Recurring Revenue and Subscription startups are extremely commonplace today. Those two terms tend to be used interchangeably when describing the revenue stream of startups but they are two different things that both impact a startup, its health, and how it scales.
Subscriptions are the terms under which a customer agrees to pay for and utilize your product or service. Subscriptions can be anything from the month to month payment many of us make for Netflix or Hulu, all the way to a three year enterprise agreement to license Salesforce and pay your bill quarterly during those three years. Most startups offer various subscription terms including length, pricing metric, payment interval, cancelation terms, and other. Each subscription also has a price associated with it, and that is where we get into Recurring Revenue.
Recurring Revenue is revenue that is paid to a businesses in an ongoing manner in return for a customer continued access to a product or service, stop paying, your access is revoked. On the flip side, recurring revenue usually means startups can fractionalize the cost of something down to a small enough number that it becomes accessible to a larger market of potential buyers that can come and go.
Recurring revenue, which can be grouped by the type of subscription generating it, is analyzed based on several factors. How much of it renews each month, can you expand the dollar value of the initial months revenue, how much does it cost to acquire that revenue and several other metrics around revenue retention.
It is important for startups and founders whoa re building their business on a recurring revenue model utilizing subscriptions to understand the difference but also understand the importance of both.