What is Recurring Revenue?

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

How Does Recurring Revenue Work?

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 Does Recurring Revenue Matter?

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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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