3 types of Recurring Revenue Models + the types of companies they are suited for

Recurring revenue is the predictable income that can be used to determine a company’s future income and health. It is thus extremely powerful to structure your business around a recurring revenue model. Both in terms of a stable and predictable income and when it comes to the hunt for seed funding from investors.

With this blog post we aim to provide a clear picture of which type of companies that are best suited for 5 different recurring revenue models.

Takeover of the recurring revenue models

It is a general trend that consumers prefer pay-as-you-use services via a subscription based payment set up. Subscription businesses means convenience for the consumers, since the consumer can subscribe for a frequently needed service or product and thus automate the delivery.

The result of the pay-as-you-use trend is that physical stores today are being harshly out beaten by online alternatives. The trend is also reflected in the amount of companies based on a recurring revenue model that pops up.

Due to the popularity of recurring revenue models, today’s ambitious entrepreneurs are mainly focused towards service or software products. There might also be a chance that they have been inspired by some of the most successful companies of 2019:

  • Facebook
  • Netflix
  • Google
  • Apple

Common ground for these companies is that they are built upon a recurring revenue model. You can also take a quick look on Fast Companies’ list of the Most Innovative Companies in 2019 if you need more prove. Try to look for the number of companies based on recurring revenue models in top 10. We think it speaks for itself.

But WHY is it that companies based on recurring revenue models perform that well?

It is actually quite simple and to keep it that way, we will list the 3 main reasons right here.

1. Predictive nature

A subscription business is able to predict the future income and potentially avoid bad sales by acting on it.

2. Regular sales

It means regular recurring sales instead of unpredictive one-time sales that takes a lot of work by the sales team.

3. Customer retention

The subscription model ensures that the company retains a large number of customers on a consistent basis.

So, if you are about to start a new business, consider building the business model on a recurring revenue model. Especially if your product is a service or a product that has a high usage rate - like socks or razor blades.

What recurring revenue model to use?

It is crucial for the success of your business that you choose the right recurring revenue model for exactly your business. However, there are many to choose from, and it can seem challenging to predict which one will grow your business the most.

We will in the following equip you to determine which of the 5 most popular recurring revenue models you should go with.

1. Your product is physical and frequently used

Recurring revenue models are not reserved solely for SaaS, Software as a Service, companies. For companies with a physical product that is frequently used the subscription model has proved to work very well.

Some examples worth mentioning is the Meal-delivered-to-your-door-service the American company Sun Basket, among many others, offers. Another great example is Art of Tea that sells tea through a subscription model. Their customers, frequent tea drinkers, don’t have to worry about buying tea now that it runs via an automated process.

The suggested recurring revenue model is the Usage-Based. Your product comes in various sizes and/or frequency and the payment is charged consumption based.

So, if the demand for your physical product is frequent consider turning it into a service.

For a customized subscription software that match your needs check out how Upodi can help.

2. You offer premium content via an online platform

Before the introduction of recurring revenue models, premium online content as a product, have been difficult to turn into a prosperous business. But today, we see companies monetizing on this type of product more often.

Premium content is content that provides a great value to the reader. This can be distributed via an online platform that deals with a certain topic, eg. fitness. The best way for this to work is by making most content free for all expect the most valuable pieces of content.

The suggested recurring revenue model is Auto Renewal Subscriptions where the customers signs up at the entry phase, and afterwards the subscription will go on forever - until the customer wants it to stop. This is also called the Evergreen Model.

3. You offer a B2B service

With this model each customer is viewed individually and the service adjust to each customer. For SaaS companies operating in a B2B segment it is often necessary for them to customize their product individually to each of their customers. This is due to the very different needs companies have - relating to size, features, internal software etc.

This is why we at Upodi customize our product to each of our customers to accommodate their needs the best possible way.

We suggest the recurring revenue model called Tiered-Pricing that allows for a customized product to each customer. To offer your product in 3 different levels can be an alternative to unique pricing for each customer and spare you for a huge workload.

Need help handling subscriptions for your SaaS?

Hopefully, if we have explained us well, you will now be able to determine which recurring revenue model to use for your particular business.

Upodi helps you grow your SaaS business. We do that by aiding you automate your subscription and on-demand billing. This makes SaaS accounting easy, because our system handles the bulk of the work for you. That way you can focus on growing your business, and let us handle the rest.

Fanny Josefine Fredskilde
May 15th, 2019
- 12 min. read.

Share this:

Discover your competitive advantage today

Reduce complexity and increase your subscription revenue today.
© 2019 Upodi. All rights reserved.