Recurring revenue, for short RR, refers to revenue that a company generates at regular intervals. It arises, for example, from subscriptions, memberships, maintenance contracts or ongoing software licences.
Recurring revenue is particularly important for start-ups because it makes it easier to plan future revenue growth. Rather than having to attract new customers for every purchase, ongoing revenue is generated from existing business relationships.
Typical business models involving recurring revenue are:
- Software-as-a-Service subscriptions
- Streaming and media subscriptions
- Memberships
- Maintenance and service contracts
- Licence models
- regular delivery schemes
- Platform fees
- long-term usage contracts
Key performance indicators relating to recurring revenue are:
| Key figure | Meaning |
| MRR | Monthly Recurring Revenue: monthly recurring revenue |
| ARR | Annual Recurring Revenue: annual recurring revenue |
| Churn rate | Proportion of customers or turnover lost within a given period |
| Expansion Revenue | additional revenue from upgrades or expansions for existing customers |
| Retention rate | Proportion of customers or turnover retained |
One example:
A start-up has 200 paying customers, each of whom pays 50 euros a month.
200 customers × 50 euros = 10,000 euros MRR
This corresponds to an estimated annual recurring revenue of:
10,000 euros × 12 months = 120,000 euros ARR
Recurring revenue offers companies and start-ups a number of benefits:
- more predictable revenue
- more stable financial performance
- long-term relationships with customers
- less reliance on individual sales
- a better basis for growth and investment decisions
- greater appeal to potential investors
However, recurring revenue is not automatically guaranteed. Cancellations, expiring contracts or non-payment can reduce revenue. Start-ups should therefore regularly monitor not only revenue but also customer retention, churn rates and usage of their service.
A common mistake is to classify one-off sales as recurring revenue. Only revenue that is received on a regular basis, either under a contract or as a result of the business model, counts as such.
innoWerft supports founders in further developing their business and revenue models, understanding key metrics such as MRR and ARR, and presenting recurring revenue as the basis for sustainable growth and discussions with investors.