Recurring income: understand what SaaS is and its advantages

Knowing how to predict the expenses and income of a business with a good success rate is one of the most demanded skills of professionals who work in management positions.

After all, this gives the company better conditions to plan and carry out actions focused on growth.

In addition to all the experience and knowledge of the decision makers, it is essential that the business model contributes to good sales performance.

Therefore, a recurring revenue scenario is one of the most favorable.

In this post, we are going to understand why predictable billing is so important for companies.

We will see what its main advantages are and how the technology segment has taken advantage of it by providing Software as a Service (SaaS or software as a service).

Good reading!

How to achieve recurring income and what is its importance?

When we refer to recurring revenue, we are talking about the ability of a business to sell ongoing access to a service provided over a period of time.

We can also call it a signature model.

This window of time will depend on how the company decides to collect from its customers.

There are cases in which the consumer pays monthly payments as long as he wants to enjoy the solution, being free to interrupt the payment, and consequently, cancel the service whenever he wants — without penalties or additional fees.

The idea is to establish a long-term relationship with the base, which really generates benefits for clients and does not keep them tied to a contract.

Another example is organizations that work with providing access to customers for an entire year.

This annual plan is given by means of a payment every 12 months or by dividing that value into 12 monthly installments.

This prevents isolated purchases from customers who may take a long time to purchase the products or services again or may not return at all.

Dealing with those revenue spikes makes growth too difficult, because it leaves room for assumptions that hurt predictability.

On the other hand, it is a model defined by the challenge of keeping people engaged with the brand, to the point of making them renew subscriptions frequently.

What types of business have recurring income?

When the topic is a source of subscription income, you might think of gyms, cable TV packages or language courses, but there are already newer business models that take advantage of this recurrence.

Take a look at some of them below:

signature club

A signature club is a service where the customer periodically receives a special selection of products within a specific theme.

We can cite these examples:

• the Wine Club it delivers different wines each month for its subscribers;
• the Omelette Box monthly provides 1 box with objects related to pop culture;
• the glam box also sends beauty products once a month.

streaming services

Streaming is nothing more than the continuous transmission of data from certain media over the Internet.

Probably one of the companies that has used this technology the most to generate recurring income is Netflix.

With the payment of a monthly subscription, the user has access to the entire collection of movies and series of the service.

It is important to note that, before providing video on demand, Netflix already had a monthly subscription model, in which customers received DVDs at home and had to return them within a certain period.

Despite not being as popular as streaming, this service still works in the United States, with media on DVD and Blu-ray.

At the time it emerged, it was a smart alternative to the dominant form of rental in video stores, in which it was necessary to go to a store to get the films, and then return them, paying for it on time.

Companies like Amazon are also investing in streaming video content, not to mention that TV channels already have their own online streaming services.

And we could not fail to mention music streaming services, which also fit here, with representatives such as Spotify, Deezer Y tide.

Software as a Service (SaaS)

The software as a service modality is already quite present among technology companies.

It is about providing access to the functionalities of a system or application, through a monthly or annual payment.

The interesting thing here is that many organizations in that market allow users to use the software for free for a period, to test and confirm if it really meets their expectations.

At the same time, there are companies that release access to the simplest functions indefinitely and only charge users who need a more complete solution.

These systems offer easy access through the Internet, without the need to pay for a license or install programs on the client’s computer.

It is enough to use a web browser, because the entire infrastructure behind the operation of the solution is usually hosted in the cloud.

In addition, the user does not have to worry about installing security updates or expansions to extend the functionalities of the software, since the version to which he has access will always be the most up-to-date.

One of the biggest examples of this industry is Salesforceone of the most used CRM platforms in the world and the second most used by technology companies in Brazil.

How has SaaS been standing out as a reference for recurring income?

The transformations of the digital age brought advances such as:

• The increased processing power of computers and mobile devices;
• The popularization of fast Internet access connections;
• The evolution of development technologies for the web; Y
• The rise of cloud computing.

All this has made it possible to build systems for the web with functionalities as pertinent as traditional computer programs, even with the concern of promoting a good user experience.

Gmail and Dropbox are two great examples.

They both have a pretty nice interface and are very easy to access through the browser.

In fact, not only the quality of the service is a trademark of these companies, the attention is also something that is taken very seriously.

And this is no coincidence, because companies have perceived that valuing customers is very important to create lasting bonds, keep them away from the competition and generate recurring income.

What are the advantages of businesses with predictable profits?

As we have already seen, having recurring and predictable income is essential for the company’s projections and for its growth plans.

Let’s see, then, the main advantages that this can bring:

Financial control

When you know the number of subscribers, the plans they have contracted and other data about their behaviors — such as how long they have been clients and if they are good payers —, it is possible to better control the cash flow and make more accurate decisions about the future of the company. business.

This offers more security to invest in developments such as team expansion, infrastructure reform, and research and development of marketing campaigns.

Predictable lead generation

A company with a focus on growth also needs to consider lead generation as part of its predictable income plan, after all, they are the ones who have the potential to become customers and contribute to the company’s increased turnover.

It is worth remembering that this requires work to optimize the processes of the marketing and sales team, which must be dedicated to generating qualified leads in a consistent and measurable way.

Thus, it is possible to use metrics as the basis for more reliable projections, such as the number of leads generated per month and the conversion rate.

Customer loyalty

Of course, a recurring revenue model depends on customers staying happy and continuing to generate revenue for the business.

Without it, your vision on the revenue forecast will be restricted to a shorter term, since the risk of people canceling the signatures becomes greater.

For this reason, it is crucial that these organizations have a culture dedicated to customer success and a team specialized in maintaining a good relationship with the consumer, guaranteeing their satisfaction and retaining their loyalty.

Inventory and demand management

For predictable revenue businesses that work with products, inventory management is much simpler.

A more precise notion about the number of customers and the number of leads converted into subscribers brings more efficiency to the purchase of supplies and avoids the unnecessary accumulation of materials, which translates into stagnant capital and can harm the financial health of the business.

Given these advantages, we perceive that a business structured to generate recurring income has excellent conditions to stand out in the market.

Heeding the growth opportunities that predictable profit can bring, technology companies are increasingly developing their ideas, promoting a SaaS scenario.

Also learn about the best Marketing strategies for SaaS model companies: