6 Best Recurring Revenue Business Models to Start in 2022

P3 Cost Analysts / Franchising / November 1, 2022

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.

If you think the recurring revenue business model may be for you, keep reading. 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. 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.

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.

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. 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.

The 6 Best Recurring Revenue Businesses

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.

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. 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 subscription boxes. There are many other ways your business can use the subscription model. One way is monthly 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. It also works well for B2B firms or freelancers, such as graphic designers, marketing managers, or web designers.

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

Just as you can create a business that uses subscriptions for services, you can also have subscriptions for products. This model works best for essential products that people regularly consume on a day-to-day basis or niche product boxes where customers receive a new surprise product or products each month.

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. 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.

Benefits of Recurring Revenue Businesses

With so many companies turning to recurring revenue business models, there clearly must be benefits in doing so. Some significant benefits include:

  • Predictable cash flow: As mentioned, one of the most attractive things about a recurring revenue business is predictability. When you can make a solid prediction of how much revenue you’ll be making in the coming month, you’ll also be able to forecast cash flow. This helps when it comes to analyzing and planning for the future. In addition, being able to make educated guesses about these numbers can reduce stress for business owners.
  • Growth potential: Predictable cash flow means that you can invest more of that money into scaling your business. By analyzing the data that recurring revenue models offer, you can lower the risk of investing in growth tactics.
  • Automated payments: Most subscription-based business models use automated payments from their customers. This helps maintain high customer retention as many people don’t want to or forget to cancel their subscriptions.
  • Customer retention: If you don’t have to allocate as many resources to the sales department, you have more time, energy, and money to provide the best service possible. Happy customers result in brand loyalty. That means more referrals and easier upsells, both of which bring more money into your business.
  • Increased valuation: Investors are much more likely to be interested in your company if you can prove predictable and reliable revenue, as well as expenses and stability. Recurring revenue model businesses never start a month at zero and tend to have good control of their expenses.

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.

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.

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