This calculator will do a rough calculation of how much recurring revenue you can make with a subscription at different prices:
|# of Month(s)||Rev per person||Total Revenue|
Read on if you’d like some further explanation of what this calculator is showing:
“What is recurring revenue?”
Recurring Revenue is when payments are made on a schedule. For example:
You pay $20 per month for unlimited carwashes.
You pay $1,700 per year to use that advanced software.
You pay $400 per quarter for pool cleaning services.
Recurring revenue has been around for a long time. It used to be called “subscription revenue” or ”subscription income” back in the day. Is has commonly been used by all sorts of industries:
- Insurance companies charge monthly premiums.
- Newspapers charge yearly subscriptions.
- Magazines charge yearly subscriptions.
- Storage units charge monthly subscriptions.
- Cable TV charges a monthly subscription.
In the recent years the recurring revenue model has picked up steam since people are now more comfortable paying smaller companies with credit cards which makes these monthly payments very easy (nearly zero work for both sides of the transaction).
Merchants definitely like this recurring revenue model because it means predictable sales each and every month. If a merchant has several hundreds people on monthly billing, every month money comes in:
Recurring Revenue Use Cases:
I’ll show you a clear example of how recurring revenue works:
BarkBox makes a monthly box of toys and treats for your pet. They charge $25/mo for their box every month.
$25 is cheap.
$25 is impulse purchase range.
$25 is waaaay less than people spend on their pets regularly.
So it’s a no-brainer for someone to signup to BarkBox for only $25.
But if someone subscribers to BarkBox for a full year (12 months), they are actually paying $300 for 12 boxes over the course of a year. But because the payments are spread out monthly, the customer only gets dinged for $25 each month which is pretty painless.
If they asked for that $300 upfront, many people would think twice about paying that much money at one time.
Let’s say in the beginning of BarkBox that 150 people signed up. That’s $3,750 in revenue. If 90% of the people who ordered are happy with BarkBox, they will stay on for the next month.
That means BarkBox knows for sure it has at least 135 paying customers who will buy their box next month. They had to do no extra selling, no extra promotion, no extra advertising.
If they can get an additional 150 people signed up to their monthly service, it’s even better because they make extra revenue. Checkout the model:
- $25/mo with 150 subscribers = $3,750 per month.
- $25/mo with 300 subscribers = $7,500 per month.
- $25/mo with 500 subscribers = $12,500 per month.
- $25/mo with 1,000 subscribers = $25,000 per month.
- $25/mo with 5,000 subscribers = $125,000 per month.
- $25/mo with 10,000 subscribers = $250,000 per month.
Let’s say BarkBox gets to 10,000 subscribers per month, and keeps the average person on board for 12 months. That’s $3,000,000/year in revenue just from a monthly subscription!
Software as a Service (SaaS) Business Model:
A LOT of software has gone over to the monthly recurring revenue model, and for good reasons:
- Internet speeds and new devices make it possible to use software over the internet. Previously common internet connections and devices weren’t good enough to use complex software over slow connections.
- The customer ALWAYS has the most up-to-date software. No need to re-download and install new software with each new update.
- Spreads the cost of the service out across the year.
- Customers can “sample” the software by the month without a huge upfront money commitment.
Monthly Membership Sites:
Many people don’t have a box to go out, or a software product to sell. Instead they sell a “community membership.” This is where a person pays to be part of your community. The community can be a private Facebook group, a forum, an email subscription. Any type of “private club” someone can be a part of.
If you charge $97/mo for access into your private club, it can be a profitable and stable center of profit.
Let’s look at some possible revenue outcomes for a membership site that charges $97/mo and on average people stay in the community for 6 months:
- $97/mo with 50 subscribers = $4,850 per month.
- $97/mo with 100 subscribers = $9,700 per month.
- $97/mo with 300 subscribers = $29,100 per month.
- $97/mo with 500 subscribers = $48,500 per month.
- $97/mo with 1,000 subscribers = $97,000 per month.
- $97/mo with 3,000 subscribers = $291,000 per month.
As you can see, even with a small number of monthly subscribers, a membership community can be relatively profitable and very high margin.
CON’S of Recurring Revenue:
There are some definite downsides of the recurring revenue business model:
- Re-billing customers every month can sometimes be annoying. Lost credit cards, low balances etc. can make re-billing a bit more complex than a single transaction.
- Customers leaving the subscription (this is known as “Customer Churn”).
- A percentage of people will “sample” your group and leave immediately without giving it a chance.
- It’s harder to convince people to get into an on-going commitment than a one-time payment.
PRO’s of Recurring Revenue:
There are some clear benefits so the recurring revenue business model. Think of almost every big company on the planet, and you will notice they have some form of recurring revenue coming in.
- This model is actually good for the customer AND the subscriber. That’s because the creator of the group is incentivized to keep the customer in the group for longer. This means he/she needs to make the content very good, otherwise people will leave the group.
- Can acquire a customer for a high price (say $80/person) if you know the average person stays on 9 months and pays you $600.
- Companies with MRR (Monthly Recurring Revenue) are valued at much higher rates than those without. This is because an acquiring is often buying
- Customers that are “on the fence” about a very expensive purchase feel more comfortable paying monthly so they only lose a small amount of money on the purchase if they don’t like the product/service.
I hope you enjoyed this calculator and post, and learned something new!
Neville Medhora – KopywritingKourse