One of the Best Business Models: Recurring Revenue




This post is part of my series An Analysis of 5 Business Models.

Recurring revenue is the business models that I prefer. It has the benefits of being highly predictable over time, and reducing the stress of having no revenue at the beginning of a quarter unless you go out and make new bookings. The major disadvantage to a recurring revenue business model is that it starts slowly and will require more cash to get it going.

Please refer to these two blog posts that talk in detail about the recurring revenue business model:

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David Skok

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  • Joe

    Hi David,

    I am looking for a MRR model that will help me determine margins based on hardware, and perpetual licensing.  Do you know where I should look for that?

  • Joe, unfortunately I can’t help you there. I am not aware of any model like that. Sorry!

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  • Radu Meghes

    Hi David,
    Any idea when this article will be finished? I am working on a SaaS startup and could really use some validation/guidance for my business model.

  • I have just completed it for you.

  • Radu Meghes

    This is awesome David. Thank you very much. I really appreciate the work you are doing in helping others learn how to approach the startup phase.

  • Adrien

    Hi David, I am scaling my company internationally and have to work on a new business plan. Would you have any framework” for a SaaS enterprise software business plan with international operations ? Thanks a lot.

  • Sadly I don’t have anything to help you there. However ask these guys:
    Best, David

  • Paul Braun

    Hi David,
    Wondering if you have any best practices for sales compensation models when you are selling both hardware and SaaS based subscriptions?

  • Hi Paul. I don’t for that specific situation. But a good group to talk to are The Bridge Group. You can see some of their work here:

  • Will McCambley

    Hi David,

    I work for an online education company (think codecademy). I’m doing what I can do use inbound marketing, but I also have an ad budget. Do you have any recommendations for places and ways to advertise?

  • Hi Will, unfortunately that is not an area where I have any expertise. I know that my portfolio companies usually start with Google Ad Words and work their way through things like LinkedIn and Facebook. Always starting small and testing the waters, and then doubling down on the things that appear to be working. For Google searches, there is often value to using an expert to find the optimal combination of long tail terms, and times of day, location, etc.

  • Will McCambley

    Thanks for the reply David. The blog has been an enormous help.


    Great article and overviews for start-ups.
    Marketing is very expensive and is usually hard to calculate a ROI, especially when the product is new.

    Google advertising is one way to work with but we have noticed that bad websites lead to high CPC.

    We @ focus on lead generation by using combo’s.

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  • Leo Borgelin


    Mr. Skok,

    How effective would this model actually be?

    I was recently reading an analysis on Candy Crush Saga and Angry birds about the cognitive psychological strategy they use. One thing that stand out from that analysis that I can compare to here is the need for them to keep their consumers interested. I’m not too familiar with all your business model, but I could only see this model sustain if it was providing a need base service something like water or electricity. Nothing not as high as that nature, but like a car or a house. I may be wrong.

    I’m an intern for a company called CYMB Digital Consulting so my knowledge is limited. I’m currently writing their blog at . I would greatly love some criticism from you as your are very knowledgeable in entrepreneurship.

    Thank You for post and your blog! It already is and is going to continue to be very helpful to me!

  • Nuwan Thilina

    Hi, I’m working on digital download site.
    I have hard time figuring out what should I make premium and what should I make free.

    Any advice regarding that!

    Thank You,
    Nuwan T.

  • That is a super hard question to answer with that little information. Unfortunately to really help answer a question like that, I would need to learn a lot more about the business. Sadly it’s not possible for me to do that given the extreme time demands of this job. My apologies!

  • Sandra Squires Shiner

    Hi, I am currently trying to get approval from the entrepreneurial division in my university to allow me a 2nd workterm working as an entrepreneur. My business is similar to the brokerage model. I have been asked to compile a long list of needed info for my coordinator. one being, what model I guess I will be following. I have yet to come across an actual model that I could use. Any help anyone could give me in this area would be greatly appreciated! thanks

  • infinite accountant

    Hi David,
    This is very useful, thanks for sharing .

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  • DD

    In May last year we reviewed our sales funnel based on David’s Blog and found a blockage at the top of our funnel. It was a bit of a surprise. I guess like many companies trying to grow recurring revenue we were focused on the middle to the bottom of the funnel. Namely, winning deals.

    We took some time to fix the top of our funnel and increased the top to the middle funnel conversion rate from 18% to 36%. The results have been stunning. Combined with increasing leads this led to a 400% increase of net new customers the next quarter and the next one after.

    We will now try our best to follow the advice on this blog to scale faster- namely to hire two new AMs a month while trying to maintain a positive churn rate. Current ARR is just over 10m usd for the forward 12 months and the goal is to try and double this in the next 12 months.

    Just wanted to say a big thank you David. Thank you!

  • That is wonderful news! Congratulations on the great outcome. (And thank you for taking the time to write and let me know.)
    I wish you the very best for the next phase! I will be creating a lot more materials on that topic in 2018. Best, David

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