Recurring revenue models are quickly gaining popularity in a number of different industries, and it’s no surprise considering the annual recurring revenue opportunity for business is predicted to be $500B or more. While telecommunications was the first major industry to adopt recurring revenue models, research shows information technology and entertainment are among the industries increasingly making the move. According to Ventana Research, IT has seen a rise because a growing number of companies offer services through cloud computing, and the entertainment industry has embraced the “sharing economy” with subscription services for movies, music, and more.
Nearly half of U.S. businesses today have already adopted or are considering adopting recurring revenue models. And not only are companies investing in this type of services for their customers; they also prefer to be customers of recurring revenue services. 72% of companies agree that their own business consumption preferences are shifting towards rental and subscription models.
Ventana Research also found that companies adopt recurring revenue models “to create strategic business opportunities…for generating more income immediately, but [also the] potential to sustain a long-term income stream by offering services of ongoing value.” Recurring revenue models are attractive because they provide opportunities to take ordinary customer interactions (like an invoice or upgrade) and turn them into revenue moments. Providing a satisfactory experience during these moments increases customer lifetime value (CLV) and ultimately brings in more revenue over time.
During its study, Ventana also identified the most commonly cited business drivers for using recurring revenue models. Unsurprisingly, increasing the top line and enhancing customer experience were at the top of the list.
It’s clear that implementing a successful recurring revenue model has many benefits, both short- and long-term. However there are challenges in doing it right and “companies that fail to provide competitive services or fall short in service delivery will lose customers with little hope of ever getting them back.”
The next post in this series will address tackling the most common recurring revenue challenges so stay tuned.