Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Recurring Revenue

What it is:

Recurring revenue is revenue that a company has reasonable assurance will occur at regular intervals in the future.
 

How it works (Example):

Let's assume Company XYZ sells a widget-cleaning service. Its customers sign three-year contracts agreeing to spend $50 a month on widget cleaning. The future revenue associated with these contracts is called recurring revenue -- the company expects the revenue from these contracts to come at regular intervals (monthly), and it has a reasonable expectation that the revenues will indeed materialize (because it has legal contracts with the customers).

Why it Matters:

Recurring revenue makes a company more stable and predictable both operationally and financially. This in turn lowers the risk associated with a company's operations, though a hiccup in sales can easily reduce this sense of security.