Recurring revenue consists of revenues generated on a regular or frequent basis.
This revenue occurs for a significant period, often on a monthly or annual basis.
Recurring revenue which occurs every month is termed as Monthly Recurring revenue and those on annual basis, termed as Annual Recurring revenue.
These revenues are easily predictable and countable and occur with a high degree of certainty.
Understanding Recurring Revenue
The recurring revenue stream is a stream of frequent or periodic sales.
It can appear in various forms across different industries and is regarded as an important value for a company to have.
Examples of Recurring Revenue
Recurring revenue is mainly used by companies or organisations that sell services or subscriptions or in the commercial contracts or a lease or provision of license.
To make it more clear, let’s take an example of phone bills.
These bills are to be paid monthly. So, there’s a contract between a consumer and the phone company.
Here, receive a monthly bill by the company is considered as the recurring revenue, occurring regularly.
Some companies tie their customers into long term contracts or obligations in return of regular use of a service.
For example, mobile phone companies let their customers enter into yearly contracts, with month wise payments.
Here, companies record the future revenues keeping in mind that there will be payments by the customers, regarding the legal-binding contracts.
Now, comes the subscriptions that go on forever until the customers agree to terminate or stop, these subscriptions are termed as Auto-renew subscriptions.
These are also called as ‘evergreen’ subscriptions.
Examples include internet domain registrations, print publications, etc.
Big Brands with Loyal Customer Bases
Some companies have a very established brand in the market.
This advantage helps them obtain a loyal customer base that keeps purchasing their products.
For example, Apple Co. has a reputed brand name and hence a loyal customer base all over the world.
It’s products like the iPhone or the Mac PCs are so popular among the people.
Their products are in huge demand.
Cross-selling Supplementary Goods
Some companies sell products that work only with the accessories produced by the same company.
Here, the sales act as recurring revenues for companies.
These revenues are predictable and countable.
For example, a shaving stick which can be used only with the customized razors.
Recurring revenues are considered as a very desirable quality which makes a business more stable, predictable and helps in lowering the risk of the business.
What is Transactional Revenue?
Transactional revenue is revenue which is generated from the sale of goods.
This revenue occurs through a transaction from a customer from a one-time transaction.
Let’s take an example of a customer who purchases a product like a television or a washing machine, etc.
Here, revenue generated from the sale of goods to the customer results in transactional revenue.
The transactional revenue model is good for companies whose profit depends mainly upon the transactions.
Here, the businesses focus more on acquiring as many customers as possible.
As there will be more and more customers, more will be the transactions and hence, more the flow of revenue in the businesses.
Transactional revenue can be increased by building a strong relationship with the customer and by providing a good quality service to them.