What is recurring revenue software? A complete guide

There’s no denying it — the subscription economy is here to stay, and it’s evolving with more usage-based billing options. That’s why more SaaS companies are looking to streamline their billing with recurring revenue software. 

Here’s a breakdown of what we’ll cover:  

• A definition of recurring revenue software and its role in SaaS
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• The key features of recurring revenue software at a glance
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• An explanation of how recurring revenue helps SaaS companies scale
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• The difference between recurring revenue software and traditional billing systems
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• How recurring revenue affects customer relationships

Let’s get started by answering what recurring revenue and recurrent revenue software are. 

What is recurring revenue exactly?

Recurring revenue is the lifeblood of the subscription economy. It's the steady heartbeat that keeps businesses thriving in a world where customers pay not just once, but again and again. 

It's the predictable revenue stream that flows from subscription services, memberships, and retainers. It's present in any business model where customers make regular payments for ongoing access to a product or service.

This predictability lets decision-makers plan, grow, and weather the storms of economic uncertainty.

Managing recurring revenue can be a balancing act. Companies need to manage subscriptions, billing cycles, upgrades, downgrades, and missed payments. 

The bridge between subscription billing and usage-based billing

Recurring revenue is typically associated with subscription billing — customers pay a fixed amount at regular intervals for ongoing access to a solution. Usage-based billing is viewed as a more advanced form of subscription billing. 

Here’s how: With usage-based billing, customers still pay on a fixed timeline (e.g., monthly), but the amount they owe fluctuates depending on their product usage. 

Think of it like this — whether you’re using a cloud service like AWS, where you pay based on consumption, or a hybrid model where a base subscription is augmented by usage-based elements (like Webflow or Replit), you're still operating under the larger umbrella of subscription-based payments.

The role of recurring revenue management software

Enter recurring revenue software. It’s the tool that helps you orchestrate every aspect of recurring payments. 

This specialized software helps your business:

• Manage subscriptions: From sign-up to renewal, keep track of every customer's journey.
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• Automate billing and invoicing: Reduce the risk of error and guarantee timely payments. 
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• Handle failed payments with ease: Gentle reminders and retries keep the revenue flowing.
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• Gain insights through reporting: Uncover trends, understand customer behavior, and make informed decisions.
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• Ensure accounting compliance: Navigate the complexities of revenue recognition with confidence.
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• Integrate with your existing tools: Create an ecosystem where your software works in harmony.

For a SaaS company, being able to manage recurring revenue builds the foundation of its success. It's one of the metrics that investors look at the most. It’s the fuel that powers growth, and the key to building a scalable business.

Key features of recurring revenue software

Now that we know what recurring revenue software is, let's explore the key features that make it indispensable for businesses:

1. Automated billing and invoicing

Automated billing and invoicing is the backbone of efficient recurring revenue management. It eliminates manual processes, ensures accuracy, and streamlines the payment collection process. Here's what you can expect from recurring revenue software in this domain:

• Easier recurring billing: Define your billing cycles (monthly, annually, or anything in between). Subscription revenue management software generates and sends invoices, ensuring timely and accurate billing.
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• Pricing made simple: Pricing tiers, discounts, and proration for mid-cycle changes — the software handles it all. It helps your business accommodate various customer needs too.
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• Payment flexibility: Accept a wide range of payment methods (credit cards, ACH, PayPal, etc.) and currencies. You can cater to a global audience and reduce friction in the payment process.
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• Proactive failed payment handling: Automatic retries and dunning management help you get paid. Using the right recurring revenue software minimizes revenue leakage.

2. Subscription management

From initial sign-ups to renewals, subscription management features help you optimize customer journeys. Let’s take a closer look:

• Faster and easier onboarding: Capture customer information, payment details, and subscription preferences. You can do all of those things through signup forms and self-service portals.
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• Give power to the customer: Allow users to upgrade, downgrade, or pause their subscriptions with a few clicks. You’re enhancing their experience and reducing support overhead.
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• Real-time notifications: Receive instant alerts about cancellations or changes. These notifications let you address issues and win back customers.
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• Churn analysis: Uncover the reasons behind cancellations through detailed reports and analytics. Understanding churn helps you fine-tune your retention strategies to keep customers subscribed. 

3. Analytics and reporting

Recurring revenue software equips you with analytics and reporting tools to better grasp how your business is doing. Let’s analyze three areas in which the right tools help:

• Real-time metrics tracking: Monitor Monthly Recurring Revenue, Annual Recurring Revenue, churn rate, customer lifetime value, customer acquisition cost, and other crucial performance indicators.
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• Trendspotting: Identify patterns in customer behavior, product usage, and revenue growth. Recurring revenue software lets you do this through customizable dashboards and in-depth reports.
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• Strategic decision-making: Leverage data-driven insights. These data points help optimize pricing, marketing campaigns, product development, and your overall business strategy.

These features make recurring revenue software a key tool for scaling SaaS organizations in the subscription economy. In the coming section, we’ll look at how this software supports growth. 

How recurring revenue software supports business growth

Recurring revenue software is about laying the groundwork for sustainable, scalable growth. It propels your business forward by tackling key challenges and unlocking new opportunities. Here are three areas in which recurring revenue software helps:

Reducing churn

Customer churn can erode your revenue base if not monitored. Recurring revenue software helps you combat this with:

• Proactive dunning: Automated retries and personalized communication. These two can salvage failed payments and prevent involuntary churn. 
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• Customer insights: Analytics tools help you identify at-risk customers. These tools allow you to intervene with targeted offers or support.
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• Self-service options: You can empower customers to manage their subscriptions. The result is less frustration and satisfied users. 

By minimizing churn, you protect your existing revenue and create a solid foundation for growth.

Boosting customer lifetime value

Increasing the value each customer brings over their lifetime is a powerful growth strategy. Recurring revenue software enables this with:

• Upselling and cross-selling: Suggest relevant upgrades or add-ons based on behavior and preferences. 
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• Personalized experiences: Leverage customer data to tailor offers and communication. Doing this helps you foster long-term customer loyalty. 
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• Usage-based billing: Align pricing with value. Implementing usage-based billing can encourage users to use your solution more. You’re tying perceived value to how much they pay. 

When customers stay longer and spend more, your business reaps the rewards of increased profitability.

Financial forecasting

Predictable revenue streams are invaluable for reliable business planning. Recurring revenue software turns financial forecasting from guesswork to confidence with:

• Accurate revenue recognition: Guarantee compliance with accounting standards. You’re also avoiding nasty surprises come tax time.
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• Scenario modeling: Project the impact of pricing changes. You can also see how new product launches or marketing campaigns would affect other areas of your business.

With clear visibility into your financial future, you can make better decisions, secure funding, and chart a course for scaling.

Recurring revenue software vs. traditional billing systems

Recurring revenue software stands apart from traditional billing systems due to its advanced features that are designed for the subscription-based business model. Let’s analyze the differences between these two types of systems:

Automation and efficiency

Traditional billing systems often rely on manual processes, which are prone to errors and consume valuable time. In contrast, recurring revenue software automates many tasks. Automating simple tasks means your team can focus on strategic initiatives.

It generates and sends invoices and processes payments. It also handles failed payments with automated reminders and retries. Subscription changes like upgrades, downgrades, and cancellations are managed within the software. 

Adaptability

Traditional billing systems are often rigid and designed for one-time transactions. They are unable to accommodate the dynamic nature of subscription-based businesses. Recurring revenue software, however, is built for adaptability. Here’s how:

• Subscription models: Recurring revenue software supports various subscription models. Think monthly, annual, usage-based, or tiered pricing. The result is you can tailor your offerings according to what customers want.
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• Changing customer needs: Customers can upgrade, downgrade, or pause their subscriptions. This feature is the essence of adaptability, as changes can be made with minimal effort from your end. 
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• Growth and expansion: As your business grows, the software scales with you. This means you can support more complex billing scenarios and a larger customer base.

Adaptability helps make sure your billing processes align with your goals. Even if your offerings change or you outgrow your niche market, you’ll always be able to keep your product relevant. 

Impact of recurring revenue software on customer relationships

Recurring revenue software plays a pivotal role in nurturing customer relationships. These are the three aspects that help you keep customers engaged and happy:

Automation

Customers crave convenience and seamless interactions. Recurring revenue software delivers that through automation. The software creates a frictionless experience for your customers.  It does so by eliminating manual tasks, reducing errors, and providing self-service options.

Automated billing and invoicing ensure timely and accurate payments. Steady payments then translate into less frustration and more trust. Self-service portals let customers manage their subscriptions. It also lets them update payment information, and access support resources on their terms.

Engagement and retention

Recurring revenue software helps you build connections with your customers. Analytics and reporting tools provide valuable insights into customer behavior and preferences. You can then tailor your offerings and communication based on that info. 

You can spot at-risk customers and address their needs. You're preventing churn and strengthening relationships with your SaaS users. Plus, attention to detail shows that you value their business.

Personalized communication

Recurring revenue software lets you send targeted messages based on customer data and behavior. You can do it through welcome emails, renewal reminders, or special offers. 

Personalized communication shows customers that you understand their needs and appreciate their business. This feature turns one-time subscribers into lifelong advocates for your brand.

Next steps: How Orb solves your recurring revenue billing needs

We've explored the critical role of recurring revenue software in driving business growth. As you now know, choosing the right tool is key.

Enter Orb, the billing management platform that helps you improve your recurring revenue strategy.

Orb is a flexible billing engine built for developers and finance teams. We help businesses tackle the unique challenges of hybrid and usage-based pricing models. 

Orb ingests and processes massive volumes of product usage data. Our platform also accelerates the launch of new products with adaptable pricing structures. It also equips you with detailed financial reporting to make informed decisions.

With Orb, you can:

• Bill with more precision: Orb tracks and captures every billable event. We ensure accurate and transparent billing and invoicing for your customers.
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• Scale with ease: Orb's plan versioning allows you to create and manage diverse pricing tiers. With Orb, you can evolve your pricing model in tandem with your business growth.
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• Unlock data-driven insights: Orb transforms complex usage data into actionable insights. Its robust tracking capabilities are perfect for products based on granular usage metrics.
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• Simplify your workflow: Orb integrates with popular data warehouses and accounting software. We help you streamline operations and avoid costly mistakes. 
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• Customize your billing: You can define your usage metrics and pricing models. It's easy, thanks to Orb's intuitive interface and custom SQL editor.

Discover how Orb can help you build an outstanding recurring revenue billing strategy. Give Orb a spin and check out our 30-day free trial.