What’s the Magic of Recurring Revenue?

The market doesn’t lie: software businesses today can either succeed by moving to a recurring revenue model or become food for faster, more adaptable competitors.

By megan golden March 4, 2014

Trav_Headshot

VP of Solution Marketing

If you take a look at the numbers, companies with recurring revenue business models are being valued with greater multiples than their traditional counterparts. This is especially true in Software as a Service. SaaS companies are being rewarded, and enterprise players who haven’t shifted to recurring models are being punished. The market doesn’t lie: recurring revenue is a winning business model.

Behind this model, there are inherent drivers of success. If you take a look at the infographic below, you’ll start to understand the fundamental reasons why recurring revenue businesses tend be be healthier in the long run. The bottom line is, they benefit everyone – your business, the customer, technology as a whole. And when all the pieces are aligned it works well.

Take a look at the infographic below to understand the magic behind recurring revenue.

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Scott Pezza says

Travis,
The switch from up-front to ongoing costs in software is definitely an interesting one to make. One potential concern that I've heard is that this setup makes providers less 'sticky' by reducing switching costs for clients. That's a definite bonus from the customer's point of view, but what sorts of things have you heard from the provider side?
My colleague, James Haight, spurred a very similar discussion with a blog he wrote about cloud-based analytics solutions (here's the link, if you're interested - http://bluehillresearch.com/cloud-bi-or-bs-5-of-5-how-cloud-delivery-shapes-incentives/). Adobe and Workday provide good examples of where the trade-off made sense (and cents...) and I'm curious to see if there is an evolution here. Perhaps with the still-significant professional services spend associated with business solutions, the overall revenue sources are safe even if the purchase price is extended over time.
What's your take?
Best,
Scott