As a business owner, you’re always looking for ways to increase revenue and grow your company. One way to do this is by making the switch from one-time sales to recurring revenue. This is sometimes called reoccurring revenue. But what is the difference between reoccurring vs recurring revenue?
This type of income can provide a steadier stream of cash flow that can help you better manage your finances and scale your business. Here are some other benefits of making the switch to reoccurring revenue.
Reoccurring vs Recurring Revenue: Is There Any Difference?
When you’re talking about reoccurring vs recurring revenue, they both refer to a payment system where a customer buys the same product or service more than once. If you sold something, try selling a complimentary product along with it.
For example, a subscription service has recurring revenue because customers pay a monthly or annual fee to access the service. A one-time product purchase, on the other hand, would not provide recurring revenue.
Projecting a large recurring revenue stream increases the confidence of investors that your business will generate the projected revenue and is less likely to fail.
Who has an HP printer? Did you buy the all-in-one model?
For about $200, the Hewlett Packard OfficeJet is an all-in-one device that offers many features, such as copying, faxing, scanning, photo printing, and Bluetooth capabilities. It is excellent value for the cost.
Fifteen years ago, I forked over $10,000 for a monochrome laser jet that could only print in black and white. Compared to the HP price, today’s printers are a great deal.
While an inkjet printer cartridge may cost $30-$50, the printer itself only retails for $100-$200. Printer manufacturers make up for this by charging customers for ink refills.
However, an ink cartridge costs about $30 to $50. The reoccurring revenue is large and the reason why printer companies do not charge a large amount for the printer itself is that they receive the reoccurring revenue from the cartridges.
Here’s another example. How much did you pay for your mobile phone upgrade? Probably zero. Why? Because phone companies tie you into a contract that can last as long as two years, they provide a valuable stream of revenue for the life of the contract.
A CEO of a fitness center explained that her gym memberships only last a year because her members have to re-sign up every year. This usually happens with 40% to 60% of health clubs.
A lot of people join gyms in January, only to stop going a few months later.
Compared to a regular fitness center, her gym had a whopping customer renewal rate of 95%!
This business is very valuable, with recurring revenues that exceed her competition.
So, work on getting automatic renewals, consumables, and great customer service, which all help to increase retention and increase revenue, profit, and value of your business.
What Is Reoccurring Revenue?
If you’re trying to decide which business model will work best for you, you might want to consider a reoccurring revenue stream.
Reoccurring revenues are more predictable, allowing businesses to run their operations on slimmer profit margins because customers tend to stick around longer.
Understanding the benefits of reoccurring versus non-reoccurring revenue and reviewing the different types of income streams will help you determine if it might be a good fit for your business.
Benefits of Reoccurring Revenue
There are several benefits for businesses that are interested in creating a business model with reoccurring revenue.
1. Greater Lifetime Value
Lifetime value (LTV) is the total revenue that a business can reasonably expect from a single customer during its entire relationship with that customer.
When customers purchase using a reoccurring revenue model, they tend to have a higher lifetime value than those who make single purchases.
Reoccurring revenue streams are more reliable than one-time sales because customers who pay for the product are more likely to keep paying. This reliability makes it easier to budget and grow the business.
3. More Multiples
The steady income and consistent growth make it an ideal investment opportunity for those looking to invest in a stable company.
Reoccurring vs recurring revenue is a great way to increase your company’s cash flow and grow your business. It’s more predictable than one-time sales, allows you to focus on providing value for customers, and makes it easier (and cheaper) to acquire new customers. If you’re thinking about making the switch from one-time sales to reoccurring revenue, consider these benefits!