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Recurring Revenue Models Explained, And How to Get Started

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The meteoric rise of subscription-based streaming services like Spotify, Netflix, and Hulu are turning businesses across multiple sectors to recurring revenue models to generate profits.

To inventors, the predictable nature of recurring revenue models allows them to predict how much revenue they will generate in the next 12 months compared to one-time purchases. They can then use that information to plan and invest properly.

To customers, subscription models allow them to only pay for a product or service as they use it. This system offers a more convenient way of consuming entertainment media and purchasing goods. According to Deloitte, , thereby replacing traditional TV subscriptions.

Another survey by the car rental business, Enterprise, shows that 46% of consumers have said that they would prefer buying an automobile subscription service to purchasing a vehicle. In an attempt to listen to what their customers have to say, Enterprise has decided to make the move to a monthly subscription model in April.

Recurring revenue models are commonly used by IT and eCommerce companies, but new technological advancements now allow other sectors to make the switch as well.

If you want to acquaint yourself with the basics of subscription models to see if it’s right for you, read on.

In this post, we will be covering recurring income definition, benefits, types, tips for getting started, what software solutions to use.

Let’s dive in!

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Recurring Revenue Model FAQs

What is a recurring revenue model?

A recurring revenue model is a business model in which customers purchase products or services from vendors on a monthly, quarterly, or yearly basis. Customers sign up for a subscription plan and then choose how and when they want to pay.

Since customers buy the product or service monthly, the service providers are guaranteed with a predictable stream of income and sustainable profit margin. For example, a 10-million dollar company with 70% recurring income can expect to generate $7M at the beginning of each year.

In contrast to one-time transactions, the company has to begin the year at 0. While the company can still make some predictions based on previous performance, it does not have a consistent revenue stream from customers who are paying month after month to base their financial plans around.

What industries use recurring revenue models?

Any industry with a “business-as-service” model like software companies, television, music, banking services, healthcare, and telecoms use a recurring revenue model.

Outside of these sectors, distance learning schools, professional associations, and event organizers with membership plans can also use this business model. That way, administrators can make it easy for their members to join an online program that they can access whenever they want to in exchange for a recurring fee.

Regpack’s membership CRM software helps you to reach out to your members in convenient ways, provide easy renewals, and handle recurring payments all in a single platform. To learn more, read our comprehensive guide: Membership Software: The Basics and 6 Solutions to Explore

What are the advantages of subscription based revenue?

We’ve mentioned earlier that the predictable nature of a recurring revenue model and people’s preference for pay-as-you-use-it payment method are the two factors that make it more advantageous (and popular) than one-time transactions. But that’s not the only reason why more and more business-savvy organizations use subscription revenue models.

7 Main Types of Recurring Revenue Models

There are different types of recurring revenue models that you can leverage. Here are the most common:

Tier Based

Tiered billing is a SaaS pricing structure that is built in multiple levels or tiers of use chosen by a customer. The cost of each tier increases depending on several factors, such as usage limits and features offered in any package or plan. In a nutshell, a tier-based recurring revenue model involves putting together your services or products into separate packages.

Customers can then choose which package they want and get billed automatically on a monthly, quarterly, or annual basis. They may also receive a friendly-discount for selecting a longer-term plan. And once they hit the limit on tier 1, they may opt to upgrade their plan to the next tier, offering them more usage limits and functionality. A popular example is Formstack with its Bronze, Silver, Gold, and Platinum tiers.

In sum, tier-based pricing allows you to attract a wide range of users with specific needs. For example, If you have a membership program, you can bundle your products into tiered plans and let members choose a package that suits their needs to offer something for everyone.

Basic for entry-level members, Advanced for intermediate, and Expert for senior-level members. For example, Basic plan may include access to weekly newsletters, three professional development resources per week, priority registration for seminars and training, and so on. Then, provide members with an automated billing option using an online payment processing software to ensure interrupted access to your services.


Another SaaS pricing model, user-based billing is charging your customer per number of users or seats they add to their plan. For example, a customer may add another user for $10 monthly to their plan. Simply put, the more they pay the more users or seats they add.

SaaS companies that sell CRM apps or project management platforms like Airtable Pro utilize this type of pricing model to generate recurring income. They limit the number of users you can add in the basic plan to 10 users, for example. If you wish to add more users, you’ll have to upgrade to the next tier.


As the name suggests, hybrid recurring revenue models combine two or more models to generate sales. For example, combining one-time sales with recurring billing options or fixed pricing with usage-based models. Often, this pricing structure is offered to make selecting from a wide variety of options less overwhelming (and paralyzing) for customers and help companies diversify their income streams.

A good example is Amazon Prime, which combines recurring membership billing with one-time payments. Users pay a recurring fee to stream movies and TV shows, while also being provided with the option to rent or purchase movie titles for a one-time fee.


SaaS businesses that have usage-based pricing charge customers on a per-use basis. For example, you might charge a customer based on how much they use or consume your product or service.

This pricing structure typically applies to telecommunication companies that offer pay-as-you-go plans. Customers are charged depending on how much internet data, calls or text they used up at the end of their billing cycle. Another is Zapier, whose usage-based pricing structure is similar to a tier-based model. Users can select a plan from a wide variety of tiered options based on the number of tasks and Zaps they need.


“Free” and “premium”, this recurring revenue model offers customers a lifetime plan for free with an option to upgrade to a premium or paid plan. It is a pricing strategy to convert free users into paying customers. Skype, MailChimp, Spotify, Evernote, OneDrive, Dropbox, and Wistia are examples of businesses that have freemium models.

With a freemium plan, you can offer both free/complimentary and paid tiers. Although the free option comes with fewer features than its paid counterpart, freemium allows the users to switch between two options anytime they need.

If you’re planning to use this pricing structure for your business, it’s crucial that you use a flexible payment processor that allows you to set up payment plans on your website and gives you control over how and when payments are made. Whether you want to set a specific fixed price per service, offer recurring payments plans to customers, or deferred payments, a flexible payment processing software like Regpack gives you all the tools and help you need to customize any plan for your services or products.

Lastly, providing your users with a seamless experience will increase sales and customer satisfaction.

Hard Contracts

Hard contracts involve providing customers with a service over a day, week, or month for pre-set prices. This way, businesses can secure future income against unexpected delays and cancellations.

For example, a customer pays $10 for a 3-day unlimited call and text plan. A customer only pays a fixed amount for the calls and texts they are going to use for three days.

In this model, a service is provided to customers over a specific period for pre-determined charges. It secures future revenue for the business against unexpected cancellations and delays.

The fine print of hard contracts is tying a customer to a plan until the contract period is over. So if they want to terminate the contract early, they will need to pay a cancellation fee (e.g., 5% of the total contract price). Once the contract ends, customers can keep using the product or service at the same rates with a monthly contract. Therefore, the company will continue to generate recurring revenues, although the contract has ended.

Auto-Renewal Subscriptions

Auto-renewal subscription is a pricing strategy that involves automatically collecting payments from customers who want to use a product or service for as long as they’d like. Cancellation is free and purely up to the customer. Great examples are streaming services like Spotify, Apple Music, and Netflix, annual anti-virus software, monthly cable TV, and data storage providers.

Since customers know how much they will be paying on a recurring basis, and planning to use the product long term, they usually agree to get billed automatically to save time and effort. So if an auto-renewal subscription model is right for your business, be sure to use a payment processor with recurring billing features like Regpack.

With it, you’ll be able to collect and store payment details online, charge customers on custom recurring payment schedules, and create and handle auto-billing plans efficiently to avoid delays and cancellations.

How to Set Up a Recurring Revenue Model

Now that you know how businesses can benefit from a recurring revenue model and which type to use, let’s walk you through the steps needed to implement it.

Create a Subscription Service

Implement a subscription service into your business.

To start generating recurring revenue, you need to implement a subscription service into your business. For ideas, there are four types of products that you can sell through a monthly or annual subscription plan.

Create your recurring revenue model.

Determine how much you’ll charge for your subscription services. For correct pricing, consider the following costs:

A good rule of thumb is to ensure you have at least a 45% profit margin to keep your business operational. Once you’ve set up your pricing, decide which type of recurring revenue model is best for you and how you’d like to get paid – weekly, monthly, quarterly, or annually.

Set your business terms and conditions.

Customers only agree to get billed automatically for a subscription-based product or service if they understand how auto-renewal works. Earn their trust (and loyalty) by stating clearly how your subscription model works and what customers must do to terminate it early. Additionally, check with your federal and state authorities regarding consumer protection laws that govern cancellations and auto-renewals.

Prepare your inventory.

If you offer product-based subscriptions like groceries, clothes, pet food and the like, you’ll need to make sure you have enough stock of those items in your inventory. Also, think about ways to deliver the orders to your customers fast and in good condition.

Invest in marketing and advertising.

So you have a new subscription-based product, now what? Start building awareness around your brand and how it will improve your customer’s life. Spread the word on social media, news sites, email, among other content distribution channels.

Additionally, keep your customers engaged with your brand offering VIP membership programs, special discounts, promos, new product releases, upgrade features, and so on. Besides, changing things up once in a while is good for any business because anything new and innovative is always appealing to customers. And if you can find a way to provide a more personalized experience for them, the better.

Based on a new study, 28% of consumers stated that having a personalized experience is the top reason they continue to subscribe to a service. For example, food subscription box providers can invest in personalizing their boxes with custom packaging designs or adding personalized inserts.

Find Software Solutions

Once you’ve set everything up, it’s time to find a software solutions provider to implement your subscription revenue model. Below are the top features that you should look for in any billing management software for your business.

Subscription Revenue Software: Regpack

Set up your company’s recurring revenue model with Regpack!

In Regpack, you can:

Building a Recurring Revenue Model for Your Business

Recurring revenue models have quickly become an ideal choice for business owners, investors, and consumers. The recurring revenue generated from each type is easily predicted, making cash flow management, revenue forecasting, and investment plans more manageable.

Customers also find subscription revenue models more convenient and flexible than one-off sales. With an option to subscribe to a full package but only pay a small portion of the total cost every month, they are able to manage their expenses well, use the product or service whenever they want, and not get upset about paying hefty cancellation fees should they decide to stop the subscription for a while. Thus, recurring revenue models can help you build customer trust and loyalty, improve customer retention, and increase sales through up and cross-selling.

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