a business takes time to flourish in the market and there is no shortcut to it, but only with the help skills and smart work. Yes, this particular business model of building a recurring revenue is very much in vogue and is proving to be quite profitable, but keeping in perspective the product in your mind, you have to weigh this against the regular business models and see what best suits your interests.
You should, therefore, prepare, fuel up your motivation, know that hard work coupled with smart work pays off, understand that failures are nothing but opportunities in disguise, analyze and improve, and get going!
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Frequently asked questions
1. How do you create recurring revenue?
- There are various ways to create a recurring revenue model for your business. These include starting a membership plan for your products/services, building a SaaS product, or becoming an affiliate for other products.
2. Can services be a recurring revenue?
- The recurring revenue business model allows one to have predictable earnings at certain intervals. This is increasingly being used in the present time and includes both goods and services.
3. Is SaaS a recurring revenue?
- SaaS allows flexibility to the consumers to pay on a monthly, quarterly, or yearly basis. This enables the businesses to get a predictable and regular income and, therefore, qualifies as recurring revenue.
4. What is the definition of monthly recurring revenue?
- By using a monthly recurring revenue model, a business can expect anticipated and regular revenue at the end of a month. This includes businesses that work on a subscription basis.
5. What is an example of a recurring revenue product?
- One of the widely used recurring revenue models is online content streaming by Netflix, Amazon Prime, and OSN. They charge a monthly/annual subscription from the customers who get to enjoy exclusive content on these OTT platforms.