Recurring vs Reoccurring Revenue Key Differences

The key to unlocking scalability for any business is to tap into some kind of recurring revenue stream. When it comes to repeat revenue, two associated terms that are often used interchangeably are recurring vs reoccurring revenue.

While both terms, undoubtedly stem from the same root, they have different meanings and implications for your business. In this article, we’ll explore the difference between recurring and reoccurring revenue and explore how you can leverage them intelligently to foster growth.

Introduction

Revenue is the lifeblood of any enterprise, and properly understanding and optimizing your revenue streams can make all the difference in your business’s growth potential.

In this context, recurring vs reoccurring revenue are two terms that are used to describe revenue that is generated repeatedly over time, but both have key differences that are important to understand.

What is Recurring Revenue?

Recurring revenue is revenue generated from subscriptions or memberships that are charged at regular intervals, which may be every week, month, or year. It refers to the ongoing sales of products or services that stem from a one-time sales decision with repeat transactions for repurchasing. This type of revenue is steady, predictable, and can be scaled up over time.

Examples of Recurring Revenue

Examples of recurring revenue include:

• Subscription services e.g., Netflix, Spotify, Hulu etc.
• Memberships e.g., gym, spa and club memberships, etc.
• Service contracts e.g., maintenance contracts, software licenses, etc.
• Automatic renewals e.g., insurance policies, utility services, etc.

Benefits of Recurring Revenue

Some of the advantages of incorporating recurring revenue streams into your revenue generation strategy include:

1. Predictable cash flow:

Recurring revenue provides a stable source of income, which aids the forecasting of revenue, financial planning, and the securing of funding.

2. Customer loyalty:

Customers who subscribe to recurring services or products build loyal relationships with your business leading to higher customer lifetime value (LTV).

3. Lower Customer Acquisition Cost (CAC):

Acquiring new customers is expensive, but with recurring revenue businesses can shift their focus on retaining existing customers instead of constantly needing to funnel in new customers for one-time purchases.

What is Reoccurring Revenue?

Reoccurring revenue is revenue that is generated from one-time sales that happen repeatedly over time. In other words, reoccurring revenue is revenue that is generated from customers who make repeat purchases from your business. This revenue is less predictable than recurring revenue, but it still provides a stable source of income for businesses.

Examples of Reoccurring Revenue

Examples of reoccurring revenue include:

• Refillable products e.g., printer ink cartridges, coffee pods, etc.
• Replacement parts e.g., car parts, appliance parts, etc.
• Consumable goods e.g., cleaning supplies, food items, etc.
• Event tickets e.g., sports games, concerts, etc.

Benefits of Reoccurring Revenue

The benefits of reoccurring revenue for your business include:

1. Stable revenue stream

Reoccurring revenue provides a stable source of income, even if it is less predictable than recurring revenue.

2. Customer retention

Customers who make repeat purchases of the same product or service are more likely to be loyal to the business and can be nurtured to make more purchases of related products/services.

3. Cost savings

Reoccurring revenue can be more cost-effective than acquiring new customers.

Recurring vs Reoccurring Revenue: Key Difference

As illustrated by their definitions, recurring and reoccurring revenue refer to slightly different concepts. Recurring revenue refers to revenue that is generated regularly, such as through subscriptions, contracts, or membership fees. Reoccurring revenue, on the other hand, refers to revenue that is generated from repeat customers or purchases, even if they are not on a regular schedule.

Recurring vs Reoccurring Revenue: Which is Better?

Both models can be successful, depending on the type of business and your client’s buying behaviour.

Recurring revenue models can provide a more predictable source of income and can be useful for businesses that want to build long-term relationships with their customers.

Reoccurring revenue models can be more flexible and can allow businesses to capitalize on short-term opportunities, such as seasonal sales or new product launches. When properly nurtured, reoccurring revenue can also be directed into a recurring revenue stream, as in the case of Amazon, which we’ll discuss in a bit.

Tips for Building a Recurring or Reoccurring Revenue Model

Whether you choose a recurring or reoccurring revenue model, there are some key strategies you can use to build a successful revenue stream:

1. Focus on customer needs

To build a sustainable revenue stream, you need to understand your customers’ needs and create products or services that meet those needs.

Use survey instruments and leverage data analytics to understand consumer behaviour and tap into opportunities for revenue expansion by tailoring your offerings to the needs of your target customer base.

2. Provide value

Customers will only continue to pay for your products or services if they feel that they are getting value in return.

Make sure you are providing high-quality offerings that are worth the cost and keep adding value with new offerings and user-led product development, especially in the case of SaaS offerings.

3. Offer flexibility

Customers appreciate the ability to choose how and when they pay for products or services. Offer flexible payment options, such as monthly or yearly subscriptions, to widen the top of your sales funnel and accommodate different budgets and preferences.

Challenges to Building a Recurring or Reoccurring Revenue Model

Building a recurring or reoccurring revenue model can prove to be challenging, particularly for businesses that are used to relying traditionally on one-time sales.

Some common challenges include:

1. Convincing customers to pay regularly

It can be difficult to convince customers to commit to regular payments, especially if they are used to one-time purchases and fear the commitment will not drain funds.

2. Maintaining customer loyalty

To maintain a recurring revenue stream, you need to keep customers happy and engaged over the long term. Personalized offers, loyalty rewards, and stellar customer service can help you in this regard.

3. Managing cash flow

Recurring revenue models can provide a more predictable source of income, but they also require careful cash flow management to ensure that you have enough funds to cover ongoing expenses.

SubscriptionFlow, revenue management software, can help make sure your revenue tracking, reporting, and optimization is working at peak performance.

Case Studies of Successful Recurring and Reoccurring Revenue Models

There are many examples of successful recurring and reoccurring revenue models across different industries. Some notable examples include:

Netflix

The OTT streaming platform has a recurring revenue model based on monthly subscriptions, which has allowed it to build a loyal customer base and invest in original content.

Amazon

The e-commerce giant has a reoccurring revenue model based on repeat purchases, which has helped it become one of the most valuable companies in the world.

Amazon has effectively directed customers who make repeat purchases of perishable goods and grooming items towards generating recurring revenue by introducing subscription services for these items and offering discounts to encourage conversion.

Conclusion

Between reoccurring and recurring revenue, neither is objectively better than the other. It’s important to focus on creating value for your customers and building long-term relationships to make the choice of which one to opt for.

By understanding the differences between these two models, and implementing effective strategies to overcome related challenges, you can build a sustainable and successful revenue stream for your business and power long-term growth.