What is recurring revenue and why does your services business need it?

Author: Leanne Knowles

First published: December 2020

Article updated: August 2024

3-4 minute read

Introduction

Lumpy, inconsistent and unpredictable cashflow has traditionally been a challenge for service businesses. Revenue models such as retainer business have enabled some businesses to smooth out their cashflow, but not all products and services can be delivered that way.

Technology and changes in buyer behaviour are both driving the development of new revenue models for B2B eCommerce and service businesses that can deliver recurring revenue.

There are some complexities to moving from a traditional revenue model to a new digital services model. There are also enduring principals that can be applied to the task that can be applied to your business once you know the formula.

I have broken it down for you here and outlined the formula.

Revenue model v business model

Before we go into detail about recurring revenue, it’s helpful to first acknowledge the difference between a revenue model and a business model.

Your business model describes how your company generates value across all key inputs.

Your revenue model describes how you create revenue from the value delivered to your customers.

Business model examples

• Business services
• Managed services
• Value-added reseller
• Product as a service

Revenue model examples:

• Fee for service
• Hourly billing
• Project fees
• Service contracts
• Subscription revenue
• Recurring revenue

What is recurring revenue?

Recurring Revenue is a systemised method of earning business income that is reliable, consistent and regular. With today’s technology, it’s easy to automate, and is a highly valued revenue model.

What recurring revenue is not…

It is an unnecessary stretch to consider traditional repeat business as recurring revenue.  It simply does not provide the level of certainty and predictability provided by the new revenue models opening up for all businesses.

Examples of recurring revenue

There are various options available to you to consider:

1. Content subscriptions
2. Digital service retainer
3. Software as a Service (SaaS)
4. Affiliate sales for other SaaS products
5. Evergreen online courses or events periodically delivered as memberships
6. Combination of online membership with physical product delivery
7. Digital advertising

Why do you need recurring revenue?

Recurring revenue enables stronger, more consistent cashflow, increased productivity, smoother market expansion, and sustainable profitability.

Investors and business buyers are increasingly seeking Recurring Revenue as an essential criteria in their market search for opportunities.

With it, your time as a business owner can be freed up to focus on the big picture as you grow your business with less stress. Done well, the automation can also deliver a more consistently excellent customer experience.

Without it, you are destined to be stuck with lumpy cashflow, and comparatively unpredictable sales results.

What kind of businesses can use these strategies? 

Almost all businesses can reorganise their approach to create new recurring revenue streams.

How to take the next step to create recurring revenue

Service business can convert some of their traditional services or knowledge into digital products to create recurring revenue.

Product sellers can digitize service options and package products with services using technology and automation to expand revenue streams.

My recurring revenue checklist

In the meantime, here’s My Recurring Revenue Checklist that I have used in my own business to help me build out my digital services strategy.  It’s yours for free and it’s an easy download, so just click on the link below and you’re on your way to the next step.

Yes! Give Me My Recurring Revenue Checklist.