The Growth of Recurring Revenue — and Its Power to Grow Your Business

It’s no secret that, here at Gotransverse, we’re big proponents of recurring revenue models. These models are a powerful strategy for businesses looking to increase revenue, grow customer lifetime value, make accurate forecasts, and more. And those advantages are starting to catch on: A recent survey from Salesforce and CFO Research shows that 52 percent of companies bring in at least 40 percent of their revenue through recurring models. We’re seeing this growth across a wide variety of B2B and B2C industries, from SaaS to healthcare to transportation and from media to big data and beyond.

So, why are all these companies turning to recurring revenue? Well, there are plenty of reasons. Let’s break them down — and take a look at the power recurring revenue models have to transform a business.

Advantages of Recurring Revenue Models

When it comes to recurring revenue, there are three basic models: simple subscription, usage-based, and — the best of both worlds — a hybrid of the two. The hybrid model marries the predictability of simple subscriptions with the limitless variation and growth afforded by usage-based models, opening the door to powerful opportunities for both businesses and their customers. Here are a few:

• Lower barrier to entry: Subscription fees, along with usage-based, consumption-based, and pay-as-you-go costs, can be much smaller than one-time sales prices, meaning a broader pool of customers will be willing and able to try out products and services under the lower risk model — with a significant percentage of them converting to long-term customers when they see the value in the offering.
• Long-term customer relationships: Recurring revenue models provide ongoing value to customers, encouraging them to continue buying from a company long after the first transaction — and likely spreading the word to friends and colleagues, as well.
• Add-on and upgrade opportunities: Usage-based models offer customers the opportunity to add additional products, features, and services to their simple subscription — increasing the value to the customer and raising the revenue ceiling for the business.
• Reduced cost of sales: Because customers are sticking around for the long haul rather than treating their relationship with a business as short-lived and transactional, the organization’s average cost per sale decreases dramatically.
• Smarter decision making: Usage-based billing offers more nuanced insights into customer behavior than ever before. Decision makers can see exactly what customers are buying, when, and in what combinations, giving them a clear look at what products and combinations are most popular, which new services customers would enjoy, and which offerings might not be worth additional investment.
• Accurate forecasting: Between the predictability of subscription models — and the granular data available on usage-based products, features, and add-ons, financial leaders have a much easier time creating accurate revenue forecasts.
• Higher investor value: Finally, the same Salesforce and CFO Research study indicates that these models are highly favored by investors, “who value companies with recurring revenue models as much as eight times more than comparable companies with transaction-based business models.”

Recurring Revenue Models in Action

Here at Gotransverse, we are proud to help our clients adopt the recurring revenue models that empower them to meet and exceed their growth targets. Three, in particular, are truly leading the way in terms of usage-based pricing. You can read more about them here, but in short:

• Snowflake is a cloud-based data storage and management platform that provides clients with incredible flexibility, scalability, and convenience when it comes to taking care of their data. Understanding that every client will have different needs in terms of data volume, usage, etc., they’ve developed usage-based pricing models that keep their services affordable by allowing clients to pay for only what they need.
• Ytel is a communications company that manages more than 1 billion email, text, and voice conversations every month with pay-as-you-go pricing that enables customers to pay for basic services and then add on additional options as needed.
• Amplifier is a third-party logistics firm specializing in order fulfillment and print-on-demand. They offer customers four base subscriptions based on their service needs, plus add-on options for services like drop-ins, oversized items, and freight.

These company’s usage-based models propel significant growth by enabling them to provide clear, customized value for clients, lowering the barrier of entry, encouraging add-on purchases, and driving long-term, rather than transactional relationships. And the companies using these models enjoy tangible benefits as a result. A recent post from Insight Partners highlighting the benefits of usage-based models for software companies notes that, historically, SaaS companies using usage-based models that have IPO'd in the last five years outperform their peers in two key metrics:

• The mean revenue growth for SaaS companies using usage-based pricing is 60 percent compared to the overall SaaS mean of just 29 percent.
• The mean net dollar retention for SaaS companies using usage-based pricing is 138 percent percent compared to the overall SaaS mean of 120 percent.

The advantages of recurring revenue models are crystal clear, and the team at Gotransverse is eager to help more and more clients realize those advantages for themselves. To learn more about how our intelligent billing platform can help you implement the billing models that will drive exponential growth, we invite you to take a virtual tour of the Gotransverse platform today. Then, when you’re ready, request a demo to speak directly with one of our experts.