What is Recurring Revenue Business Model?
Most subscription-based businesses operate under the recurring revenue business model. These companies regularly rely on consumers’ subscriptions or agreements to pay for goods or services. Payment frequency varies depending on the services provided. They may come in weekly, monthly, or yearly installments. The well-known Netflix, Internet service providers, and fitness facilities are all examples of subscription-based businesses.
- variables connected to billing (business aspect)
- variables associated with processing (technical aspect)
Recurring Revenue Management: Business Aspect
- New monthly recurring revenue. This part of the equation includes revenue from recently acquired subscriber revenue.
- Expansion of monthly recurring revenue. Upgraded subscriptions and payment structures are included in this section's value. Customers may upgrade from a free to a paid tier, add additional members, etc.
- Reactivation of monthly recurring revenue. The value of reactivated and unfrozen payment plans, as well as returning customers, is included in this component.
- Churn monthly recurring revenue. The only unfavorable element out of the four is this one. The value of clients who downgrade or terminate their subscription plans is reflected in it.
- Additionally, churn revenue analysis aids businesses with recurring revenue in comprehending the primary causes of client attrition. Therefore, this element may be the most crucial one in terms of analysis and feedback.
Recurring Revenue Management: Technical Aspect
Decline Analysis Outcomes
The examination of declines yields a wealth of insightful data, just like the analyses of churn and downgrades. The management can respond to various critical inquiries when it has a clear broad picture of the transactions that declined throughout a certain reporting period. Here are some examples of these queries.
- What kind of declines are prevalent?
- Which rejected transactions require reprocessing (retrying)?
- When must the business notify or contact cardholders to confirm their profile information?
- What common scenarios call for the employment of an account updater engine?
Transaction Pricing
Examining transaction processing expenses is another critical component of recurring revenue management. Small companies often collaborate with significant suppliers (Stripe, PayPal), giving them set fees (say, 2.9%).