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All business owners know and value the importance of sales to the success of their business. To begin with, revenue is critical to a company's ability to pay its expenses and meet all payroll obligations. Investors will examine a company's sales history as a benchmark to assess the company's future profitability and potential growth. Revenue is also an important metric that lenders use when assessing lending to a business – the lifeblood of any business.
Because revenue is so important to a company's success, it is often surprising how little time most business owners spend figuring out how their business can achieve – if not exceed – its revenue potential.
The reality is that most business owners are so focused on the day-to-day realities of running their business that they simply don't have the time to ponder whether their business is generating as much income as they should or whether there are other ways to increase it . revenue generating potential.
Related: 17 Passive Income Ideas To Boost Your Cash Flow
What is a recurring revenue stream?
A recurring revenue stream is simply some type of business transaction that results in customers paying the company on a regular basis for some value. That value can be either the right to receive goods or services from a company, or the right to access or use the company's property for a period of time.
This is very different from business models with one-time revenue generation, e.g. B. Selling a product or providing a service where a company does not expect a current customer to be a customer in the future. Recurring revenue streams enable business owners to better predict how much revenue their company will generate in the future. Savvy business owners use these recurring sources of income to attract investors, get credit, and grow their businesses.
No wonder that the foundation of many successful modern companies today is often based on recurring sources of income.
Related: Why You Should Use a Subscription Business Model
What are some examples of recurring revenue streams?
You might be intimidated by the idea of a recurring source of income. You have no reason to: business models with recurring sales are ubiquitous. Here are three common examples of recurring revenue streams that you may be familiar with and that you should consider implementing in your business.
Rent or lease. If you've leased a car or rented a house before, you'll be familiar with this business model. Leasing is a form of revenue generation in which a company collects money from a customer in order to give a customer the right to use a physical asset for a specified period of time. Licensing. Do You Pay For Online Services? Do you use any form of social media? Your relationship with these online services is often governed by a license agreement that sets out the terms and conditions for the other's use of intellectual property from one party. Often times, when one party is required to pay for the other party's intellectual property rights to use, those payments are calculated based on the frequency of use of the intellectual property by the customer or the amount of money the customer earns from the other party's intellectual property Business. Subscription. This is the model that you are likely to be familiar with. Whether it's your account for the latest video streaming platform, your fresh coffee subscription or even your subscription to a pizza service, subscription-based business models are everywhere. The success of most subscription-based business models depends on offering customers lasting added value for as long as possible in return for recurring payments.
What to ask before integrating a recurring revenue stream
While introducing a new source of income is certainly attractive to your company, you should be aware that not every recurring income business model is created equal. The reality is that any type of recurring revenue stream needs to be tailored to the capabilities of every business and the needs of every customer. Here are some questions to ask yourself when considering ways to incorporate a recurring revenue stream into your business: What value of your business are your customers willing to pay for on a regular basis? What price do customers regularly pay for this value? What changes need to be made in your business operations to make these revenue streams a reality?
Related: 3 Simple But Effective Strategies For Creating Constant Income Online
Don't go alone
While I hope this article illustrates some of the benefits of integrating recurring revenue streams into your business, I must stress that this is just an introduction to the concept. Don't underestimate the time, money, and energy that it may take to create a new source of income for your business. I encourage you to find lawyers, accountants, and other advisors to guide both your assessment of the suitability of a recurring business model and the execution of your strategic decisions. After all, a little time and energy invested in preparation often pays off in the long term.