What is recurring revenue and why does it matter?

We will share everything you need about recurring income and how to cash in — literally.

While acquiring new customers via the virtual door will always be a priority for eCommerce businesses, it is only half of the battle. Businesses are constantly looking for innovative, scalable ways of increasing sales with rising acquisition costs.

We’ve noticed a significant rise in advertising costs in recent months, thanks to iOS 15. But maybe this was the push that we needed to start considering retention as a key component of our marketing strategies.

While recurring revenue business models are not new, more DTC brands are realizing how stable and predictable they can be. It is important to understand what recurring revenues are, their benefits, and why you might consider adding one to your business.

What is recurring income?

What is recurring revenue, you ask? We’d love to answer your question. Recurring revenue, in its simplest form is the percentage of revenue expected to continue for months. Recurring revenue, unlike one-time sales is predictable and stable. It can be counted upon to occur at regular intervals with high levels of certainty.

All industries can see examples of recurring income. It is often seen in membership programs, subscriptions, and service agreements. We saw a massive shift towards online shopping after the pandemic. Businesses across industries started to adapt to the recurring revenue model. However, there are many types of businesses that can do this best.

  • Content-based – Content-based businesses offering access to content digitally and physically have had great success with recurring revenue models. It is evident in magazine subscriptions, audiobooks and digital books, as well as news outlets, photo libraries, streaming services, and news outlets.
  • Service-based – Instead of having to make a single transaction to buy a service, service-based companies will allow access on a regular basis to their platform. This is starting to appear all over the place in the form educational courses and language learning applications.
  • Product-based – This is the most popular of all three. These recurring revenue models, which are product-based, are becoming more and more common. Customers can subscribe to many products, including clothing and cleaning supplies, and have them delivered on a regular basis to their homes.

What does recurring revenue in eCommerce mean?

Stability. Stability. Stability.

An eCommerce business can establish a monthly revenue stream that is predictable. This allows them to plan for future growth. There are many ways that brands can benefit from structuring their recurring revenue streams using subscriptions.

Predictability

Predictability is the most important benefit. While subscriptions provide a predictable, recurring revenue stream, they can also help to predict inventory needs. Merchants can manage their inventory better because they are subscription-based. This allows them to satisfy consumer demand and reduce the risk of overstocking.

Potential investors and stakeholders can find predictability attractive. Brands that can generate regular revenue are more stable investments.

Cash flow

Cash flow, or the money that flows in and out of a business on a daily basis, is the second benefit. Cash flows in whenever consumers make purchases and when investors add funds. When the brand spends money such as on marketing and employees, cash flows out.

Subscription models can help brands keep a positive cash flow since they are recurring. With predictable revenue, brands have the freedom to invest in product development, marketing and testing. Positive cash flow allows brands to pay off debts and return money back to shareholders.

Acquisition costs

Marketing in today’s economy is focused on lowering acquisition costs. It’s not only the economy that brands need to be concerned about. It’s five times more costly to acquire a new customer than it is to retain an existing one. This alone should motivate marketers to focus on their retention strategy. Brands who focus on existing customers increase their customer lifetime or CLTV, which in turn will increase their return on customer acquisition.

Insights

You will gain valuable insights from your customers, which is the final benefit. It is impossible to underestimate the power of having a conversation with your customers. Subscriptions offer brands the unique opportunity to understand their customers and to provide them with relevant information.

You might consider adding a recurring revenue stream to your business.

According to Frederick Reichheld, Bain & Company’s research, increasing customer retention by 5% increases profits in the range of 25% to 95%. Subscriptions can be a great way of increasing your retention and cashing in on those profits increases literally.

Today’s tech solutions make it much easier to add a subscription channel to increase your recurring revenues than you might think. Subscriptions are easy to set up without the need for a web development team or deep pockets. This means that you can focus on customer retention and increase your profits today.

Yotpo Subscribes is an example of this easy-to-use app that merchants can use to get up and running in as little as 8 minutes. You can be sure that your customers will have a seamless experience with Shopify’s native integration.

Subscriptions can be a great way to build strong relationships with your customers. But subscriptions don’t just make money. It all boils down to the customer experience. We cannot create engagement as a brand; customers will choose when, where and how they interact with us. However, we can focus on the experience that leads into engagement.

Subscriptions are a recurring revenue source that allows you to offer a unique experience for your customers. When customers and brands optimize their subscription experience, then both win.

source https://www.yotpo.com/blog/what-is-recurring-revenue-and-why-does-it-matter/

►►► cloud-based POS software compatible with multiple platforms including Magento b2bShopify automation, and BigCommerce Automation