Recurring Revenue: How To Earn Predictable Income

recurring revenue

Written by Adriana Pope

April 21, 2021

So you want to know more about recurring revenue? Great! You’ve come to the right place. You’ll learn everything you need to know about what it is and how to make it.

I’ll also show you real life examples of recurring revenue business and how they reached success. Lastly, I’ll cover the software and apps that are best for earning and tracking your recurring revenue.

Topics Covered:

  • What is Recurring Revenue?
  • What is MRR?
  • Benefits of Recurring Revenue
  • The Power of Auto Renewals
  • Why Subscription Products are Great for Recurring Revenue
  • How Do I Know if Selling Subscriptions Would Work Well for my Store?
  • How Do I Start Earning Recurring Revenue?
  • 12 Ways to Earn Recurring Revenue
  • Recurring Revenue Subscription Models
  • Challenges of Recurring Revenue
  • Advantages of Recurring Revenue
  • Best App for Recurring Revenue

What is Recurring Revenue?

Recurring revenue is earning money on a monthly basis from automatic recurring transactions.

Recurring revenue also implies that the recurring orders are automatic using recurring payments.

For example, if you are selling a subscription box on your website and someone signs up for a monthly box, they will get charged every month automatically to receive a box.

Recurring revenue is the money earned on a recurring basis.

What is MRR?

MRR stands for monthly recurring revenue. MRR is helpful when trying to figure out how much you earn month after month.

Monthly recurring revenue is helpful for growing your business and scaling up. It’s also great to earn recurring revenue if you are planning one day to sell your online store.

There is also ARR. This stands for annual recurring revenue and just means how much repeat income is made on a yearly basis.

recurring income monthly subscriptions

Benefits of Recurring Revenue

There are many benefits to earning recurring revenue like making predictable income that is stable. I’ll cover several more factors of why recurring income is ideal for your business.

  • Predictable income
  • Repeat customers
  • More cash flow
  • Easier to up-sell or cross-sell to your current customer base
  • Subscribers are enrolled in AutoPay so higher customer retention
  • Subscribers pay automatically using recurring billing (less to think about)
  • Customers paying for a subscription are more loyal
  • Recurring billing software can lower overhead (i.e. administration & accounting costs)
  • Keeps customers happy by simplifying reordering process
  • Low subscription cancellations
  • Recurring revenue helps you scale up your business
  • Easy to forecast next months earnings
  • Dependable, you can pretty much count on the same amount of income
  • Very impressive stat for selling your online store in the future

The Power of Auto Renewals

Auto renewals automatically charge the customers to renew their subscription.

When someone signs up for a subscription, they are agreeing to be charged on recurring basis.

For example, if I sign up to receive a monthly subscription box I would need to enter my credit card information for the initial order so I can enjoy repeat deliveries from then on without having to enter my card info again.

Since my card is on-file, I would get charged automatically for each delivery of the subscription product.

The beauty of auto renewals is they don’t let any interruptions in service happen. This keeps your customers happy because it adds a layer of convenience.

Merchants are also happy because their customers are committing to repeat orders and being charged on a regular schedule to receive the products they love.

subscription products recurring revenue
Source: Simple Loose Leaf

Why Subscription Products are Great for Recurring Revenue

Subscription products are products customers order on a repeat basis.

Subscriptions help you get repeat orders which generates repeat income (aka: recurring revenue).

A subscription product is any product a customer wants to receive on a repeat basis.

Subscription boxes are super popular these days, and a fun way to explore products and try new things.

A great example is Simple Loose Leaf Tea which offers a tea of the month subscription box. They let you choose how often you would like the tea delivered and what type of tea you would like to drink.

When a customer receives the crate of tea, and brews a cup, they instantly feel the value of subscribing to an exciting subscription box on a recurring basis.

How Do I Know if Selling Subscriptions Would Work Well for my Store?

Let me answer this question with another question.

Do you you sell products your customers would enjoy frequent deliveries of (weekly, monthly, quarterly)? If you answered Yes, then selling subscriptions is a good choice for you.

For example, if you sell skin products like lotion or sunscreen used on a regular basis, this would make a great subscription product.

This is a wonderful opportunity to increase recurring revenue and grow your online store sales volume.

How Do I Start Earning Recurring Revenue?

If you’re looking for a way to start earning recurring revenue, we recommend you start selling subscription products.

Subscription products are products customers order on a repeat basis. Since the nature of subscriptions is to recur over and over again, the orders are processed automatically.

Customers only have to sign up once for a subscription and then reap the benefits of automatic repeat deliveries.

To get this functionality on your online store, you’ll need to install a subscription app like Ongoing. It’s the best Shopify subscription app for earning recurring revenue. They handle everything from recurring billing, to automatic renewals and everything in between.

Feel free to read our step by step guide on how you can start selling subscriptions on Shopify.

10 Ways to Make Recurring Revenue

There are several ways to earn recurring revenue.

Finding the best one for your store depends on the subscription product you are selling, but all can earn you recurring income. We’ll do a quick overview of the different ways to earn recurring income with real business examples.

pay per delivery subscription recurring revenue
Source: Bean Box

1.) Pay Per Delivery Subscriptions

This is great for physical subscription products.

If you sell a product you can ship to customers on a regular basis, this is for you.

Every time a customer receives a delivery, they pay a fee.

This subscription automatically renews. It’s also known as Autoship or Pay as You Go. But it’s all the same thing.

Pay Per Delivery subscriptions typically offer a subscription discount to sweeten the deal even further for recurring transactions.

For example, the site Bean Box offers a monthly pay per delivery subscription for coffee lovers. Customers who sign up for a monthly coffee delivery, are also charged monthly.

Pay Per Delivery Subscriptions are ongoing and won’t end unless the customer cancels their subscription.

prepaid subscription
Source: Birch Box

2.) Prepaid Subscription Plans

Prepaid subscriptions lets customers pay upfront for their subscription.

For example, if a customer wants to sign up for 3 months of wine delivery, they can pay a larger sum all at once.

Prepaid subscription plans charge the customer less frequently, but a larger sum. Like all other subscriptions, they auto renew which helps create recurring revenue.

Birch Box makeup subscription where customers receive full size samples of skin care, makeup, and perfume. They offer prepaid subscription plans where customers can get huge savings if they commit to 1, 6, or 12 months upfront.

access membership example
Source: Netflix

3.) Streaming Service Subscription

A streaming site is the perfect way to start earning recurring income. This type of site lets the customer watch TV, movies, or video games via streaming the internet.

An example of this is Netflix or Amazon Prime video which both use membership type subscriptions.

subscription box recurring revenue
Source: KnitCrate

4.) Subscription Box

A subscription box is a type of product subscription. This usually consists of a curated box filled with handpicked goodies.

Although some subscription boxes are personalized, they don’t have to be. A great example of this is KnitCrate who delivers artist-dyed yarns every month to eager knitters.

Loyal customer who subscribe to your subscription box helps you generate recurring income. This helps your company produce predictable profits.

Recurring revenue helps you create a very stable revenue you can rely which is incredibly beneficial!

refill subscriptions recurring online transactions
Source: Dollar Shave Club

5.) Refill Subscriptions

Do you sell a product people use and need more of once they run out of it? If so, then selling refill subscriptions might be a good choice for you. This is also known as Replenishment Subscriptions.

This subscription model works by selling consumables.

Refill subscriptions work best with pantry, household or hygiene items that you need more of on a regular basis.

Offering a subscription offers convenience to your customers and saves them a trip to the store.

An example of this is Dollar Shave Club who sells subscriptions to men’s razors. This recurring revenue business model removes the hassle of going to the store to buy a product on a regular basis.

With a subscription model, the customer can enjoy regular and convenient renewals. Merchants can benefit from the on-going relationship with these customers who are increasing the value of the business with repeat orders.

access membership recurring revenue website
Source: Thrive Market

6.) Access Membership

If you’ve ever used Amazon Prime’s free 2-day shipping for members only, then you’ve used an access membership.

Access memberships give customers access to an online service who pay a recurring fee.

An access membership subscription works well with businesses who sell digital products or limit access to member-only perks & discounts.

Another great example is Thrive Marketplace which lets members shop discounted health food products. Without a membership, you can’t even browse their online grocery store.

types of recurring revenue access membership
Source: New York Times

7.) Media Publication Subscriptions

If you ever tried to read a news article online and got hit with a paywall to pay a monthly fee, this is a media subscription. As annoying as they might be, they do help the business pay its writers and editors to produce regular content.

An example of a media subscription is the New York Times. They charge online readers $8 per month for an annual subscription to access their online magazine.

Most often media subscriptions give readers unlimited access to content, while free content is very limited.

arr annual recurring revenue
Source: Adobe

8.) Software Service Subscription

A software subscription lets you use their service for a recurring fee. An example of this is the cloud storage platform DropBox which charges either a monthly or annual subscription. Customers can drag and drop files from their computer and easily keep everything up to date with their team.

Another great example of a SASS company (which stands for “software as a service”) would be Adobe Creative Cloud. The infamous Photoshop is a professional photo editing software used my millions around the world. Folks can now subscribe to Adobe Photoshop online and instantly gain access to their amazing software for a monthly/annual recurring fee which auto-renews.

Subscription cancellations can be very low, if the software service provides a lot of value to the customer.

Once you have people hooked on a subscription service, you can earn recurring sales more easily.

media subscription

9.) Old school Subscriptions

If you wanted to “subscribe” to a magazine back in the day, you would have to mail in a slip with some money. This would ensure your monthly magazine delivery at your front door. Things have changes.

Now all your customer has to do is click a button, and they are instantly subscribed forever!

In the modern era of ecommerce subscriptions, companies are shifting towards digital content and handling online transactions with a secure recurring payments software.

The difference between this type of subscription of years bygone and online subscriptions today is renewals are now automatic.

Subscriptions basically go on forever until the customer cancels.

recurring revenue businesses
Source: Breo Box

10). Gift Subscription

A gift subscription is gaining popularity and lets customers order a subscription for another person. In this case, the customer can either pay upfront (prepaid) or pay per delivery.

Gift subscriptions are a clever way to sell more on your online store and offer exciting new ways to buy your products.

Breo Box offers gift subscriptions on their site so shoppers can buy their friend or family member a box of goodies. Cleverly using the term “seasons,” they ship and bill their subscription boxes on a quarterly basis.

online course membership
Source: Forks Over Knives

11.) Online Course Membership

If you have an online course you’d like to sell, an online course membership is the best recurring revenue business model for you.

An online course membership gives customers access to high quality evergreen content (lasts for a long time and won’t go out of date quickly).

An example of this is Forks Over Knives who offers healthy online meal planning for a recurring fee.

fixed usage subscription recurring revenue
Source: Shutterstock

12.) Fixed Usage Subscription

If you sell digital products, you can give members access to download these items based on subscription plans.

Fixed usage subscriptions are ideal if you want to set a limit on how many digital items can be downloaded during a set time frame.

A great example is Shutterstock who sells stock-photos. Their subscription plan is you can download 5 image assists for $29 a month. However, if you want to choose a higher quantity, which results in a higher monthly subscription price.

Recurring Revenue Subscription Models

There are ultimately three types of recurring revenue subscription models.

Although there are tons of different types of subscription businesses out there, they usually fall into one of these categories.

Curation – A subscription box with an assortment of hand-picked products. This lets customers discover and explore new products with each delivery.

Replenishment – This subscription focuses on refills for consumable products. This lets customers re-up on products they use on a regular basis.

Access – Online membership which gives customers special exclusive perks, deals, discounts and member-only access to content or services.

Challenges of Recurring Revenue

There are a lot of amazing benefits to earning recurring revenue, but it just wouldn’t be fair to leave out the challenges.

  • Keeping Track of your Subscriptions– When you have a lot of subscription contracts with different time spans and delivery frequencies things can get a little tricky. You don’t want to miss a shipment and have angry customers. We recommend using a recurring revenue app like Ongoing to manage your subscription orders for you.
  • Be on your “A” Game – With so many subscription sites in the world, we recommend you strongly create a high quality subscription product. This means your product is worth remarking about. Creating an amazing experience for your customers from the ordering process to the delivery moment will ensure lower cancellations and higher retention.
  • Committing Long Term – When your customers sign up for an annual product subscription, they expect consistency. Make sure you are also committed to running your business long-term!

Advantages of Recurring Revenue

Earning recurring revenue is a dream come true for many. The reality is it can be attained with the right amount of grit, creativity and focus.

  • Automatic Recurring Payments – Repeat customers means repeat charges. In a nutshell, you’ll need an app to manage your recurring payments. It will be responsible for properly charging your customers for their orders on a predetermined schedule based on the subscription cycle. It should also correctly calculate discounts and totals for foreign currency.
  • Dunning Management – Make sure the subscription app you use has built-in Dunning Management. This will make your life easier by performing the following tasks automatically: notifying customers about expiring credit cards, failed payments, successful payments, upcoming payments, and approaching renewals. Lastly, it should automatically retry failed payments to capture the maximum amount of revenue.
  • Secure Recurring Billing In order to generate recurring revenue automatically, you have to use a recurring billing software. This will magically take the nearly impossible task of managing recurring transactions and do it automatically for you. Make sure the company you choose is PCI Compliant and uses a trustworthy payment provider. Choose unwisely, and you could potentially deal with insecure credit card data storage which can lead to lawsuits.
  • Stable Income Having a predictable recurring income is a huge plus for entrepreneurs. It’s incredible to be able to say with a high amount of certainty how much you expect to earn next month.
  • Less Money Spent on Ads – Recurring revenue means customers are committed to buying your products over and over again. This is a great opportunity to cross-sell and up-sell to your current customer base who already trust your brand.

Best App for Recurring Revenue

Life has been simplified for entrepreneurs.

Since a subscription app can help you track all of your recurring revenue, payments, and orders… it has everything you need packed into one!

Heck, you can easily open up an online store in a couple minutes using a platform like Shopify. And you can get up and running selling subscription products in the same day using a trusted app like Ongoing.

Ongoing is the best subscription app for Shopify and offers a secure way to create subscription products, process recurring billing, and track recurring revenue.

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