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.