The recurring revenue model is a surefire way for you to create lasting relationships with clients, and earn their loyalty. It also ensures a steady and predictable stream of revenue for your business in uncertain times.
When an agency uses a recurring revenue model, it not only enables itself to budget its expenses in advance, but also allows for planned growth and expansion.
Essentially, a loyal client base, and a steady stream of income at scheduled intervals contribute to two important things: agencies have to spend less time and money on acquiring new clients, which increases its valuation in the eyes of investors, attracting more investments for present and future growth.
Let’s first take a look at what the recurring revenue model is. Then, we’ll discuss the types of recurring revenue models and how you can make them work for your agency.
- What Is the Recurring Revenue Business Model?
- 8 Types of Recurring Revenue Models That Work
- Predetermined Service Charges over a Specific Period
- Recurring Purchases for Perpetual Use
- Automatic Renewal of Subscriptions
- Scheduled Billing Based on Product Usage
- Per-User Billing Model
- Multiple Tiers in the Pricing Structure
- Combination of Recurring and One-time billing model
- Free Lifetime Access to Basic Product or Service Plan
- Advantages of Having a Recurring Revenue Business Model For Your Agency
- Ideas to Make the Recurring Revenue Business Model Work
- Recurring Revenue Models As Used By Experts
What Is the Recurring Revenue Business Model?
In simple words, the recurring revenue model is when you, as a business, provide access to your product or service in exchange for a recurring fee. This recurring fee is charged at predetermined, scheduled intervals.
Subscription or membership based businesses like Netflix, Amazon Prime, etc, employ this model for continuous flow of income, as well as customer retention and loyalty.
8 Types of Recurring Revenue Models That Work
Here are the different types of recurring revenue business models that you can use to secure your stream of income, even in uncertain times. Choosing the right model can help you stand out in the midst of a large number of business pitches online.
1. Predetermined Service Charges over a Specific Period
This type of recurring revenue model comes in the form of hard contracts.
With hard contracts, you and your customers are in a tight relationship until the contract period ends. If they plan to quit early, they have to pay a cancellation fee. Your customers can keep using your service after their contract ends by continuing with a rolling monthly contract at the same predetermined service charges.
Example: How Elegant Theme is Using This Type of Model
An example of a company following this recurring revenue model is Elegant Themes, a WordPress themes and plugin developer. They offer a single annual subscription plan at $89/year. So it is a one year hard contract that you enter to avail their features by paying a fixed amount.
You can use a hard contract if you are an agency to benefit from this type of recurring revenue model. Your clients will pay a fixed amount to use your services for a specified period of time, ensuring long-term commitment.
2. Recurring Purchases for Perpetual Use
This type of recurring revenue model involves sunk money consumables. It means that the customer buys a product or invests in a platform, and later has to make recurring purchases to be able to enjoy perpetual use of the product or service.
Example: How Amazon Prime is Using This Type of Model
Amazon Prime is a great example of this type of recurring revenue model, as it incorporates a subscription into their pay-per-product business model. It does so with its in-app rentals and purchases.
You can make this model work for your agency by selling a one-time package or platform, such as a software, and to keep using it, your clients have to make perpetual purchases, promising you a steady stream of income and loyal customer base. These purchases can include premium, exclusive, or newly launched features that weren’t incorporated in the software at the time of purchase.
3. Automatic Renewal of Subscriptions
(Source: 500px support center)
In this type of recurring revenue model, businesses charge their customers automatically until the customer withdraws from using the service.
To apply this type of recurring revenue business model to your agency, you can introduce your clients to a program that offers a greater number of benefits, over and above the standard package they get. You can auto-renew their subscription to that program until they voluntarily cancel the subscription.
Example: How Netflix is Using This Type of Model
Netflix is a great example of this model. Your subscription is auto-renewed until you cancel your subscription to the platform.
This kind of automatic renewal of subscription would create a strong relationship between you and your clients, promising your agency recurring revenue and greater client retention ratio. In your case, selling a SaaS product would be a great way to implement this type of recurring revenue business model to your agency.
4. Scheduled Billing Based on Product Usage
Businesses following this type of recurring revenue model bill customers at scheduled intervals based on their usage of a product or service. To do the same, define metrics by measuring the usage of your services, set the rates, schedule intervals, and bill accordingly.
Example: How Digital Ocean is Using This Type of Model
An example of a business using this model is Digital Ocean. They provide their services and bill per hour of active use. The usage is measured and billed according to two specific metrics: volume of data/bandwidth, and amount of time the virtual machines(droplets) are active during the month.
Kalungi is a B2B SaaS marketing agency that uses a similar pay-for-performance model. If you think this type of model can work for your agency, you can use the above strategy. However, if you feel that is unpragmatic for the type of services you offer, you can skip this type of recurring revenue model and choose an alternative one.
5. Per-User Billing Model
(Source: Microsoft 365)
The per-user or per-seat billing model is a type of recurring revenue business model whereby businesses bill a customer based on the number of people using the product. As the number of users increase, the charges also increase, and can either be monthly or yearly.
Examples of companies using this model are team collaboration apps like Slack, Microsoft 365, which charges a per-seat fee of $69.99/month.
You can use this type of recurring revenue business model for your agency if you choose to sell a SaaS product to your clients for team collaboration or more. Many digital marketing agencies are now offering SaaS marketing.
Example: How Digital Agencies Are Using This Type of Model
Some examples are Single Grain, Refine Labs, and Roketto. See if you can create a SaaS product like a keyword, or email automation tool etc, to earn recurring revenue. Single Grain offers a SaaS called Clickflow to help busy content marketers, and earn itself recurring revenue.
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6. Multiple Tiers in the Pricing Structure
Multiple tiers in the pricing structure means pricing is applied on the level of use. In this type of recurring revenue model, once your customer exceeds the allowed consumption quantity in one tier, they upgrade to the next tier for more features and functionality as well as consumption quantity.
Example: How Roketto is Using This Type of Model
Roketto is a digital marketing agency that uses tiered billing for its services. Besides Roketto, you will see other SaaS marketing agencies also offering tiered billing in the form of basic, professional, and enterprise plans.
7. Combination of Recurring and One-time Billing Model
Some companies follow a hybrid billing model. It is when two or more recurring revenue business models are combined.
Some common hybrid billing models for recurring revenue that you can use for your agency include: combining a recurring and one-time purchase billing model like Birchbox, OR using a monthly retainer like Netflix and combining it with a fixed fee that gets incremented when an agency achieves some goals, or achieves KPIs, while giving something extra to the clients.
Example: How Slack is Using This Type of Model
An example of a company using a hybrid recurring revenue business model is Slack. It uses a per-seat pricing model, combined with a tiered billing model with feature set. Another example is Appcues. It uses tiered billing model, combined with per-user billing model and feature based plan.
For your agency, decide what kind of hybrid billing goes best with the services you offer, and enjoy the benefits of more than one type of recurring revenue business model. Refine Labs charges $25K/month for the set of features its offers, but also claims to support any advertising budget. It increases the monthly price for clients who have higher monthly advertising budgets.
8. Free Lifetime Access to Basic Product or Service Plan
Some companies call this type of recurring revenue model a ‘freemium’ model. In this type of recurring revenue business model, the customers can have free lifetime access to the basic product or service plan, but they will need to upgrade to the paid plan for additional and advanced features.
Example: How MailChimp is Using This Type of Model
An example of a company using the freemium model is MailChimp. If you have fewer than 2000 email contacts in your database, it lets users send upto 12,000 emails/month, and benefit from its Facebook and WordPress integrations to enable you to grow your list under its freemium model. Once your email list has 2000+ contacts, you can upgrade to the next plan for $10.
Another great example is that of Buffer. It lets you schedule 10 social media posts at one time and more under the freemium account, and for more flexibility you can choose the paid plans.
The freemium model can work for your agency if you sell a SaaS like MailChimp, Buffer, or Later.
Now that you have looked at the different types of recurring revenue model examples, including SaaS recurring revenue models, let’s talk about the advantages of having a recurring revenue business model put in place for your agency.
Advantages of Having a Recurring Revenue Business Model For Your Agency
There are a myriad of benefits for businesses adopting the recurring revenue model. Some of these benefits include:
Client Retention – Implementing a recurring revenue model means that you develop a long-term, and tight relationship with your clients. For instance, through monthly retainers, you make sure your clients are getting their desired services and stick with you for more. You earn their trust, and don’t have to spend a lump sum amount on acquiring new clients. You make them familiar with your style of work, and they know who to trust with their expectations. This way, you don’t lose your clients after a one-time purchase.
Steady Stream of Revenue – Unlike a one-time purchase, a recurring revenue business model promises predictable revenue at scheduled intervals. This can be helpful for your agency in uncertain times. You can easily budget expenses, and invest in growth and expansion.
Investor’s trust – A predictable flow of income, and a loyal customer base can attract investments from investors that can help your agency expand and grow. So a recurring revenue model is important for the long-term growth plans for your agency.
Ideas to Make the Recurring Revenue Business Model Work
We are living in uncertain times, and this has resulted in a growing need for businesses to implement the recurring revenue business model.
Keeping this in mind, we have a few ideas to help you get started with setting up this model in place for your agency.
1. Content Based
Producing and selling great content is an easy way for your agency to make the recurring revenue business model work.
This could be in the form of an ebook you want to sell on a subject your clients care about and want to learn.
Another idea is to sell short online courses depending on your expertise, so your clients can take them and learn as they grow with you.
You can also create editable Canva templates for social media posts like Instagram and sell them to help your clients with their social strategy.
By combining all three, you can create a gated membership website, which would mean the members would have to pay a monthly recurring fee to enjoy access to the value-adding content you develop for them. While selling this, make sure you market the value that your clients would not get elsewhere.
2. Service Based
SaaS products are a little more expensive to create than content. But once created, they are more profitable in the long-term. This is because they make it incredibly easy for you to earn monthly recurring revenue.
To create a SaaS product, you may have to hire a developer if you don’t know how to code and build a software.
Some examples of SaaS marketing products are MailChimp, Later, Buffer, Clickflow, Rytr, and ActiveCampaign.
If you are a web agency, you can also sell website maintenance services and create monthly and yearly multi-tiered pricing plans deciding how many times you will provide maintenance services in each one. In addition, you can also resell hosting, create a bundle for “hosting and maintenance,” and charge a monthly fee.
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3. Product Based
Selling products is another great idea to implement the recurring revenue model in your agency.
An example is Design Pickle. They sell unlimited graphic designs with unlimited requests and revisions for either $399/month (Basic plan) or $995/month (Pro plan).
By following a similar model, you can develop and sell themes and plugins too. You can also charge a monthly fee for the plugins you choose to sell. It can be a ‘take it or leave it’ offer. So you can entice your clients into buying it from you.
Now that you have looked into the different ways and ideas you can make the recurring revenue model work for your agency, let’s look at what some agency experts have to say about this model, and how it benefits their business.
Recurring Revenue Models As Used By Experts
This is what experts from agencies recommend when it comes to implementing a recurring revenue model to their business.
1. The Subscription Model
Brian Dean, Founder of Search Analytics Platform Exploding Topics
“*The Subscription Model*
Mobile payments are becoming increasingly popular, and customers are preferring a more straightforward, hassle-free shopping experience. These developments are resulting in a surge in subscription-based services, which consumers can easily set up and then forget about, knowing that their goods or services will arrive every month. Add in some wild, well-messaged advertisements with a humorous spokesman, and you’ve got a business that
keeps doubling and even tripling its income year after year.
*Why Does It Work?*
As a digital marketing expert, I believe the subscription business model offers the best value to both the startup and the customer. Customers will find it simple and convenient, and it will remove a lot of the guesswork out of the purchasing process. Customers know they’ll get their product at the same time every month, won’t have to worry about reorders, and will pay
a predetermined, flat charge that won’t break the bank. On the startup side, the value is in the ability to predict revenue through recurring sales, which is extremely beneficial to a company’s valuation. This improves the company’s sellability, makes it more appealing to potential investors and purchasers, and sometimes leads to valuations of up to eight
times those of similar enterprises with minimal recurring revenue.”
2. Productized Service
Samuel Darwin, President at LinkDoctor LLC
“When we started off, we weren’t sure which model would work for our agency. Soon we gravitated towards a recurring revenue model. What we have done is we have shifted towards a “Productised service” approach.
We were able to achieve great results and establish long term relationships with
our clients. But like every coin has two sides, on the flip side of this we have got lazy on sales. This is one of my personal learnings. We use a bit of both the models, but predominantly we are inclined towards recurring models and it is giving fantastic results to us.”
3. Fixed Monthly Retainer Fee
Jonathan Zacharias, Founder of GR0
“As an agency, our recurring revenue model is based on a fixed monthly retainer fee for clients. Depending upon the client and their package, this retainer fee can fluctuate drastically.
Specifically, as an agency that strives to turn organic search into a performance marketing channel, we focus on three main buckets: content writing, performance HR, and on-page optimization. Depending on the suite of services, we then adjust our retainer fee accordingly.”
4. Selling SaaS
Julian Goldie, CEO of Goldie Agency
“*SAAS SHOULD BE SOLD (SOFTWARE AS A SERVICE)*
Your computer’s software is a program. Selling a subscription software service differs from selling physical goods. Instead of offering a tangible thing, you’re providing a service that people utilize on a regular basis.
If you provide a service that people want to use on a regular basis, they will want to subscribe to it. Subscription as a service might help your company generate recurring revenue. A recurring revenue firm that also happens to be a SaaS company is most likely developing software that customers find useful. Software services have a specific function. They make people’s lives easier and more convenient, I believe.”
Having a recurring revenue model in place means you can now easily focus on growing and expanding your agency business, without worrying about acquiring new clients every time, or an unpredictable stream of income.
It is a great way to establish strong customer relationships, loyalty, and retention, which in a domino effect can lure in new clients to your agency as well. For more ideas and popular agency pricing models, read our blog on 6 agency pricing models that boost profitability.
So research some more, and take inspiration from the myriad of agencies and SaaS companies around to implement the best type of recurring revenue model for your agency’s business.
Q1. How do you create a recurring revenue model?
Some great ways of creating a recurring revenue model are the following:
1. Launch a Membership Program Based on Your Services
2. Introduce Physical Product Subscriptions
3. Become an Affiliate for SaaS products
4. Combine two models together – membership program + physical product delivery
5. Have service or retainer plans
Q2. What are examples of revenue models?
There are 8 main types of recurring revenue models, and each is explained through a separate example. You can even use a hybrid recurring revenue model by combining two or more types of the model.
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