The recurring revenue model has taken the business world by storm. According to research from Ernst & Young, more than 90% of technology organizations are in the process of moving to a recurring revenue model—or have plans to do so. However, only 55% consider themselves to be ready for the shift, and this number is likely far lower for non-technology companies.
So, why don’t they feel ready?
In order to support a subscription-based model, organizations need the processes behind their marketing, sales, and services to be on point. But 44% of technology organizations are unsure whether their established processes are giving their customers a smooth experience.
Software for the recurring revenue model can help address many of these needs, by doing everything from automating the mundane tasks that power your day-to-day operations to giving you the high-level strategic insights to guide your company down the right path. With the best subscription software, you can provide your customers with plan options, slash involuntary churn, ease the burden on your financing and accounting teams, generate subscription model metrics, and much more.
But before we get into the kinds of software you’ll need to pull everything together and make it all work, let’s first level-set.
A recurring revenue model is a business model where companies charge not just on a one-time basis, but consistently, whether monthly, annually, or somewhere in between.
The recurring revenue model has proliferated in recent years, as companies have fallen in love with the steady stream of payments, while consumers appreciate the convenience, simplicity, and spread-out costs that come with subscriptions.
A lot of companies had previously hesitated to implement a recurring revenue model, thinking that “it won’t work in our industry.” But, in recent years, it’s become clear that subscriptions can work in any industry, with recurring revenue model examples popping up in unexpected places. Heck, there’s even a dive bar shirt subscription service, showing that starting a subscription business is within reach for most companies.
The recurring revenue model has lots of moving parts, and if you don’t have the right set of software to power it all, you may not be able to fully benefit from this business model. Here are some of the pieces of the puzzle you need:
If you implement a recurring revenue model, you are going to need to experiment with different plan options to determine which one is best for your customers. In addition, you may want to offer free trials and promotions to help win the all-important battle for new business.
With software that enables plan management, you can effortlessly shift between a variety of plan options, finding the best way to bring new customers on board—and keep them around. By building an item catalog, for example, you give your customers the flexibility to add recurring or one-time purchases onto your core plans.
Have you ever dealt with a company that seemingly hasn’t updated its invoicing processes since the 20th century?
If your company is only billing customers once in a blue moon, you may be able to get away with that—without too much damage—but with a subscription-based model, you need your recurring billing to take advantage of as much automation as possible.
You also need the software to integrate with your accounting and tax solutions. The integrations make it easier for your organization to handle the month-end closing process.
As a subscriber, it may seem like recurring payments are incredibly simple—your payment is usually completed in a few seconds, after all—but there are actually eight steps involved in recurring payment processing. You need these steps to all work together in concert, without hiccups or slowdowns.
The best software can help you not only improve your payment success rate, but also your cost of acceptance. Routing payments through the right payment gateways can save a lot of money—even more so for a company with product line and geographical diversity.
It’s anywhere from five to 25 times more expensive to acquire a new customer than it is to retain an existing one. With that in mind, customer retention should be one of your top priorities.
The bad news is that 13% of all recurring transactions risk failure, meaning that you are at risk of losing a lot of customers that don’t want to stop using your product/service.
The good news is that you don’t have to pour a ton of resources into retaining those customers. Automated software can reduce involuntary churn by updating payment details, using machine learning to (often) successfully retry payments, and sending automated dunning emails.
To optimize your company for growth, you need to measure key subscription model metrics. You could do it yourself, but that’s going to be a very time-consuming endeavor. Better to find software that can do it for you.
With software for the recurring revenue model, you can easily generate valuable data including subscriber retention trends, promotional campaign performance, key financial metrics, and much more—all from one central location. Look for subscription management software that integrates with subscription analytics software for even deeper insights. Recurly, for example, integrates with ChartMogul.
Unfortunately, fraud is an ever-present risk for companies—particularly when they are processing so many payments every month. Since it’s not feasible to comb through every transaction to identify suspicious activity, you need a solution that prevents fraud.
The thing is, different companies face different sources of fraud. So, you’ll need a fraud management solution that lets you set up customized rules. For example, you may want to decline transactions from high-risk countries. But a high-risk country for another company might be where a high percentage of your customers live.
Recurly integrates with Kount, which does an excellent job of sniffing out the evolving trends and tactics being used by fraudsters.
With a recurring revenue model, you’re going to be recording a lot of unearned revenue. To ease the burden on your staff, look for revenue recognition software.
You’re going to want your recurring billing software to integrate with your revenue recognition software, so that you don’t have to manually migrate data. Recurly partners with Leapfin.
Your organization has several departments, so your subscription management software also needs to integrate with systems that aren’t directly related to billing. You should look for pre-built integrations for CRM and data systems in particular.
Using the right CRM can be a make-or-break factor. With a unified, easily accessible view of all of your customers’ data, you can provide them with a smooth experience—increasing the chances that your recurring revenue model venture will be successful. And connecting your subscription management platform with your CRM can help you automate the quote-to-cash process, saving your finance and sales teams time while reducing the risk of underbilling. At Recurly, we have built an integration with Salesforce.
Data gives your company the potential to make better decisions, but only if you’re in a position to sort through and act on it. That’s why you not only need a data system, but also subscription management software that can integrate with it. Recurly integrates with Snowflake, which allows our merchants to automatically export their data directly to the data warehouse.
While subscription management software may be the most important part of your recurring revenue tech stack, it’s not the only part of your recurring revenue tech stack. Recurly, as you may have noticed, seamlessly integrates with the rest of your tech stack.
In addition, Recurly’s subscription management software has all of the necessary features to manage the recurring revenue model. With Recurly, you can:
Choose from a multitude of subscription plan options.
Streamline the recurring billing process.
Optimize the acceptance rate and cost of your recurring payments.
Potentially reduce your involuntary churn to one-sixth of current levels.
FAQs: What are the benefits of a recurring revenue model?
A recurring revenue model provides stable revenue for companies, making it easier to budget for expenses. Customers love the variety of plan options provided by many companies with recurring revenue models, as well as the convenience that comes with setting and forgetting their subscriptions.
What kinds of companies use a recurring revenue model?
All kinds of companies. We talked about the dive bar shirt subscription service in this article, which shows that a company’s ability to implement a recurring revenue model is only limited by its imagination. But a few of the industries where subscriptions are most commonly offered are SaaS, media, consumer goods, healthcare, and education.
How do I switch to a recurring revenue model?
You need to create a clear value proposition for your customers. If your new subscription offering looks like a cash grab, your company will repel potential customers. In addition to providing value in your offerings, you need a recurring revenue tech stack that can support the switch. Learn more about starting a subscription business.