As more and more customers are willing to pay for access rather than ownership, the business ecosystem is slated to undergo a paradigm shift.
Many industries have migrated to recurring revenue models, unlike the one-time sales model. But in the new business ecosystem with recurring revenue, your business will be able to generate consistent revenue. This is achieved by allowing consumers constant access to the products and services of the company, and in exchange, the company gets scheduled payments regularly. More about it in the paragraphs that follow.
What is the recurring revenue business model?
It is a business model wherein consumers access products and services in exchange for a recurring fee and are scheduled at monthly, quarterly, or annual intervals. The various membership services and subscription-based businesses operate on this model.
The customers make consistent purchases time and again, every month. This ensures that there will be a predictable flow of cash and a profit margin that is sustainable and recurring revenue as well.
What types of businesses are best suited for the revenue business model?
This type of business is best suited for the following types of businesses. Examples of recurring revenue businesses include-
- Content-based
- Service-based companies that offer their services as SaaS.
- Product-based
What are the different types of recurring revenue businesses models?
These are the most common types of recurring revenue businesses models. They include-
- Hard Contracts
- Auto-renewal subscriptions
- Sunk money consumables
- Usage-based subscriptions
- User-based billing
- Tiered billing
- Freemium
- Hybrid billing
What are the benefits of recurring revenue models?
The benefits of this type of model are many, and some of the prominent ones are-
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Revenue is predictable
In the conventional business model based on one-time sales, revenue is determined by oscillations in the market. But this is not the case with this business model.
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Broader customer base
The fact that payments can be smaller and recurring makes it easier for the customers to afford the product or service. Although the final amount they shell out is more in the longer term, it becomes affordable at least due to smaller monthly payments.
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Customers can be retained.
Since customers can afford the service or the product, the number of customers increase over time.
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Revenue from additional services
Since customers stay for longer terms, a bond of trust develops between the vendor and the client. In due course, additional services can be offered to your client base as well.
What are the challenges of the revenue business model?
Just as there are benefits, a few drawbacks exist as well. The challenges that exist in this model of business include-
- Churn management
- Subscription fatigue
If you can tame the drawback, this business model can help you forecast revenue, plan your business growth, improve profits, expand your market stake, and retain customers.
