Recurring revenue delivers a predictable and stable revenue stream that occurs at regular intervals – what’s not to love? In contrast to traditional sales models that consist of one-off purchases, recurring revenue provides both monthly recurring revenue (MRR) and annual recurring revenue (ARR). However, the benefits don’t end there. From predictable revenue and improved customer loyalty, the benefits associated with a recurring revenue business model are undisputable. Given the broad range of recurring revenue business models, do all recurring revenue businesses receive the same benefits? The short answer to this question is no. This blog explores five recurring revenue business models and the value recurring revenue delivers based on the specific model. Regardless of your business model, learning how to manage a recurring revenue business model isn’t as easy as flipping a switch.
Maximize the Success of Your Recurring Revenue Business Model
With the acceleration of technology such as the Internet of Things (IoT), recurring revenue business models will continue to grow. In fact, a survey conducted among financial executives discovered that 52% of respondents are employed by companies that receive at least 40% of their revenues from either subscription or usage-based recurring revenue business models. Sounds almost too good to be true, doesn’t it?
Before hopping on the recurring revenue train there are some points to take into consideration. These top seven issues and pro tips will help you get the most as you manage recurring revenue business models:
1) Revenue Management
Regardless of the business model, staying on top of your performance is critical. However, due to the nature of the recurring revenue business model tracking performance can be tricky. Some questions to ask yourself – what does it cost to acquire new customers? Is customer churn outweighing customer acquisitions, and of course are you making more money than what you are losing?
Pro Tip: We’re all accustomed to tracking a variety of business metrics (MRR, ARR, churn, recurring profit margins). Looking at the metrics in combination instead of individually needs to be done more. Using the right business intelligence tools such reports, dashboards, and analytics provides the comprehensive view needed to understand the financial health of your business and maximize opportunities.
2) Customer Management
Fostering customer loyalty is essential for long-term recurring revenue success and this relies on your ability to consistently deliver value. However, as your customer base increases, delivering on customer expectations can become overwhelming and time-consuming.
Pro Tip: To avoid disconnected customer interactions and provide customers with exceptional service, your critical front- and back-office systems need to be fully integrated. In addition, be sure that your billing system is able to automate the entire quote-to-cash process.
3) New Product/Services
One of the appeals of this business model is in the opportunity it provides to upsell and cross-sell new products and services to existing customers. However, pricing and launching new products/services on an ongoing basis takes time and effort.
Pro Tip: Stay ahead of the competition by quickly launching innovative packages, pricing, and promotions. The right billing system should enable you to generate new revenue streams from any combination of one-time charges, subscription, consumption, hybrid or dynamic – all on a single system.
4) Secure Payments
The ability to accept recurring payments requires you to provide the security needed to collect sensitive information, as well as be in compliance with PCI-DSS and other regulations such as ASC 606, IFRS 15, etc.
Pro Tip: Your billing system is a fundamental component in your ability to securely collect recurring payments and adhere to compliance standards. The system should offer a variety of payment methods, including debit/credit cards, checks, PayPal, and ACH on a PCI-DSS compliant platform. Additionally, it should have the ability to automate credit card and ACH payments with SOC and PCI compliant payment gateways. When customers opt to pay by check, the billing system needs to provide for easy configuration of lockboxes.
5) Revenue Recognition
As your recurring revenue business grows so do the complexities. The numerous performance obligations in combination with a growing customer base can lead to errors and customer dissatisfaction. This is especially true if processes are manually handled.
Pro Tip: The nature of how you manage a recurring revenue business model adds nuances that compound inherent difficulties. A billing system built for recognizing recurring revenue enables you to automate revenue management and reduce errors. With a single solution you’ll be able to automate and simplify revenue recognition for better accuracy and auditability.
6) Customer Churn and Dunning
Losing revenue due to failed payments can quickly turn your profitable business upside down. However, the majority of involuntary customer churn can be avoided through effective dunning management.
Pro Tip: When payments aren’t made or are declined, put dunning on automatic pilot with messages that are easily scheduled and tailored to keep customers informed of outstanding balances or failed payments. A fully automated process allows you to easily manage late fees, account suspensions, and customer notifications.
7) Global Growth
Taking your business across borders opens another set of challenges such as supporting various payment methods, currencies, languages, as well as adhering to local tax regulations and accounting standards.
Pro Tip: Not a trivial undertaking by any stretch of the imagination, however a billing platform that enables you to localize your solution to satisfy region-specific requirements and compliance such as GDPR, while meeting the needs of diverse customers provides the flexibility needed to expand your recurring revenue business with confidence.
The key to overcoming these challenges is with an agile billing system that manages the entire quote-to-cash process.
Start To Manage Recurring Revenue Potential Today
The success of your recurring revenue business relies on having the right billing system. A system that meets your unique requirements and simplifies the complexities inherent to recurring revenue business models. BillingPlatform provides a cloud-based billing solution that enables you to easily automate the quote-to-cash process for every pricing tactic.
BillingPlatform provides the flexibility needed to bring innovative products and services to market 30% faster. You can also reduce operational spend by as much as 50%. A system built with the future in mind, our unmatched ability fulfills 100% of today’s recurring revenue business requirements. It also gives you a competitive advantage to easily handle tomorrow’s complexities. Ready to learn more? Contact our experts.