One of the most challenging things about starting your own business can be the inconsistency in profit. One month, sales are through the roof, and you’re feeling great. Then, the next month, your sales drop unexpectedly, and you’re back in the office crunching numbers. This ebb and flow of revenue is an inevitable part of owning a business.
That being said, some business structures are much more predictable than others. As a result, entrepreneurs who prefer to maintain some semblance of predictability are often attracted to recurring revenue models of business. Recurring revenue represents a stable portion of a company’s revenue, making it easier to predict future income and increasing the overall value of the business. Unlike non-recurring revenue streams, which can fluctuate and make a company’s revenue less predictable, recurring revenue provides stability and makes the business more attractive to investors due to its consistent and reliable nature.
If you think the recurring revenue business model may be for you, keep reading. Recurring revenue models enable businesses to achieve growth, scalability, and improved customer insights by providing stable cash flow and cost efficiencies. We’re going to look into what recurring revenue is as well as examine different types, examples, advantages, and disadvantages.
What Is Recurring Revenue?
Recurring revenue is a predictable and stable portion of a company’s revenue that can be reasonably expected to materialize at specific intervals. Monthly recurring revenue is a key metric for tracking the consistent income generated from subscription or membership-based business models, such as home service subscriptions, gyms, or digital membership platforms. The critical part here is that you can expect this income with some degree of certainty. Generally speaking, this revenue won’t be coming from one-time purchases but rather from different revenue streams like long-term contracts or subscription services.
Recurring revenue can not only help you predict future income, but it can also help increase the value of your business. By predicting how the company will perform in the future, your business becomes more attractive to potential investors or buyers down the line. Recurring revenue businesses often have lower customer acquisition costs because they do not need to reacquire the same customers repeatedly. The valuation of a recurring revenue business is generally higher than that of a non-recurring revenue business due to its predictable income stream.
What Is a Recurring Revenue Business?
In order to maintain reasonably predictable recurring revenue, you must create a business that follows a specific business model. A recurring revenue business is one that sells a service or product that requires a recurring payment at planned intervals, such as monthly or yearly. Service-based subscriptions can include ongoing services like personal training or cleaning for a monthly fee. In these models, customers pay at regular intervals, which is central to sustaining recurring revenue.
The idea behind this business model is to help establish stronger ties between the business and its customers and encourage customer retention. This can be accomplished through obvious means such as automatically renewed subscriptions or, more subtly, through sunk money consumables. In a recurring revenue business, customers expect ongoing value, updates, and improvements to continue their subscriptions. Higher customer expectations are a challenge in recurring revenue models, as customers expect ongoing value and regular updates. There are quite a few recurring revenue business models, and while they all have one thing in common – recurring revenue – they vary considerably from there. A subscription business, for example, is a popular recurring revenue model that generates regular income through subscription or membership models. Establishing a subscription business involves legal, strategic, and operational considerations, such as compliance with regulations, choosing the right tools or platforms, and planning for customer management and retention.
Customer Lifetime Value
Customer Lifetime Value (CLV) is a cornerstone metric for any recurring revenue business model, as it represents the total revenue a business can expect from a single customer throughout their relationship. In the world of recurring revenue, understanding CLV is essential for building a sustainable business model and maximizing the benefits of predictable income and financial stability.
In a recurring revenue model, CLV is typically calculated by multiplying the average monthly fee a customer pays by the number of months they remain subscribed. For example, if a customer pays a $100 monthly fee for a fitness app and stays subscribed for 24 months, their CLV is $2,400. This simple calculation helps businesses forecast future income, plan for growth, and make informed decisions about customer acquisition and retention strategies.
Focusing on customer lifetime value is especially important for recurring revenue business ideas such as subscription services, membership models, and SaaS businesses. By understanding the long-term value of each customer, companies can determine how much to invest in acquiring new customers and which marketing strategies are most effective. For instance, software companies and fitness apps often use CLV to guide their advertising spend, ensuring that the cost of acquiring a new customer is justified by the revenue that customer will generate over time.
Optimizing CLV also means prioritizing customer retention and ongoing value. Unlike one off sales, recurring revenue businesses rely on customers paying at regular intervals, so keeping existing customers satisfied is crucial. This can be achieved through continuous product improvement, premium technical support, and personalized customer engagement. The result is a steady stream of revenue, improved customer satisfaction, and a higher overall customer lifetime value.
Additionally, CLV plays a vital role in pricing strategies for recurring revenue products and services. By understanding the potential lifetime value of a customer, businesses can set subscription fees or membership prices that balance affordability with long-term profitability. This is particularly important in competitive industries where customer loyalty and perceived value drive retention.
Ultimately, the recurring revenue business model thrives on the ability to generate predictable cash flow and financial stability. By focusing on customer lifetime value, businesses can create a stable cash flow, make smarter financial planning decisions, and invest confidently in business growth. Whether you’re running a SaaS company, a subscription box service, or a personal wellness membership, understanding and optimizing CLV is key to unlocking the full benefits of recurring revenue and building a successful, future-proof business.
1. Cost Reduction Consultancy
What It Is
Every business out there is subject to recurring charges each month for various vendors and suppliers, and there’s a booming industry out there trying to reduce those costs for other companies. Cost Reduction Consults will monitor contracts, invoices, and agreements in search of ways to save their clients’ money. Similarly, financial planning services also benefit from recurring revenue models by maintaining ongoing client relationships and providing continuous guidance.
How It Creates Recurring Revenue
Cost reduction consultancy companies typically make money by sharing in the savings that they earn for their clients. This benefits all involved since clients only pay once they’ve saved on their monthly expenses, and consultants are continuously encouraged to keep cutting their client’s expenses. Since these businesses are facing recurring charges for business services, the consultants can continue to monitor invoices to supply savings to their clients and revenue for themselves every single month.
Example – P3 Cost Analysts
P3 Cost Analysts is a cost reduction consultancy business that has saved its clients hundreds of thousands of dollars since 1991. They go to bat for their clients by uncovering hidden errors and overcharges and finding more cost-effective solutions for the future. P3 also has franchising available, meaning entrepreneurs can get a head start on opening their own cost reduction firm and start helping other businesses save money, all while creating their own stream of recurring revenue.
2. Software as a Service
What It Is
Software as a Service, also known as SaaS, has taken over the world in the past decade. Companies deliver their software applications via the internet rather than through complicated hardware and software installations and manage security and performance from their own servers. SaaS companies are a leading example of businesses that rely on recurring revenue through subscription-based models. These products cover many uses, from complex IT tools to simple entertainment apps.
How It Creates Recurring Revenue
Most SaaS businesses charge their customers a monthly or annual subscription fee to use their services. This is beneficial to all parties involved. Tech companies can focus on maintaining and improving their product while customers have no large upfront costs and can choose from different options that suit their needs best. In addition, with your customers paying a monthly fee, which is typically set up with an automatically renewing subscription, you can better predict your long-term revenue trends.
Example – Fuse Autotech
While it may seem like all the brilliant ideas have already been done, there are always ways to improve existing concepts or find holes in the market. You can often find these potential software ideas in a niche market you’re already involved in. For example, the team members at Fuse Autotech were previously car dealers who realized there was no streamlined process of buying, selling, and financing a car that focused on the customer experience. So, they created software to help dealerships do just that. It was founded in 2020 but is already showing promise only a couple of years later.
3. Monthly Subscriptions for Services
What It Is
Subscriptions are the heart of many recurring revenue businesses, but it’s not just monthly surprise boxes. Service based subscriptions are a sustainable revenue model across various industries, including maintenance services, personal wellness services, and home service businesses such as lawn care or pool maintenance. Curated subscription boxes deliver a variety of products to subscribers on a regular basis, creating excitement and engagement. There are many other ways your business can use the subscription model. One way is subscriptions for a service. This business model works great for services that are typically needed on a regular basis, such as tutors, personal trainers, cleaners, or doggy daycare.
How It Creates Recurring Revenue
By charging a monthly subscription for these services rather than a pay-per-use model, you will guarantee a monthly income from your clients. This model can be encouraged by offering your clients something in return. For example, if you run a doggy daycare company, you may charge $30 per day. However, you offer a subscription package that gives them 20 days of daycare for $500 per month. As a result, your clients save money, and you create recurring revenue.
Example – Turnify
Turnify offers monthly packages for the owners of Airbnb properties, including managing cleaners, auto-scheduling bookings, damage reporting, and other services. By handling daily tasks that property owners don’t want to do themselves, they can charge a per-month subscription fee that covers all of their needs.
4. Monthly Subscriptions for Products
What It Is
Businesses can also offer subscriptions for products, which is particularly popular in the fashion and surprise box industries. These models work best for items such as clothing, accessories, or curated niche boxes where customers receive new products each month, tailored to their preferences and interests.
A recurring revenue product is any product or service that generates continuous income through ongoing access linked to customer payments, typically billed on a regular schedule. Subscription based businesses rely on these products to ensure predictable cash flow and build a stable, long-term revenue stream.
How It Creates Recurring Revenue
There are a ton of different business ideas that would thrive with monthly product subscriptions. Surprise box subscriptions have thrived in the makeup, beverage, and wellness industries, as well as many others. Monthly subscription fees are generally automated, meaning businesses will continue to make recurring revenue as long as they maintain customer retention and produce a quality product.
Example – Fashion Pass
Clothing is expensive, and many fashionistas won’t be caught dead in the same piece twice. Fashion Pass tackled a few problems with one solution, leading to its success in a competitive market. They offer unlimited rentals for a flat price per month. This monthly subscription helps its customers find products picked especially for them, wear multiple different pieces per month and prevent useless waste from fast fashion.
5. Membership Programs
What It Is
Memberships are similar to contracts but are much more attractive to consumers because they’re free to cancel anytime. The membership model can be used for online products and physical locations such as gyms. Membership businesses can include both local brick-and-mortar locations like gyms, yoga studios, and art classes, as well as online offerings such as digital communities, coaching programs, and mastermind groups. As a business owner utilizing a membership program, you must keep material up to date and fresh for online membership sites or manage the overhead at brick-and-mortar locations.
How It Creates Recurring Revenue
Members are charged a flat monthly fee for full access to whatever it is that you’re offering, whether that’s the use of woodworking tools or vegan dessert recipes. As long as your customers still need access to specialized tools or training, they’ll keep up with their membership. The best way to keep this recurring revenue coming is by focusing on customer relations and listening to your clients’ needs.
Example – Massage Envy
Offering monthly memberships helps Massage Envy maintain recurring revenue by providing their members monthly massages for a flat rate that saves them money in the long run. They also increase further sales by offering discounts on other services for members only. By offering flexibility in timing and location, they keep their members happy and encourage referrals with rewards.
6. Property Management
What It Is
Real estate investments are a booming industry, but many investors don’t want to do the day-to-day tasks required to manage tenants smoothly. Owners of single-family and multi-family properties can benefit by hiring a real estate management company to take care of these administrative tasks. These companies will handle tenant communications, collecting rent, repairs, maintenance, and landscaping.
How It Creates Recurring Revenue
Tenants pay their landlord a monthly fee for the right to live in the rental property. Owners who don’t want to deal directly with their tenants look for a property manager. Typically, a property manager will make a percentage of the rent. Even when the unit is vacant, you can charge a flat fee for monitoring the empty unit. As long as you have landlords using your service, you will consistently make recurring revenue.
Example – Greystar
Greystar is one of the largest property management companies, with relationships with owners worldwide. They offer end-to-end services from property operations to marketing. This is an example of a large-scale property management company that typically works with big multi-family properties. However, small-scale owners may look for property management with a more personal touch.
7. All You Can Eat Library
What It Is
The all-you-can-eat library and memberships are similar recurring revenue business ideas. However, this one typically offers a vast array of digital resources, all available through a single platform. This recurring revenue model appeals to avid readers and media consumers who prefer a broad range of content at their fingertips. It often includes books, magazines, videos, and music. The idea is to offer a comprehensive library where users can consume as much content as they want for a set subscription fee.
How It Creates Recurring Revenue
Subscribers pay a set fee monthly or annually, granting them unrestricted access to the library without any additional charges per item. This ensures a steady stream of income from committed users. With an extensive array of materials for subscribers to consume, they will be more likely to continue paying for the library.
Example – Everland
A prominent service in this category, Everland offers unlimited access to e-books, audiobooks, and magazines for a flat monthly subscription fee, making it an attractive option for continuous learners and entertainment seekers. Subscribers also gain access to Scribd and SlideShare, extending access to academic papers, legal documents, manuals, and community-uploaded presentations and professional documents.
8. Consumables
What It Is
These are products that customers regularly use and need to replenish, such as health and wellness products, gourmet foods, or even cleaning supplies. The model is designed to meet ongoing consumer needs for essential goods without the customer wasting time repurchasing.
How It Creates Recurring Revenue
Through subscriptions, customers receive these products at regular intervals, ensuring they never run out, which secures consistent recurring income for providers. This recurring revenue model also often gives discounts for ongoing purchases and introduces customers to new products.
Example – Dollar Shave Club
Dollar Shave Club delivers personal grooming products directly to consumers’ doors every month, streamlining the shopping process and ensuring consistent use and purchases. They were among the first to take advantage of this recurring revenue business idea, going viral and receiving so many orders in the first 48 hours that their servers crashed.
9. Educational Platforms
What It Is
Online educational platforms offer structured courses and content across a variety of subjects and industries. These platforms cater to students, professionals, and lifelong learners seeking to enhance their knowledge or skills. Maintenance and support contracts charge for ongoing services related to a product, which can also be integrated into educational platforms to ensure continuous updates and assistance. By providing ongoing access to courses and learning materials through subscription models, educational platforms generate recurring revenue. Educational platforms focus on structured learning experiences with specific outcomes, often leading to certifications or qualifications.
How It Creates Recurring Revenue
Users subscribe to gain access to educational materials, courses, and updates. As the platform evolves and expands its offerings, the perceived value keeps users subscribed. This recurring revenue business idea ensures continuous engagement and retention by regularly updating content and providing new learning opportunities. However, businesses run the risk that users will end their subscriptions once they’ve achieved specific goals.
Example – Coursera
Coursera partners with universities and companies worldwide to offer a wide range of classes with subscription options that provide unlimited access to a vast catalog of courses. This model allows learners to continuously access new and relevant educational content, ensuring steady recurring revenue for the platform.
10. Retainer Plans
What It Is
Retainer plans are the most logical recurring revenue business ideas for individuals who offer legal, consulting, and creative professional services. Insurance agencies, like legal and consulting firms, can also adapt their business models to generate recurring revenue through regular renewals or retainers.
Clients pay in advance to secure a professional’s ongoing services or advice for a specified period. Unlike typical subscription services that often provide a product or a regularly scheduled service, retainers guarantee availability and priority access to the service provider.
How It Creates Recurring Revenue
Clients pay a monthly retainer fee, which guarantees access to a professional’s services or advice as needed. This arrangement provides predictable income and financial stability for the service provider, who can plan resources and schedules more effectively.
Example – Marketing Agencies
Many marketing agencies use retainer agreements to provide marketing services such as ongoing campaign management or content creation, ensuring continuous value for clients and a steady workload and income each month.
11. Membership Communities
What It Is
These are communities that offer exclusive content, events, or interactions to members who share common interests or goals. These can range from fitness routines to vegan recipes or travel advice. These types of membership communities are one of the best recurring revenue businesses for celebrities, influencers, bloggers, and others with large followings on social media.
How It Creates Recurring Revenue
Members pay a recurring fee to access the community and its exclusive benefits. Creators are expected to continue to pump out top-tier content in order to retain their subscribers. Artists and other creators can also use their platforms to sell additional digital products.
Example – Patreon
Patreon is a platform where creators build membership tiers for their fans. Supporters pay a monthly fee in exchange for exclusive access to content, direct interactions with the creators, and other members-only perks.
12. Mobile App Subscriptions
What It Is
One of the best recurring revenue business ideas for developers is mobile app subscriptions. This model involves offering a service or content through a mobile application that users can access for a recurring fee. These can include fitness apps, meditation apps, educational apps, productivity tools, and more.
How It Creates Recurring Revenue
Often, a free version is offered to entice users to download an app. From there, customers must subscribe to the app for a monthly or annual fee to access premium features, exclusive content, or an ad-free experience. This model ensures a consistent recurring income stream as long as users find value in the app and continue their subscriptions.
Example – Alarmy
Known as “the world’s most annoying alarm clock,” Alarmy charges a subscription fee for features like customized alarms, sleep tracking, and motivational wake-up missions. This recurring revenue model taps into users’ daily routines, ensuring regular use and continuous subscription renewals.
Customer Engagement and Support
In the world of recurring revenue business models, customer engagement and support are not just add-ons—they are the backbone of a successful, sustainable business. Unlike one off sales, where the relationship with the customer may end after a single transaction, recurring revenue businesses depend on customers paying at regular intervals, making ongoing engagement and support essential for customer retention and predictable income.
To create recurring revenue and maximize the benefits of this business model, companies must deliver ongoing value that keeps customers satisfied and loyal. This means going beyond the initial sale and focusing on building long-term relationships. Whether you’re running a SaaS company, offering mobile app subscriptions, or managing a home service business, your ability to engage customers and provide premium technical support directly impacts your monthly recurring revenue and customer lifetime value.
Effective customer engagement strategies include regular communication, personalized offers, and exclusive access to new features or content. For example, software companies often provide continuous product updates and responsive customer support to ensure users see ongoing value in their subscription. Similarly, fitness apps and personal wellness services can boost customer satisfaction by offering tailored workout plans, progress tracking, and community support, all of which encourage customers to maintain their subscriptions.
Support doesn’t stop at solving problems—it’s about anticipating customer needs and proactively delivering solutions. Home service businesses and property management companies, for instance, can offer maintenance services on a subscription model, providing peace of mind and convenience for clients. By ensuring that customers feel valued and heard, businesses can reduce churn rates and generate recurring revenue more reliably.
Leveraging customer feedback is another powerful way to enhance engagement and support. By listening to your customers and continuously improving your offerings, you demonstrate a commitment to ongoing value, which is crucial for customer loyalty and retention. This approach not only helps maintain a stable cash flow but also positions your business for future growth as satisfied customers are more likely to refer new customers and upgrade to higher-tier services.
In addition, clear and fair subscription cancellation policies, transparent communication, and easy access to support channels are vital for building trust and minimizing friction. When customers know they can rely on your business for consistent quality and responsive service, they are more likely to continue paying their monthly or annual subscription fee, contributing to a steady stream of predictable revenue.
Ultimately, the best recurring revenue businesses—whether they are subscription-based services, membership businesses, licensing businesses, or financial planning services—understand that customer engagement and support are key drivers of business growth and financial stability. By prioritizing customer satisfaction and delivering ongoing value, you can create a loyal customer base, increase customer lifetime value, and ensure your recurring revenue streams remain strong well into the future.
Benefits of Recurring Revenue Businesses
Recurring revenue streams provide stability and predictability, making them highly attractive for business owners and investors. Franchising or licensing a proven business with a proven business name offers instant brand recognition, credibility, and a successful track record. Licensing and franchising can create recurring revenue by allowing others to use your intellectual property or brand for a fee. The licensing business model specifically generates recurring revenue by owning and licensing intellectual property or patents, allowing others to use protected assets for payment. Unlike franchising, licensing focuses on granting rights to use intellectual property rather than replicating an entire business system. This reduces risk for new entrepreneurs and helps attract customers quickly, further supporting business growth and consistent recurring revenue.
Challenges of Recurring Revenue Businesses
While there are many benefits of a recurring revenue business, there are also some challenges business owners face when modeling their business like this. Some issues that business owners may face include:
Subscription hate: You’re not the first business owner who’s reflected on all the benefits of recurring revenue businesses. Consumers see more and more subscription or contract-based products or services, and not everyone is happy about it. For some types of businesses, this model simply makes sense. But for many others, it can push consumers away.
Customer churn: Cancellations are inevitable, even for the best products and services. A certain amount of customer churn is normal, but if you start losing more customers than you retain, you will have significant long-term issues. While customer retention may be easier than other business models, it’s not automatic. You’ll need to focus on meeting and exceeding customers’ needs.
Operational challenges: Especially for businesses trying to transition to a recurring revenue business model, you may face operational challenges, particularly in renewing customer contracts. This process requires teamwork between the sales and finance departments, which often have entirely different systems and processes.
Pricing challenges: Setting the right price point for recurring revenue offerings can be challenging, as businesses must balance value and sustainability.
It is also crucial to understand and adhere to subscription cancellation policies and laws to ensure legal compliance in recurring revenue models.
Subscription hate: You’re not the first business owner who’s reflected on all the benefits of recurring revenue businesses. Consumers see more and more subscription or contract-based products or services, and not everyone is happy about it. For some types of businesses, this model simply makes sense. But for many others, it can push consumers away.
Customer churn: Cancellations are inevitable, even for the best products and services. A certain amount of customer churn is normal, but if you start losing more customers than you retain, you will have significant long-term issues. While customer retention may be easier than other business models, it’s not automatic. You’ll need to focus on meeting and exceeding customers’ needs.
Operational challenges: Especially for businesses trying to transition to a recurring revenue business model, you may face operational challenges, particularly in renewing customer contracts. This process requires teamwork between the sales and finance departments, which often have entirely different systems and processes.
It is also crucial to understand and adhere to subscription cancellation policies and laws to ensure legal compliance in recurring revenue models.
About P3's Recurring Revenue Model
P3’s business model uses other recurring revenue businesses to create recurring revenue for franchisees. Each month, companies face recurring charges from various vendors such as telecom, waste management, and merchant processing providers. The problem is that many of these invoices come with errors and overcharges, costing businesses a ton of their hard-earned money.
That’s where P3 comes in. We do the dirty work by digging through bills, invoices, and contracts for our clients to find savings they never knew they had. While the service is free, we share in any savings you find for them. So by opening a P3 franchise, you’re creating a residual income stream for yourself while saving other businesses money.
Revenue That Keeps on Coming
Recurring revenue business models solve one of the main problems that prevent new business owners from taking the leap – uncertainty. While there is no way to fully predict what will happen in the future, specific business models that are set up to provide recurring revenue can help businesses plan better for the future.
If you’re looking for a good recurring revenue business model and also enjoy helping other businesses improve their bottom line, chat with one of P3’s franchise experts today to see if it’s a good fit.
