Recurring and reoccurring revenue share similarities but do not refer to the same phenomenon. Let's settle the recurring revenue vs. reoccuring revenue debate once and for all.
The subscription economy will be a $1,5 trillion industry by 2025, which is not surprising considering that subscription businesses have grown three times faster than the S&P 500.
Such astronomical growth figures explain why many startups are launching as subscription businesses and existing businesses are pivoting from a transactional to a recurring revenue model.
However, it's crucial to accurately classify your business's revenue before you adapt your business operations to accommodate a recurring revenue model. That's because recurring revenue is often confused with other types of revenue, most commonly reoccuring revenue.
This article explains the concept of reoccurring revenue, distinguishes it from recurring revenue, and underscores the importance of understanding this difference for individuals considering a transition to a subscription or recurring revenue model.
What is recurring revenue?
Recurring revenue refers to income that can be consistently generated and collected regularly. Usually generated from subscriptions, memberships, and SaaS businesses, recurring revenue is when customers commit to buying your product at regular intervals.
Revenue is recurring when sales are predictable and automatic. That is, customers have subscribed to receive a particular quantity of your product at predefined intervals and authorised you to collect automatic payments in return.
Therefore, recurring revenue is predictable, automatic, and scalable over time. To categorise your revenue as recurring, it requires that your customers consistently purchase your product,, with payments processed automatically on the same weekday or day of the month.
The most attractive quality of a recurring revenue business is its predictability. Because you have X number of customers who buy Y amount of product every week or month, you can more accurately predict your revenue, empowering you to plan confidently.
Recurring revenue makes it easy to tap into the loyalty of repeat customers and build a scalable business. However, not all repeat sales constitute recurring revenue.
On that note, let's separate genuine recurring revenue from a form of repeat revenue it's commonly confused with:
What is reoccuring revenue?
Reoccuring revenue is income from customers who buy from you repeatedly but not at a predictable frequency. These customers are loyal to your business but whose needs are not recurring.
While you can trust that these customers will return to make purchases, the timing of their transactions remains uncertain. You know that they will come to your shop when they need to restock, but you can't predict specifically when they will come back and if they will keep coming back.
Hence, although these sales are reoccurring and contribute significantly to your revenue, they do not meet the criteria for being classified as recurring. Therefore, while reoccurring revenue is less predictable than recurring revenue, it remains valuable.
When customers return to your store for their refills, replacement parts, and consumables, albeit at irregular intervals, it shows that you are doing some things right. It means customers are happy with your service and product quality.
Thus, even though your revenue could be more predictable, you have a stable revenue stream. It means you are doing well enough to retain your customers, relieving you of the pressure to generate new leads each month.
Even though you may not be able to persuade a customer to commit to recurring sales, you can grow their average order size thereby enhancing your overall revenue. The most effective approach is to monitor your loyal customers and analyse their preferences to encourage them to make larger purchases.
Recurring vs reoccuring revenue - What is the difference?
The main difference between recurring and reoccuring revenue is that the former is regular and more predictable than the latter.
Put plainly, “recurring” means something happening again periodically, while “reoccuring” means something is happening again but not necessarily on a regular cadence.
Therefore, a reoccuring sale may simply mean that a customer is buying for a second time. However, with recurring revenue, the customer must purchase many times at the same frequency.
Recurring revenue supposes the existence of express authorisation by the customer to automatically charge them for a particular quantity of product at a predefined frequency. Reoccuring revenue puts no contractual obligation on the customer.
Reoccuring revenue is revenue from repeat customers who do not buy regularly, while recurring revenue is income or sales from customers who buy periodically and pay automatically.
So, which one between recurring revenue and reoccuring revenue is better?
Recurring revenue is undoubtedly a great advantage for any business. Businesses with customer contracts and subscriptions that guarantee sales for the foreseeable future are inherently more valuable than those relying on one-time sales.
With that said, how do you identify recurring revenue opportunities?
How to create recurring revenue.
The best way to create recurring revenue is to sell products your customers can't do without and rely on you to supply them. These should ideally be habit-forming goods or products with service and repair contracts.
Let's use an example.
Suppose you operate a fishing supplies store where the same set of customers purchase the same supplies on a monthly basis. At the end of each month, you can expect the same recurring customers, with only a few new ones, to come in and purchase a predictable assortment of fishing tackle, which you can almost anticipate before they even inquire.
A few things stand out. First, these people rely on you for their fishing supplies and have you dialled in as their preferred supplier. These customers are loyal to your business.
The second is that they spend roughly the same amount at your store every month, guaranteeing predictable cash flow. The third is that fishing is a pastime they enjoy and are prepared to spend their money on.
Right before you, you have the foundation for a recurring revenue business: a steadily increasing group of loyal customers who consistently make purchases from you in a predictable manner.
All you need to do is package the average order you process for these loyal customers every month and offer to deliver it as a package to their homes for a recurring fee. You have created recurring revenue when they take you up on your offer.
How to streamline recurring revenue collection.
To maintain the significant advantages of recurring revenue, you must efficiently bill customers and collect their payments on time.
When relying on manual billing systems, errors are bound to occur. Payment details may expire, and some customer payments might fail, resulting in revenue that isn't truly recurring.
The best recurring revenue businesses use software to automate billing, payment collection, and dunning management. Automation removes billing errors, boosts payment convenience for customers, and prevents revenue leakage.
Using Intasend's automatic billing software, you can ensure that your customers never have to worry about manually completing payments themselves. The software does that for them. The software puts the billing and payment collection systems on autopilot.
Sign up to try our automatic billing and subscription management software and ensure your revenue is truly recurring.
