Our of many potential revenue models, generating recurring revenue by offering a subscription to something is one of the most coveted revenue models. There is a number of reasons why subscriptions are great. In this article, we will examine some of those core reasons.
Definition Of Recurring Revenue
Recurring revenue – (from Investopedia) The portion of a company’s revenue that is highly likely to continue in the future. This is revenue that is predictable, stable and can be counted on in the future with a high degree of certainty. For example, a cable company that has millions of customers paying monthly could consider a large portion of its monthly revenues to be recurring in nature. Many market pundits consider recurring revenue to be a highly desirable quality for a company to have.
One thing to keep in mind is that recurring revenue does not mean passive income. Sometimes these two revenue models go hand in hand. But that is not always the case. Just like the example above, a recurring revenue for a cable company means that they must do the work to provide the cable each month. That isn’t passive at all. The great thing about recurring revenue is that the business doesn’t have to rely on getting new customers each month. Some of the revenue can come from existing customers. So if there is a slow month where there are few new customers, that isn’t as damaging because there is already recurring revenue from existing customers.
People Do Not Unsubscribe To Subscriptions
If your recurring revenue is in the form of a subscription which bills the customers at regular time periods, very often, people just forget to unsubscribe. It takes physical work to unsubscribe. It also requires a conscious decision. Those two things prevent people from unsubscribing. Consider how that works in contrast with asking people to make multiple purchases each month. If a person has to make a purchase each month, exactly the two factors of making the decision to buy and doing the physical work to buy work against you because that is work that the consumer has to do. But if the person has already subscribed to what you are offering, they neither have to take out their wallet each time, nor do they have to do any work.
Build Long-term Relationships With Your Customers
To create recurring revenue by having people subscribe to your site or product, you have to have a natural long-term relationship with your customers. If you don’t have a recurring relationship with your customers, there is no reason for them to subscribe. Try to think about how you can create a long-term relationships with your customers. Don’t just think about them as one time buyers. Think about them as people who you partner with and help long-term.
Subscriptions Increase LTV
Even if you charge a low fee per subscription period, since there is a high probability that the customer will be a long-term customer, the total lifetime value of that customer can add up and become quite a large sum over time.
The only caveat is that you should not confuse things and equate a high lifetime value of a customer with subscription-based models only. There are plenty of other business models where there are no subscriptions, but yet there is a high lifetime value that a business gets from a customer. Those models are typically predicated upon selling expensive goods or services. That way each sale has high value.
The other thing to not get confused is that to make a lot of money you need subscriptions or expensive products. You can make very little money per customer and still make a lot of money overall if you are able to get a very high volume of users or customers. The freemium business model is based on this principle. Here is a video explaining it.
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Further Business Resources
For more business-starting resources, please take a look at my business planning mobile apps. Here is the iOS business plan app and here is the Android business plan app. Additionally, here is the iOS fundraising app. And here is the Android fundraising app. And here are our business apps on the Kindle. Here is an article where I give the argument that these Android apps are the best business apps on Android.
Additionally, please check out and subscribe to my YouTube channel where we cover many business and marketing topics. Additionally, you can get one on one mentoring from me if you want ideas for how to increase your revenue. Here is a link to learn more about how I can help your business by coaching you. I can also help you get exposure and publicity for your business. Here is how I can help you get publicity.
Author: Alex Genadinik