what is recurring revenue 
recurring revenue is the portion of a company s revenue that is expected to continue in the future unlike one off sales these revenues are predictable stable and can be counted on to occur at regular intervals going forward with a relatively high degree of certainty understanding recurring revenuebusinesses investors and analysts pay particular attention to a company s revenue also known as its top line recorded on the income statement the top line determines the bottom line or profit since all expenses and taxes are subtracted from revenues to get net income revenue can consist of one time sales or a stream of expected periodic sales the latter known as recurring revenue is very important to businesses that are concerned with maintaining a constant and consistent stream of revenue examples of recurring revenuerecurring revenue can appear in different forms across various industries examples can range from companies who receive monthly payments from customers locked into long term contracts extending beyond the current accounting period to big name brands that can reasonably expect their popular market leading products to continue being at the top of consumer shopping lists for years to come in many industries it is normal for companies to tie their customers into long term obligations in exchange for regular active use of a service for example cell phone firms typically require customers to enter two three or even five year contracts with monthly payments these companies will record these future revenues as they are almost certain that monthly payments will be made over the duration of the legal binding contracts signed by customers they also generally build cancellation clauses into their contracts requiring that customers pay a certain amount in the event that they cancel their contract early if the provider can estimated the early cancellation percentage they can relatively accurately forecast all revenues from contracts whether fulfilled or not evergreen subscriptions including auto renewal policies such as microsoft corp s msft office 365 norton mcafee anti virus registrations cloud services music streaming internet domain registrations print or digital news publications etc are other examples of sources of revenue that are recurring for a firm companies are sure to collect on these payments until customers terminate their subscriptions monthly recurring revenue an important metric for subscription based businesses is calculated by multiplying the total number of paying users by the average revenue per user arpu companies that sell products that can only be used with other accessories produced by the same firm can often count on receiving predictable revenue in the future for example a toilet bowl brush stick that can only be used with specific scrubbing brushes a shaving stick which only fits customized razors a personal coffee maker that only accepts one brand of cups and the like will always require refills the sales of which act as recurring revenues for businesses companies with an established brand name in its market space have a loyal base of customers that are very likely to keep purchasing its products a good example is coca cola co ko the soft drink maker s beverages are consumed by customers all over the world multiple times a day for decades its products have been purchased frequently enough for coca cola to state with reasonable assurance how many bottles or cans it will likely continue to sell in the future special considerationsmany market pundits consider recurring revenue to be a highly desirable quality they make a company more stable and predictable both operationally and financially lowering the risk that business will take a drastic turn from one month to the next that stability usually comes at a cost investors are regularly willing to pay more for the earnings generated by companies with recurring revenues because their forecasts are deemed more reliable of course that also means that any sign of falling sales can incite more panic contracts eventually end and company fortunes and market strength can fluctuate over time as consumer habits change and new competitors enter the market 