Recurring Revenue

Intermediate

Recurring revenue is income that a business expects to receive regularly and predictably, usually through subscriptions, contracts or repeated purchases.

Recurring revenue comes from customers who pay on an ongoing basis, such as monthly or annual subscriptions for software, streaming services, gym memberships, maintenance contracts or utilities.

Businesses with a high proportion of recurring revenue are often valued more highly than those relying on one-off sales, because their future income is more predictable. This makes planning easier, reduces risk and gives investors more confidence in forecasts.

Companies often track recurring revenue using measures such as monthly recurring revenue or annual recurring revenue. For example, a software company with 2,000 customers each paying 100 a month has monthly recurring revenue of 200,000, or annual recurring revenue of 2.4 million.

Other measures related to recurring revenue include churn, the rate at which customers cancel; customer lifetime value; and net revenue retention, which shows whether existing customers are spending more or less over time.

Recurring revenue is not guaranteed. Customers can cancel subscriptions, and contracts can end. A business with recurring revenue but high churn may struggle to grow, since it must constantly replace lost customers.

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