Two Minutes Reading for business analysis
What is Recurring Revenue?
Recurring revenue means a company keeps earning money from the same customers on a regular basis. Think of subscription models like Netflix or Adobe Creative Cloud. Instead of selling a product once, these businesses get paid monthly or yearly—creating a steady income stream.
This consistency means: It’s predictable, reliable income that a company can count on month after month or year after year. It comes from subscriptions, memberships, or long-term contracts. This makes a company’s financial performance much more stable and easier to forecast.
What Makes Customers “Sticky”? 🧲
A “sticky” customer is one that stays loyal and doesn’t leave easily. Switching costs, convenience, or habit all play a role.
Examples:
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Microsoft Office 365: Businesses depend on it, and switching would be disruptive.
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Costco memberships: Customers keep coming back because of value and habit.
Sticky customers mean lower churn rates—the company doesn’t need to spend as much on finding new buyers.
Why This Matters to You as an Investor 💡
Companies with both recurring revenue and sticky customers are incredibly resilient. They build a financial fortress. 🏰
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Stability in Storms: During a recession, people may cut back on big one-time purchases, but they’ll often keep paying for essential software subscriptions or warehouse memberships. This protects the company—and your investment.
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Predictable Growth: Reliable income allows companies to plan, invest in new products, and grow steadily, with fewer nasty surprises.
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Profitability: It costs less to keep a happy customer than to find a new one. Loyalty drives higher profits—great news for shareholders.
📌 Investor takeaway:
When evaluating your next investment, ask:
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Does this company get paid automatically and repeatedly?
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Is it hard or inconvenient for customers to leave?
If both answers are “yes,” you may have found a wonderfully resilient business.
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