Recurring Revenue Models – Can You Sell Razor Blades?

Most businesses chase the next sale. And then the next one. And the one after that.

But there’s another way to build your revenue - one where you don’t need to start from zero each month. Recurring revenue models are built on predictable, ongoing income from existing customers. Get it right, and you’ll create a virtuous circle of stability, customer loyalty, and long-term growth.

And it can be very profitable. It is estimated that it costs Gillette less than 20p to make an individual Fusion cartridge, which then sells for around £2.50 as part of a pack of 8 costing about £20.

Recurring revenue models don’t have to be the obvious things like gym and magazine subscriptions, or consumables like coffee capsules or razor blades. Rolls Royce sells ‘Power by the Hour’ - customers pay a fixed cost per flying hour for engine maintenance, rather than purchasing the engine outright or paying for individual repairs.

Let’s take a look at what recurring revenue models are, why they work, how to set one up, and the pitfalls to watch out for.

1. What is a recurring revenue model?

A recurring revenue model means your customers keep paying you over time, rather than just once. Think subscriptions, memberships, retainers, or pay-as-you-go services.

Done well, recurring revenue turns customers into long-term partners. You’re not just selling a product - you’re selling access, continuity, or peace of mind.

This is not new. Think about the milkman. Or gym memberships. Or car leasing. What’s changed is how many industries can now adopt these models - whether it’s SaaS, meal kits, legal services, or even hardware.

2. Benefits of using a recurring revenue model

There are plenty of good reasons to build recurring revenue into your business:

• Predictability: You don’t start every month on £0. Forecasting becomes easier.

• Higher customer lifetime value: A one-time buyer might pay you once. A subscriber pays you 12, 24, or 36 times.

• Improved customer relationships: You’re incentivised to deliver value continuously, not just at the point of sale.

• Scalability: Once your systems are in place, adding new subscribers is often easier than chasing new one-time sales.

• Higher business valuation: Investors love recurring revenue. It signals stability and future potential.

Put simply: a recurring model smooths your cashflow and strengthens your business.

3. Types of recurring revenue models (with pros and cons)

There’s no one-size-fits-all. Here are the most common types, with their pros and cons:

1. Subscription model

Customers pay regularly for ongoing access - monthly, quarterly, or annually.

• ✅ Predictable income

• ✅ Easy to understand

• ❌ Customers reassess value every renewal cycle

• ❌ Can suffer high churn if poorly managed

2. Membership model

Like subscriptions, but typically framed around exclusive benefits or community access.

• ✅ Builds loyalty and sense of belonging

• ✅ Can include an up-front membership joining fee

• ✅ Good for clubs, professional bodies, retail perks

• ❌ Needs ongoing perceived value (discounts, events, support)

3. Usage-based (pay-as-you-go)

Customers pay for what they consume (common in cloud services, telecoms).

• ✅ Fair and transparent - price tracks usage

• ✅ Low barrier to entry

• ❌ Harder to predict revenue

• ❌ May penalise heavy users or alienate light ones

4. Freemium + paid upgrades

Offer a basic free tier; charge for premium features or higher limits.

• ✅ Scales fast with wide adoption

• ✅ Low entry cost attracts users

• ❌ Converting free to paid users can be hard

• ❌ Risks over-delivering for free

5. Retainers and service contracts

Clients pay a recurring fee for ongoing services (common in B2B).

• ✅ High-value, high-trust relationships

• ✅ Clear deliverables and expectations

• ❌ Can blur into “all-you-can-eat” territory if not scoped carefully

6. Licensing or leasing

Charge monthly or yearly to use intellectual property or physical products.

• ✅ Good for high-cost assets or complex software

• ✅ Helps avoid large upfront sales cycles

• ❌ Requires asset management and regular service

7. Outcome-based (performance-linked)

Fees are tied to results - like a percentage of money saved or revenue gained.

• ✅ Aligns pricing with value

• ✅ Attractive to customers (low risk)

• ❌ Hard to measure results accurately

• ❌ Risky if outcomes are outside your control

Often, businesses combine models. For example: a core subscription with usage-based add-ons, or a membership with tiered pricing. Hybrid approaches are not only fine - they’re usually the best option for both the company and the customer.

4. How to set up and launch a recurring revenue model

Launching a model like this is not technically difficult, but there are things you need to plan properly to ensure success.

✔ Know your customer:
Do they need recurring value? Will they pay monthly for access or convenience?

✔ Package the right offer:
Don’t just put a paywall in front of your current service. Think: what’s the ongoing value? This could be support, updates, content, savings, convenience, or peace of mind.

✔ Choose your model:
Pick a structure that fits your business and your customer (from the list above).

✔ Price it properly:
Recurring doesn’t mean cheap. Price for the value delivered over time. Consider tiered pricing to serve different needs.

✔ Sort the tech:
You’ll need reliable billing systems, subscription management, and customer support. Bad admin kills trust.

✔ Onboard and educate:
The first experience matters. Get customers up to speed quickly and show value early.

✔ Communicate regularly:
Keep customers in the loop. Remind them what they’re getting, what’s new, and how to get the most out of it. Regularly suggest training resources such as a library of training videos on YouTube.

✔ Monitor and adapt:
Which features get used? Where do customers drop off? What feedback keeps coming up?

5. The challenges of using a recurring revenue model

This isn’t a magic bullet. There are pitfalls:

• Churn: If customers cancel faster than you add new ones, you’re in trouble. Managing churn is just as important as acquiring customers.

• Billing complexity: Upgrades, downgrades, failed payments - it all needs careful handling.

• You need to earn it - every month: Subscription means ongoing value. If customers stop seeing it, they’ll stop paying.

• Slower early revenue: You won’t see big upfront payments. Patience is required while recurring income builds.

• Retention beats acquisition: Acquiring a customer is only half the job. Retaining them is where you win.

Recurring revenue doesn’t remove problems. It just gives you different ones. But they’re often better problems to have.

6. How to measure success

Don’t just count subscribers. Look at the whole picture.

• Monthly Recurring Revenue (MRR): What are you earning each month from subscriptions?

• Annual Recurring Revenue (ARR): Multiply your MRR by 12 - gives a view of yearly performance.

• Customer Lifetime: Based on your churn, how long do you typically keep a customer?

• Customer Lifetime Value (CLV): Total value each customer brings over time (Customer Lifetime in months x MMR).

• Customer Acquisition Cost (CAC): What does it cost you to get a new subscriber? Is this lower than the CLV?

• CAC payback period: How long until you recoup the cost of acquisition?

• Average Revenue Per User (ARPU): Are customers upgrading or stagnating?

Watch the trends. Growth in MRR is good - unless it’s being masked by high churn.

7. What KPIs need to be monitored?

If you’re not tracking the right KPIs, you’re flying blind. Focus on:

• Churn rate: The percentage of customers cancelling each period. Lower is better.

• Retention rate: The flip side of churn. How many customers are staying?

• Trial-to-paid conversion rate: If you offer a free trial or freemium model, what percentage convert?

• Upgrade/downgrade rates: Are customers moving up or down your pricing tiers?

• Net revenue retention: Measures how much revenue you keep and grow from existing customers - this includes expansion, downgrades, and churn.

These numbers tell the story. And more importantly, they show you where to act.

Final thoughts

A recurring revenue model is more than just a payment plan. It’s a business philosophy.

It says: we believe in the value we deliver - so much so, we’ll earn your business again next month, and the one after that.

If you're in a business where ongoing value can be delivered, recurring revenue is a smart move. It’s not always easy, and it comes with its own demands. But get it right, and you’ll trade short-term wins for long-term, predictable growth.

And isn’t that what every business really wants?