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What is Recurring Revenue?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 20 September 2016
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Recurring revenue is a steady source of revenue predicted to continue well into the future without drastic changes, although the end sources of the revenue may change. This differs from nonrecurring or one time revenue, revenue earned once and not again. For businesses, building up a dependable source of revenue is viewed as important for the longevity and stability of the business. Without such revenues, businesses may not be able to adequately meet expenses and make plans for the future.

Some businesses have recurring revenues built into their business model. Utilities, for example, can depend on regular payments from their customers. While the subscribers may change as people move and switch services, overall, payments remain steady. Likewise with subscription services like magazines and websites. In these cases, the focus is on building up numbers of customers to keep the recurring revenues high, and retaining customers with promotions and other tools to keep them satisfied.

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Other businesses may have less stable business models and fewer opportunities for recurring revenue. Restaurants, for example, have different customers every night and cannot reliably count on customer numbers. However, if they have catering contracts, they can create recurring revenue by setting up a steady account with one or more customers. Likewise, customers at cemeteries tend to have a one-time need, but a cemetery can establish a pre-need subscription program to create a stable revenue stream. Other companies may devise products and services in a way designed to create recurring revenue, as seen with technology companies that count on purchases of updates by their customers.

When businesses make projections, they consider their recurring revenue as part of their predicted revenue stream. This allows a business to plan for the future and to think about possibilities like investments, taking out loans, and so forth. Recurring revenue can also be used as supporting documentation for financial activities. Investors want to see proof of recurring revenue to be assured returns on their investments, and businesses documenting such revenue and showing plans for expanding it can access more capital, as well as other benefits.

Fluctuations in recurring revenue can occur during periods of economic instability, when people may cut down on the products and services they use, thereby reducing customer base for many companies. In addition, dramatic changes like the appearance of new competitors can also eat into a company's earnings. Tracking the shifts in revenue streams over time is the responsibility of accounting and marketing departments interested in keeping a company's finances healthy while developing long term plans.

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