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AcctTwo Blog

Transitioning to Recurring Revenue Business Models

digital transformation in financial servicesIn our last COVID related article, we encouraged businesses to re-examine their business model as they emerge from the pandemic - it may not be as sound or sustainable as it was before. But it might not be as lucrative as it could be either.

The recurring revenue model has, in recent years, shown itself to be profitable and adaptable to a tremendous degree. Subscription-based businesses are nothing new, but companies like Netflix and Salesforce updated the concept for the digital age, and now a raft of others are following their lead: auto makers, software companies, and office space providers to name just a few.

In one example of just how flexible this business model is, Otis Elevator Company now makes just 45% of its revenue from installing elevators. The remaining 55% comes from monitoring and maintenance, which Otis offers customers as a subscription service.

As businesses search for stability and competitive advantages in the post-pandemic economy, expect the recurring revenue model to grow even more. Don’t miss this rare opportunity to expand your vision of what the business could be.

digital transformation in financial services

The Right Time for Recurring Revenue

Recurring revenue could give your business model new life. More urgently, it could be the boost necessary to get through the rocky recovery period.

Collecting revenue from customers continually has benefits all the time, but especially during economic downturns:

  • Revenues are much more predictable and go through fewer fluctuations
  • Better revenue forecasts lead to stronger strategic planning
  • Stable revenue sources can fund digital transformation in financial services
  • Lifetime customer value goes up significantly
  • Investors and funders have more confidence in performance

Each of these will be an asset in the coming months and years when, in spite of the recovery, conditions will remain highly uncertain and disruptive. Companies with recurring revenue to rely on are more resilient to economic hardships, better prepared to evolve, and more attractive to partners who can help grow the business. Recurring revenue doesn’t guarantee success – but it does create the conditions that make success possible even when competitors are struggling to survive.

Finding Sources of Recurring Revenue

Too many businesses assume their product, service, or business model isn’t suited to generating recurring revenue. Think again. When even the Olive Garden is selling subscriptions, it means almost any business can too.

Keep this in mind as you review your business model and all the assumptions it’s based on. Identify products/services that may be appropriate for a recurring revenue model, and think outside the box – this is no time to fall back on the status quo. But it doesn't help to be unrealistic either. Consider what it will take to make recurring revenue a reality – new technology, revised processes, different accounting etc.

Instead of writing off the recurring revenue model or rushing forward with the wrong strategy, take some time to explore what is and isn’t possible. And get good insights along the way – download a free whitepaper exploring your post COVID-19 business model.

Topics: General