Transitioning from a Priority on Acquisition to Revenue Recurring Models: Why and How

Beginning a new business is more accessible than ever however, surviving in an increasingly competitive market is a different challenge altogether. Since more and more companies are competing to attract the same customers, using only sales to customers as a growth strategy is quickly disappearing into the past.

The secret to long-term success is a recurring revenue model--one which focuses on not just retaining customers but also helping them succeed. When you focus on providing ongoing quality and satisfying your customer's needs to build confidence and trust, transforming customers who are only buying once into loyal advocates. Satisfied customers will be more likely to come back for more, continue to purchase, and eventually increase their loyalty to your company, resulting in steady, predictable revenue.

In this post we'll discuss how acquisition isn't enough to ensure steady growth. We'll discuss the advantages of revenue-based recurring models and how to shift your approach to helping your customers to achieve mutual prosperity. Find out how investing in your customers' success could lead to greater trust and less dependable growth for your business.

  Skip ahead:  

•         Why acquisition alone won't drive the growth
•         Recurring revenue models: A modern alternative
•         3 indicators for measuring regular income
•         How to transition from acquisition to a regular revenue model
•         Customer education is an engine for recurring revenue
•         What does Plus do to support the transition towards regular income
•         FAQs

Why acquisition alone won't boost growth

relying solely on the acquisition of customers is becoming a less sustainable strategy for driving growth, especially for SaaS businesses.

" Acquisition costs can rise in highly competitive markets If you're not retaining customers, you're simply losing the investment,"

Says Rob Stevenson, the founder of BackupVault.

        "We've discovered that growth does not just happen through the addition of new customers. It also comes from keeping them happy and engaged. If you can't retain customers or cut down on churn you're spinning your wheels with no real forward momentum."    

Acquisition-focused strategies often overlook the importance of long-term retention and involvement, which are crucial to sustainable expansion. Let's explore the key disadvantages of solely relying on acquisition

The cost of client acquisition

Based on Outbound Engine, acquiring new SaaS customers costs about five times as much as keeping existing ones. This is not surprising, seeing as the SaaS market is extremely competitive, with many firms offering comparable products or services.

SaaS companies often invest heavily in advertising campaigns in lead generation, lead generation, as well as sales teams to get prospects to test the software. There's no way to guarantee that a person who is interested will use the product. If they do not then the cash the business has spent on them is going to waste soon, and these costs may become difficult to justify.

Rates of high drop-off for trial customers

A lot of SaaS businesses offer free trials or freemium models to attract customers. This strategy is successful in drawing customers in, a substantial percentage of trial users fail to convert into paying customers.

OpenView's 2023 Product Benchmarks report found that just 10 percent of free trial customers become paid customers. That conversion rate decreases by five percent when customers are who use a freemium service.

This means a significant portion of marketing and acquisition spend is wasted on people who don't generate any revenue.

High customer churn rates

Churning of customers is one of the main threats for SaaS companies. If a company is able to attracts new customers, the high customer churn can reduce the income base. This means that the business has to continuously replenish revenue lost.

For example, a company with a 10 percent churn rate will lose all of its customers in a year, meaning it will need to take them back to ensure the same amount of money. This creates a growth ceiling that new acquisitions can only pay for churn and not drive forward growth.

Shifting market dynamics

As the SaaS sector becomes increasingly saturated, customer expectations evolve, making it increasingly more challenging for businesses to differentiate themselves based on product features alone. SaaS firms that concentrate solely on acquisition might have a difficult time establishing a presence since new entrants are offering more creative solutions, or offer more appealing pricing plans.

That's why creating a stellar customer experience is essential for keeping customers happy. In Salesforce's most recent state of the Connected report, 80 percent of customers believe that the service the company offers is just as important as its offerings and services.

With 65 percent of customers expecting the brands to adjust to their evolving needs and expectations, focusing only on getting new customers is not the best business approach.

The emergence of predictably model of revenue

Many companies are adopting subscription-based pricing models due to they are reliable and stable because of the security they provide. Subscription models allow businesses to estimate revenue with greater accuracy and manage cash flow more effectively and make investments in the long-term relationship with their customers.

Recurring revenue models: A modern alternative

When acquisitions slow (whether due to financial or market issues The entire company can face a sharp revenue decline. This is particularly true in SaaS companies offering freemium or one-off sales models that fail to keep or upsell customers creates gaps in revenue streams.

However, businesses which focus on recurring revenue focus less on the sheer quantity of clients and greater on keeping those existing customers, while encouraging them to spend longer over the course of time.

What is a model for recurring revenue?

A model of recurring revenue is a business strategy where companies generate consistent, predictable income by offering products or services on a subscription basis or through ongoing payments -- typically monthly or annual.

This model is common in SaaS firms (HubSpot, Salesforce), streaming services (Netflix, Amazon Prime), and membership programs which allow users to purchase continuous access to a or service in the course of time.

How recurring revenue models create the sustainable growth

"Instead instead of constantly chasing new business instead, invest your time in developing stronger relationships and then making your product better"

Explains Aaron White, the CEO of Outbound.com. The saying, 'Cash is the most powerful currency, but recurring cash is even better, can be applied to this situation -- constant, regular income offers firms the chance to scale with less volatility."

Here are some financial benefits to adopting a recurring revenue model:

    Predictable revenue streams    

With traditional sales models that are one-time the revenue fluctuates significantly depending on market conditions as well as new product launches and demand during the season.

But, with a recurring revenue model, companies receive regular payments from customers who are already paying (usually every month or once a year).

The stability of their business helps them manage their cash flow with greater efficiency, plan budgets, and invest in growth-oriented initiatives like the development of products, marketing and support for customers.

The company who knows that will generate $500,000 in monthly regular revenue (MRR) will be able to forecast its operational expenses, forecast profitability, and allocate funds to increase the size of operations.

This can be beneficial in times of economic downturns or competitive market adjustments because it provides the financial security needed to protect your business from sharp decreases in revenue.

    Customer preference    

Customers prefer recurring revenue models because they allow customers to spend only what they require in addition to the ability to upgrade or decrease their plan at any time they want to.

This choice results in more frequent customer engagement as well as a stable revenue stream for business, because customers are more likely keep their subscriptions for the duration of time.

More valuable company valuations

Investors and stakeholders often favor companies with recurring revenue models because these businesses tend to be more predictable, stable revenue and better growth prospects over businesses that have irregular or seasonal revenues.

Take Slack as an example. The ability of Slack to increase the revenue of its customers by offering different pricing options and more advanced capabilities is among the reasons why Salesforce acquired the company for $27.7 billion in the month of July 2021.

3 Metrics used to determine recurring revenue

Monthly recurring revenue

Monthly recurring revenues (MRR) is the total revenue a company generates from its recurring subscriptions in a given month. This measure provides a detailed picture of the short-term performance as well as the health of your business.

You can calculate your MRR by dividing the number of subscribers who are active by the ARPU. (ARPU). As an example, if you're SaaS company has 100 users that pay a monthly fee of $50, your MRR is:

MRR equals 100 customers multiplied by $50 equals $5,000

There are different types of MRR you can follow, for example:

• The new MRR is This is the revenue earned by customers who have new accounts.
• Expanded MRR: The revenue gained by existing customers who upgrade or buying additional options.
• Churned MRR The revenue lost when customers cancel their subscriptions.

Churn rate

is the proportion of clients who decide to cancel their subscription or fail to renew their membership within a certain time. The importance of reducing churn in companies because it helps stabilize revenues and increases growth by retaining existing customers rather than replacing them with new customers.

The formula used to calculate churn rate is:

  Churn rate = (Number of customers who have lost their services during a period / Total number of customers at the time of beginning the period) x 100  

Take Spotify, for example. If Spotify had 1 million premium users at the beginning of the month and then is able to lose 50,000 because of discontent or competitors, the churn rate would be:

  Churn rate = (50,000 (1,000,000) 10 x 100 = 5 percent  

Although Recurly's study showed the overall churn rate is 4 percent, the typical business's churn rate will depend on your industry and industry.

Image source

(Alt: average rate of churn for various industries Recurly and other research

Note that the digital media industry has the highest churn rates, which is more than twice than the software industry. In general, you must limit your churn to (or less in comparison to) the industry standard.

If your churn ratio is high, that indicates that you're losing customers more quickly than you are acquiring these customers. If it's not enough this could indicate that you aren't spending enough to acquire customers. There's a delicate balance.

Customer lifetime value

A high CLV indicates that customers stay longer, and spending more, which is the objective of any recurring revenue strategy.

You can calculate your CLV by multiplying the total monthly average revenue per client (ARPU) multiplied by duration of a typical customer (in either months or in years):

In this case, for example, the customer pays $50 each month for a SaaS subscription that lasts for 24 months, their CLV is:

  CLV = $0 x 24 = $1,200  

How to transition from an acquisition model to a recurring revenue model

Accelerate adoption

If customers incorporate your service or product into their everyday lives and derive benefits from it, they're more likely to remain loyal to your company. Some ways to accelerate product adoption include:

• Develop personalized onboarding programs that guide users through key product features and functionalities in order to make them familiar with your product better. Like, for instance, Dropbox uses in-app onboarding prompts to help new users quickly learn how to upload files as well as share folders with others and collaborate with others.
• Create comprehensive educational resources including a full and adaptable onboarding program online tutorials and videos, knowledge bases, webinars and interactive product tours that help customers get up to the speed of.
• Put your money into a customer service team who can contact new customers to provide guidance and troubleshoot any challenges during the early stages of their adoption.

Encourage renewals

If you're using a recurring revenue model, you must nurture customer relations throughout the duration of their lives. The goal is to keep customers happy. This prevents churn, and increases the likelihood of subscription renewals. Here are some ways to nurture your customers:

• Constantly engage with your customers to learn about their requirements and provide continuous value. It is possible to do this via automated email campaigns, in-app notifications, and personal interactions.
• Discounts for annual plans or loyalty programs for customers to sign up to sign up for a new subscription. Like, GetResponse gives folks who enroll in a 12-month plan an 18% discount as well as a customized domain for the duration of a year.

[Alt: recurring revenue models, getresponse pricing tiers]

• Offer customers opportunities to provide feedback through surveys or interviews with users, and then respond to the feedback to improve your product or providing additional options. It shows customers that their input matters.

Drive account expansion

Beyond renewals, among the most effective ways to drive growth within a recurring revenue model is by expanding your account. Below are some strategies to grow accounts:

• Provide customers with tangible reasons to upgrade to higher-tier plans. In most cases, it is necessary to add additional features, increased capabilities, or better service as part of the upgrade. Zoom is a great example of this and users who sign up for free plans are frequently upsold to paid tiers by seeing the benefits of features like extended meetings or additional attendees, as well as recording capabilities.
• Find opportunities to cross-sell services or products to complement your existing offerings. As an example, HubSpot offers marketing, sales and customer service tools, and regularly cross-sells the tools to clients so that they have a seamless experience across departments.
• Bundles of products can encourage customers to consider growing their relationships with your company, especially in the event that you are able to sell the bundle at a reduced cost. Microsoft 365 bundles its entire suite of applications (Word, Excel, Outlook, etc.) along with cloud storage as well as advanced security tools. It is a reason for businesses to invest in a comprehensive package rather than one product.

Customer education as an engine for recurring revenue

By investing in customer education, you equip your customers with the information they require to make the most of your product. Customers who are educated are not just more likely to use the product swiftly, but they are also more likely to be loyal and grow their loyalty over time. This loyalty can lead to repeat purchases, renewals as well as upselling opportunities which makes customer education an extremely effective way to generate regular revenue.

"At RecurPost, we conduct webcasts every Thursday. This allows us to educate users about our features provide tips and answer live questions. We do this to aid them to understand the total benefits of our service. If customers are confident and confident using the platform, they're much more likely to renew the subscription for a second time."

• Debbie Moran, the Marketing Manager at RecurPost

Learn how to help educate customers and to increase retention of customers:

Engaging customers at scale

Customer education allows you to engage with your customers across the entire population, ensuring that every user regardless of size or profession, is able to access the resources they need to succeed with your product.

Take Hootsuite, for example. On Hootsuite Academy, users can discover self-paced, free and paid classes to aid them with mastering the platform and learn more about social media. In the Resource Library, Hootsuite offers its users no-cost tutorials, demos of webinars, software, as well as templates. It ensures that users of all levels -- from startups to enterprise-level users -- are able to efficiently use the service.

[Alt: recurring revenue models, hootsuite academy]

Achieving streamlined, powerful learning experiences

For example, Zendesk's online course on training categorizes training resources into five usage situations: Admin, Agent, CX Analyst, Sales Teams and Developers. There are product foundation courses as well as deep dives into the product as well as an exam preparation course to help users get their credentials.

[Alt: recurring revenue models, zendesk training program]

How Plus can help support the move towards regular revenue

Hootsuite Academy wasn't always the extensive learning hub it has become present. A decade ago Hootsuite's mission was simply to teach folks how to navigate the Hootsuite dashboard in a proper manner.

The idea was born when the Hootsuite team saw an opportunity to make use of education in order to reach its existing customers, attract new customers and establish it as an industry leader the social media industry.

Through Plus, Hootsuite created several deep-dive courses on the Hootsuite platform as well as social media. Since it was launched in 2011, Hootsuite Academy has successfully educated over 450,000 people. At the time of writing the Social Media Certification program, priced at $199, has been completed by more than 72,000 individuals.

  Meet Plus  

What you'll receive:

• Robust Analytics: Leverage strong analytics insight into the behavior of customers and interaction to improve your education programs and make decision-based on data.

When you're trying to scale the customer education program or increasing your recurring revenue, Plus equips users with the necessary tools to achieve success.

  Learn how your company can leverage education to enhance the customer experience today.  

  When your customers win the day, your business also wins.  

  Are you ready to begin this journey of transformation?

FAQs

What is the reason why shifting from an acquisition-focused approach to a model of recurring revenue vital?

Focusing on only customer acquisition could be expensive and insuasible due to the high rate of churn and increasing acquisition costs. Shifting from an acquisition-focused strategy to a recurring revenue model will help you prioritize the long-term retention of customers and expand and ensures steady and predictable revenues.

How does customer education drive recurring income?

Education of customers drives recurring revenues through empowering customers to comprehend and gain value from a product. Educated customers are more likely to remain loyal, renew their subscriptions, and change their plans.

What role does play in the support of recurring revenue models for business?

Plus assists with models of recurring revenue through helping companies create scalable programs for customer education and academies. They provide online courses creators, webinars, as well as digital downloads. These resources help businesses educate customers, reduce churn, and boost product use and generating recurring revenues.