Recurring Revenue - What Is It?
Recurring revenue is not a new idea. Newspaper and periodical subscriptions first appeared in the 15th century. Phone service has been available on a recurring usage basis since the late 1870's. What’s new is a convergence of cloud computing and internet technologies along with a shift in consumer preferences from pay-to-own to pay-to-use, which have opened the door to an almost limitless array of new applications for a tried-and-true way of doing business.
The Way Things Were
We're all familiar with the traditional sales cycle. We've given it names like "Prospect to Cash" or "Order to Cash", and it works something like this:
- You identify a potential customer (a prospect)
- You match a prospect with products to create an opportunity
- When you close a deal, the opportunity becomes a sale
- You collect payment and deliver the product
This selling process has been in play since the first caveman traded a fish and a few berries for a handful of shiny rocks. It is pretty much the same process, whether it’s a retail associate selling consumer goods, a travel agent offering weekend getaways, or a technology vendor selling hardware or software. Industries like retail and travel have become adept at driving repeat sales; using loyalty programs, targeted marketing and discounts, to entice customers to come back and buy again and again. But this is not recurring revenue. Each purchase decision is made separately and paid for as a one-time transaction. The sales cycle occurs over and over again.
The Way Things Are
In a recurring revenue model, your customer makes a one-time buying decision that results in a steady revenue stream over time. The sales cycle happens once, and then a new cycle kicks in. You provide value over time, and your customer pays you on a periodic basis. This can be a traditional subscription model, a consumption or usage based model, or a hybrid of the two. The point is that you sell once, but you continue to generate revenue over the life of the relationship. It's' almost like Recurring Revenue = Repetitive Prospect-to-Cash, but without all the nasty business of selling over and over again.
As a business, your focus shifts from making sales to building and nurturing relationships, and the cash flow continues for the life of each relationship. Call it Relationship Commerce - the success of your business is dependent on your ability to nurture and grow long-term relationships with your customers.
Recurring revenue is not just a fad, it is a new way of doing business that is disrupting industries. In the pages that follow, we'll highlight many of the basic concepts you will need to understand to be successful in the recurring revenue world.
You can choose individual topics from the list to the left or you can go through the topics in sequence by following the links at the bottom of each article.
Next up: Relationship Commerce