SaaS Recurring Revenue Model Explained

The basic method of operation for any subscription-based software-as-a-service provider is the SaaS recurring revenue model. Analysis of recurring revenue enables a SaaS or any similar organization to identify crucial patterns in the lifetime of the business. This research’s findings heavily influence recurring revenue management. Analytical information enables the administration to fine-tune the processes of the SaaS firm in order to optimize the value of existing subscribers, attract new consumers, and adjust to current difficulties.

SaaS Recurring Revenue Business Model: What is it?

Recurring payments are a major source of revenue for many SaaS firms. Customers, in other words, pay for items and services on a routine basis through subscription arrangements. A subscription plan is basically a subscriber’s agreement to pay specified sums at regular times. Recurring payments include those for Internet access, swimming pool subscriptions, and utility bills. A typical choice for SaaS recurring revenue model deployment is a SaaS firm that serves a network of fitness centers.

So, what exactly is recurring revenue?

Recurring revenue is the total value of all subscriptions divided by the length of the time period. It is usually a month or a year. Recurring monthly income is frequently used by SaaS and other subscription-based businesses to establish customer value, projected revenues, and selling pricing.

Businesses with recurrent income must consider two critical factors. The technical part covers payment processing variables. Aspects connected to the periodic billing process are included in the business component.

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The SaaS Recurring Revenue Model: Factors Related to Billing

Four essential characteristics underpin modern recurring revenue models. Three of them are positive, while one is negative.

  1. Subscription plan upgrades contribute to the expansion of monthly recurring revenue.
  1. Reactivated subscriber monthly recurring revenue is calculated as the value of reactivated accounts.
  2. The value brought by new customers is measured by new monthly recurring revenue.
  3. The churn of monthly recurring revenue involves the value of subscriptions that are downgraded or canceled.

While the first three components cause revenue growth, the fourth is as significant.

Businesses having recurring revenue must monitor all four criteria and detect changes in each. As a result, they will be able to identify the strengths and weaknesses of the selected recurring revenue models and tactics. Furthermore, they will identify the causes of client turnover and make efforts to avoid it.

Recurring Revenue Models for SaaS: Factors Related to Processing

This category of parameters is determined by the causes and magnitudes (absolute and relative) of transaction reductions.

Recurring revenue model declines tend to occur again, typically for the same cause. The following are some of the most common explanations.

  1. There is insufficient money. Transactions should be reattempted in such instances utilizing decline recycling logic.
  2. The card’s expiration date or number is invalid. This frequently occurs whenever the card on a record expires. Account updater logic should be in effect for recurring revenue SaaS enterprises in such instances.
  3. Incorrect transaction formatting. Most transactions, for example, are rejected merely because the transaction descriptor format lacks a “recurring” indicator.
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If the study shows that there are any common reasons for transaction decreases, the firm may be able to address the issues that are producing these declines.

Declined Transaction Analysis

What data can we glean from the study on the nature and prevalent causes of declines?

  1. Types of declines most commonly encountered.
  2. The types of declined transactions that need to be retried.
  3. The company must notify customers when it changes or verifies cardholder information.
  4. An example of a scenario where the company needs to use account updater logic.

The organization will be able to lower the rate of transaction decrease and boost income from current subscribers.

Processing costs

The transaction price is one of the essential considerations when selecting a payment gateway or processor. It also pertains to the recurring revenue model of SaaS. Small business owners are frequently forced to comply with the processing terms (and set costs) that major suppliers provide. At the same time, bigger SaaS companies that use the cost-plus model should examine the quantities and components of interchange fees they pay. Some recurring payment methods, for example, are prohibitively costly to handle. In such instances, it may be fair to urge clients to use alternative payment methods.

Conclusion

A SaaS company that wants to ensure effective recurring revenue management for both itself and its clients must examine both the business and technological components of the process. Identifying the most prevalent causes of transaction decreases, account freezes, and client churn is essential for any successful SaaS recurring revenue model. Both SaaS companies, as well as recurring revenue firms have significant client bases.

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UniPay Gateway, our flagship product, also has a specific solution (UniBill) for the efficient processing of recurring payments. So, please contact our specialists at UniPay Gateway to learn more about how the SaaS recurring income model might work for your unique business scenario.

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