Simply put, the software-as-a-service delivery model has been blowing up. But one of the major factors contributing to its rapid adoption has gone relatively undermentioned: recurring revenue offerings.
“Unlike traditional financial models, which are built around one-time transactions or upfront fees, recurring revenue business models focus on a series of smaller, ongoing, subscription-based transactions,” writes Tom Dibble, president and CEO of Aria Systems, a provider of cloud billing and subscription management solutions. “Users can consume a service or product as much as they like in an on-demand manner, as opposed to having to buy the entire offering up-front.”
Dibble points out that “while the value per transaction in a recurring revenue system can be lower than traditional business models, a recent study by the Incyte Group, an independent research group, found that of more than 1,000 U.S. businesses, nearly 50% had either adopted or were planning to adopt recurring revenue models.”
So should you consider a recurring revenue model for your business? Dibble offers five compelling reasons you should, including a potential lower barrier of entry for filing for an IPO, the enhanced ability to tailor products to individual preferences, resulting in minimized customer churn, and the fact that the model is built to scale – just look at Netflix.
“It’s increasingly clear that we’re in the midst of a major shift in the way companies do business,” writes Dibble. Which side of the shift will your company be on? Read Dibble’s full article to learn more about why a recurring revenue model might be right for your company.
Related Content from OpenView:
At the OpenView Blog you’ll find several posts such as this one explaining why monthly recurring revenue is a key performance indicator for software-as-a-service companies. When considering potential changes to your revenue model it also helps to look back to your company’s economic model.