A recurring revenue model is one where customers pay you automatically at regular intervals, monthly or yearly, for ongoing access to a product or service. Because the income is predictable, it smooths cash flow, lowers risk and makes a business worth far more to a buyer than one built on one-off sales. It only lasts, though, when it is protected by a moat.
Key takeaways
- One-off revenue creates a feast-or-famine cycle. Recurring revenue lets you plan payroll, hiring and growth.
- Buyers value recurring revenue on revenue multiples; one-off businesses are usually valued on a multiple of profit, if they sell at all.
- Subscription alone is not enough. Without a moat, anyone can copy your offer overnight.
- Columbia House closed in 2026 after 71 years. Revenue built on customers forgetting to cancel has an expiry date, and from 1 July 2027 it is also a legal risk in Australia.
- Almost any business can add a recurring stream: a plan, a membership, a maintenance agreement or a refill.
We had put more than $200,000 into my first business, a "results-guaranteed" marketing agency. And we were still burning cash faster than an American shopper on Black Friday.
The agency was growing fast and winning international clients. But every dollar we earned was a one-off. We would win a few projects, max out our capacity, finish the work, and then I'd sit there wondering how I would pay everyone next month. Feast, then famine. Repeat.
That moment is why I wrote The Subscription Playbook, and it's why this page exists. A recurring revenue model, protected by a moat, is the most reliable way I know to build a business that pays the bills, lets you sleep, and is worth something when you sell it.
Let me show you why, what has changed since the book came out in 2022, and how to add recurring revenue to almost any business.
What is a recurring revenue model?
A recurring revenue model is one where customers pay you automatically, on a schedule, for ongoing access to something. Monthly or yearly. Until they cancel.
Netflix, Amazon Prime and Xero are the obvious examples. But so is the car wash club down the road, the vet's wellness plan, the plumber's annual maintenance agreement and the accounting firm that bills a fixed fee every month instead of sending one big invoice in October.
The key word is automatic. A customer who loves you and comes back often is great. That's repeat revenue. A customer who has agreed to keep paying is recurring revenue. A buyer of your business will treat those two very differently.
| One-off revenue | Repeat revenue | Recurring revenue | |
|---|---|---|---|
| How it works | Each sale is won from scratch | Customers choose to come back | Customers are billed automatically |
| Example | A website build | A cafe regular | A monthly coffee plan |
| Predictability | Low | Medium | High |
| Cash flow | Lumpy | Seasonal | Smooth |
| How buyers see it | "Will it continue without the owner?" | "Is the loyalty real?" | "What's the churn rate?" |
If you want the numbers behind recurring revenue, start with monthly recurring revenue (MRR). It's the heartbeat of any subscription business.
Why is recurring revenue so important?
The US Bureau of Labor Statistics data I quoted in the book says about half of all businesses close within five years. The top reasons? Low sales and bad cash flow.
My agency had great sales. I could certainly relate to the cash flow part.
Recurring revenue fixes three problems at once.
1. You can plan
When you know roughly what's coming in next month, you can hire ahead of demand, commit to a lease and pay suppliers on time. The stress of living hand to mouth disappears.
2. Growth compounds
With one-off sales, you start every month at zero. With subscriptions, you start every month with last month's customers still paying. New sales add to the base instead of replacing what finished.
3. Your business is worth more
This is the one most owners miss. I'll come back to it in detail below, because it changes everything about how you should run your business.
Why I'd only start a recurring business now
After the agency, I joined forces with my brother. He knew how to build great software, and I could sell and market it. Our first product was an e-learning academy for architecture and engineering students with recurring subscription revenue. That led to software for architects and property developers. The difference from my agency days came down to two things: recurring revenue and a strong moat.
The first major subscription success, from 1926
Subscriptions aren't new. Let me take you back almost exactly one hundred years.
It's 1926. An entrepreneur named Harry Scherman launches the Book of the Month Club. A panel of respected critics picks the books, and members receive them by mail for a regular fee.
Within a year it had 4,000 subscribers. By the end of year two, 60,000. After World War II, 550,000. By the mid-1950s, more than 800,000 members. The club sold for $63 million in 1977.
No bookshop of the time could offer anything like it. For a long time, the subscription itself was the moat.
What happened to the Book of the Month Club?
When I wrote the book, the club was still running and had about a million Instagram followers. It has done better than survive.
After a relaunch in late 2015, the modern Book of the Month kept the core promise (a small, curated shortlist) and dropped the old mail-order machinery. Fast Company reported in 2025 that it had grown to more than 400,000 members, and its Instagram following passed 1.5 million. Industry estimates reported by WWD put revenue at about $50 million in 2024. In 2026 it celebrates its centenary.
The lesson is sharper now than when I wrote it. Members aren't paying for books. They can buy books anywhere. They're paying for a trusted filter. Read the full Book of the Month Club update for how it rebuilt itself.
From $1.4 billion to complete collapse: the Columbia House warning
The Columbia Record Club looked at what the book club was doing and copied it for music. It sent out a catalog, let people choose a free album, and signed them up.
People love free. Membership hit 128,000 within a year. By 1963 Columbia shipped more than 7 million records a year, about 10 percent of all records sold in the United States. At its peak it was a $1.4 billion-a-year business.
It had everything today's streaming services have: a huge catalog, convenience and data. It was one of the first companies to analyze customer data to spot music trends.
So why did it fail?
In a word: greed.
Columbia leaned too hard into acquisition and not enough into serving the customers it already had. People grabbed the "12 CDs for a penny" offer without realizing they had tied themselves to a subscription they didn't want. The next batch arrived at full price unless they said no. Then MP3s, file sharing and streaming broke its physical-media moat.
What has changed since the book
When the book came out, Columbia House was a cautionary tale from the past. In August 2026, Quartz reported that it would stop accepting new orders on 15 September 2026, ending the club after 71 years. A planned relaunch as a vinyl club never happened.
Here's the irony. In the same year the copycat closed, the original Book of the Month Club turned 100, with a model where members actively choose their book instead of receiving one by default. The Columbia House case study covers the end of the road.
The updated lesson: a subscription built on customers forgetting to cancel has an expiry date. The demand for music never went away. Spotify proves that. What died was a model that made money when customers forgot to say no.
Negative option is now a legal risk in Australia
Australia's Parliament passed the Competition and Consumer Amendment (Unfair Trading Practices) Bill 2026 on 2 July 2026. It received Royal Assent on 6 July 2026 as Act No. 64, 2026, and its subscription rules start on 1 July 2027. As at October 2026, the law requires businesses to disclose key terms at sign-up, give notices during the subscription (expected to include reminders before a free or discounted trial ends and before renewals, with timing set by regulations not yet made), and provide an easy way to cancel. Some protections extend to small-business subscribers. This is general information, not legal advice. See our guide to Australia's subscription trap laws and get advice on your own sign-up flow.
Why gyms are not the safest subscription model
Gyms are the subscription model most people know, and they have an odd quirk.
The figures I used in the book: about 80 percent of people who sign up for a gym membership cancel within six months, and 50 percent never walk through the doors. (If there's a neglected gym card in your wallet right now, you're helping keep the lights on.) To stay profitable, gyms can need up to ten times more paying members than they can support at any one time.
It's possible.
Plenty of gyms do it.
But it's not the safest of subscription models out there.
Planet Fitness shows the healthier side of the model. It held its classic card at $10 a month from 1998, then in 2024 raised it to $15 for new members only, after price-testing in several markets. Existing members kept paying $10, so nobody had a reason to cancel. If you run a gym or studio, our gym membership pricing guide goes deeper.
The point is this: the subscription model is powerful, but you can fail with it if your approach is unsustainable. That's why the "ultimate business" has two parts.
What is a moat, and why isn't subscription enough?
Picture an ancient castle. Almost every one has a deep, wide body of water around it. That's a moat, and its job was to stop attackers.
In 1995, Warren Buffett told Berkshire Hathaway shareholders: "We're trying to find a business with a wide and long-lasting moat around it."
Here's why you need one.
Say you start selling dog biscuits on subscription instead of one bag at a time. Great start. But I could find a dog biscuit supplier tomorrow, set up a template website overnight, and we'd be in competition.
Adding subscription revenue is a great start. It's not enough. Businesses need subscription revenue and moat elements to be safe.
Dollar Shave Club is the modern proof. Its viral launch video built a billion-dollar brand, and Unilever paid $1 billion for it in 2016. But a razor subscription is easy to copy. In October 2023 Unilever sold a 65 percent stake to private-equity firm Nexus Capital, keeping 35 percent, without disclosing the price. Marketing got it launched. On its own, it didn't build a moat.
The book's five-part framework for building one is called MOATS: Marketing supremacy, One (no single point of failure), Audience, Toughness and Switching. You'll find all five, with examples, in Dig your moat.
Why the subscription model could benefit your small business
Let's switch to salability.
Most small business owners have a vague plan: build something that supports their lifestyle, then sell it when it's time to retire.
It's the business owner's dream. It doesn't always come true.
Businesses built on one-off transactions find it hard to sell for what the owner thinks they're worth. In the book I wrote that most acquirers will offer two to seven times net profit for this kind of business, assuming you get an offer at all, and usually at the low end.
Subscription businesses are often valued differently. Buyers look at revenue, retention and growth, not only profit.
Spot the difference
This is the comparison from the book, using the figures available when I wrote it.
| Average small business owner | Slack | |
|---|---|---|
| Revenue | $387k | $867m |
| Sale | Sold for $320,000 on average | Sold to Salesforce for about $28b |
| Odds | Less than 2% chance of ever selling | Acquired |
| Multiple | 0.67x revenue | About 26x projected revenue |
Sadly, 98 percent of small businesses close rather than get acquired.
Slack is an extreme example, and 2021 was a peak year for software valuations. Multiples have come back to earth since. But the principle hasn't moved: predictable revenue from customers who stay is what buyers pay up for. Our page on recurring revenue multiples has the current ranges and what moves them.
Slack's story didn't end at the sale, either. In June 2025 Salesforce folded advanced AI into Slack's Business+ plan and raised the price from $12.50 to $15 per user per month. When customers are embedded, you can bundle new value into the plan and lift the price. That's what recurring revenue plus a moat buys you.
Free Subscription Profit Review
Australian business owners can book a free 30-minute review with a BPAG Accountants adviser. An honest conversation about:
- whether a subscription model could work for your business
- how recurring revenue could cover your fixed costs each month
- how it could lift what your business is worth
No cost, no obligation. General information only until we understand your situation.
A real estate example
Imagine you're selling a real estate agency. A buyer wants to see the books.
What do they look at first?
Your rent roll. The property management income.
Sales commissions can be big, but they're one-off. Nobody can promise the same number of sales next year. The rent roll is stable and recurring, so it's the best indicator of the business's strength. When I wrote the book, the Australian property company :Different was marketing "proactive property management for just $30/week" for exactly that reason.
A 2026 example: the car wash that became a club
Mister Car Wash is the clearest example I know of a traditional business transformed by recurring revenue. Its Unlimited Wash Club made up 71 percent of wash sales in 2023, 74 percent in 2024 and 79 percent in 2025, with about 2.3 million members. In February 2026, its controlling shareholder agreed to take it private at an enterprise value of about $3.1 billion.
A weather-dependent, one-wash-at-a-time business became a predictable one. Buyers pay for that.
Worked example: what recurring revenue does to a bookkeeping firm (illustrative)
A bookkeeping practice has 120 clients who each pay about $5,400 a year, invoiced as one-off jobs: roughly $648,000 a year, but lumpy, with most cash arriving around tax time.
It packages the same work into a monthly plan at $450 a month, billed by direct debit. Revenue is the same $648,000, but now it arrives as $54,000 every month, and the firm can report $648,000 of annual recurring revenue.
Three things change. Cash flow smooths out, so the owner stops funding quiet months from savings. Price reviews become small monthly increments rather than a shock invoice. And a buyer can see contracted revenue and churn, instead of guessing whether clients will come back. (Figures are illustrative.)
Model your own numbers in the calculator below.
Do you work "in," "on" or "over" your business?
There's another reason small businesses aren't attractive to buyers. They depend on the founder.
Buyers don't want to buy a full-time job. Investors don't even want a business they can work "on." They want one they can work "over."
Imagine you're running a coffee shop.
- In the business: you take the money, make the coffee, sweep the floors and order supplies.
- On the business: you step above the day-to-day to hire people and build processes.
- Over the business: you see the big picture. You open locations in strategic areas, buy other stores and scale.
From working with hundreds of business owners, I can say most work "in" the business. A small percentage work "on" it. Very few work "over" it.
I've been guilty of this. Early on, I thought I was clever doing my own admin and "saving money." Looking back, that was some of the most expensive time I ever spent.
Recurring revenue is what makes "over" possible. Predictable income lets you hire ahead and delegate, because you know you can cover payroll next month.
Steal this: the one-week time log
For the next week, log every business activity and how long it took. Then mark each one "in," "on" or "over." Most owners find the "in" column embarrassing. Next week, move two hours from "in" to "over," and spend them designing your first recurring offer.
How do you make recurring revenue? Five ways to add it to any business
Recurring subscription revenue isn't just for software. It works for nearly any business that has a product or service people buy often and enjoy.
I have a favorite peppermint tea. Every month a shipment arrives automatically and I save 10 percent. I need to buy it over and over, so it's perfect for subscription.
Here are five practical ways in, with examples you can copy.
| Route | What it looks like | 2026 example |
|---|---|---|
| Refill the consumable | Ship what customers run out of on a schedule | Who Gives A Crap built its toilet paper brand on recurring boxes before moving into supermarkets |
| Bundle the routine service | One monthly fee for work clients already buy regularly | Accounting firms moving to fixed monthly fees; a 2025 benchmark found hourly billing for CFO services fell from more than 20% of firms to 10% |
| Sell peace of mind | A plan that covers routine care and priority service | Greencross Vets' Healthy Pets Plus at A$660 a year, payable fortnightly |
| Attach a membership to a product | Sell a plan at the point of sale | GoPro's subscription: about 30 cents of cost per revenue dollar, against 73 cents for cameras (2025) |
| Turn loyalty into paid membership | One headline benefit for an annual fee | Kogan's paid loyalty programs earned A$61.4 million in FY26, up 14.3% |
Not sure which shape fits you? The book describes eight subscription models in detail. Start with the 8 subscription business models and pick the closest match.
Which subscription model fits your business?
Answer eight quick questions and the free Subscription Model Selector recommends the model to start with.
Steps to launch your first recurring offer
- List what customers buy more than twice a year. That's your raw material.
- Package it. Three tiers at most, with clear inclusions.
- Price it so you profit on your heaviest users, not your average ones. Pret learned this when its five-drinks-a-day plan attracted the customers who cost most to serve.
- Bill automatically, by direct debit or card, with the sign-up and payment authority done together.
- Make it easy to leave. Clear terms, renewal reminders and a one-step cancel. It costs a little churn and buys a lot of trust, and in Australia clear disclosure and an easy exit become legal duties from July 2027.
What can go wrong with recurring revenue?
I'd be doing you a disservice if I told you recurring revenue is always the answer. It isn't.
It's the wrong choice when customers don't need you repeatedly. A doctor who cures an ear infection doesn't have ongoing usage. Forcing a subscription onto a one-time need creates resentment and churn.
It can strain cash flow at the start. Moving a client from a $5,000 upfront project to $450 a month means less cash in month one. Annual plans paid upfront, or a setup fee, bridge the gap.
Low churn in a boom isn't a moat. The book quoted Peloton's tiny 0.73 percent monthly churn. By the fourth quarter of fiscal 2026, its average net monthly churn was 2.2 percent, about three times that figure, as the pandemic boom faded and the sunk cost of the bike wore off.
One big customer can sink you. Babylon Health, which the book used as an insurance-model example, lost contracts worth nearly half its 2022 revenue in one non-renewal and filed for liquidation in 2023.
Inertia isn't loyalty. Amazon agreed to a $2.5 billion settlement with the US FTC in September 2025 over allegations that it enrolled people in Prime without consent and made cancelling hard. Recurring revenue should come from value, not friction.
2026 update: what's new in recurring revenue
The book's core argument has held up. Here's what has changed in the four years since.
Big subscription companies count money, not members. Netflix stopped reporting subscriber numbers from 2025 and points investors to revenue and engagement. Disney followed. The lesson for smaller players: watch revenue per member, not member count.
AI has made "recurring" harder to define. Many of 2026's fastest-growing AI companies report "ARR" that is really run-rate revenue from usage. One of them, Arena, says outright that its consumption-based revenue is "not recurring." When you report your own numbers, separate contracted subscription fees from variable usage.
Pricing is blending. ICONIQ's 2026 survey of about 305 AI builders, as summarized by SaaStr, found companies blend an average of 1.7 pricing models, and consumption pricing rose from 35 percent to 42 percent of companies. The winning shape is often a subscription base with usage on top. Read the five subscription pricing models and the newer usage-based and credit models before you set a price.
Seats are under threat. When AI lets your customer do more with fewer people, per-user pricing shrinks your revenue. Australia's WiseTech removed seat fees entirely in December 2025 and moved CargoWise customers to transaction-based pricing. Recurring revenue is safest when it's tied to the work flowing through your business, not headcount.
Regulators expect "easy in, easy out." The UK's new subscription rules apply from January 2027, Australia's from 1 July 2027, and the US FTC keeps enforcing case by case. Design every sign-up and cancellation flow as if those rules already apply to you.
What to do next
If I'm starting a new business tomorrow, recurring subscription revenue with a moat is the model I'll work toward. It's what buyers and investors look for, and it helps you sleep at night.
Here's your homework for this week:
- Run the time log and see how much of your week is spent "in" the business.
- Write down one recurring offer you could launch in 90 days, using the five routes above.
- Pick your subscription model from the eight models in Chapter 2.
- Check your moat with the free MOATS scorecard on Dig your moat.
- Do the money math. If you're in Australia, our guide to subscriptions and cash flow explains GST, timing and what changes on your balance sheet.
The rest of the book is the how-to. You don't have to read it in order, but if you want all ten chapters in one place, grab a copy.
Read the whole book free
The Subscription Playbook as a free ebook and audiobook. Australian business owners can claim a free hardcover, shipped free.
Claim the free hardcover Get the ebookFrequently asked questions
What is the difference between recurring revenue and repeat revenue?
Recurring revenue is contracted or automatically billed: the customer has agreed to keep paying until they cancel. Repeat revenue is customers choosing to buy again, which is welcome but not guaranteed. A cafe regular is repeat revenue. The same regular on a monthly coffee plan is recurring revenue, and a buyer will value the two very differently.
Is usage-based revenue recurring revenue?
Partly. If customers are on an ongoing contract and pay every month based on what they use, the relationship recurs but the amount varies. Investors usually treat committed minimums and subscription fees as recurring and look harder at pure pay-as-you-go. Many 2026 AI companies report 'run-rate' revenue that is not truly recurring, so read headline ARR figures with care.
How much recurring revenue does a business need to be valuable?
There is no magic threshold, but buyers look at the share of revenue that recurs, how long customers stay and whether existing customers grow. A business where most revenue comes from members or contracts, with low churn, will attract more interest than one that has to win every sale again each year.
Can a service business have recurring revenue?
Yes. Accountants, IT providers, agencies, dentists, vets, trades and cleaners all run recurring plans: fixed monthly fees, retainers, maintenance agreements or memberships covering routine work. The trick is to package work clients already buy regularly, set clear inclusions, and bill automatically by direct debit or card.
Does recurring revenue help cash flow or hurt it?
Usually it helps, because income arrives on a schedule. It can hurt in the first months if you move clients from large upfront invoices to smaller monthly payments, since cash arrives more slowly at first. Annual plans paid in advance solve that, and they can fund working capital, as Kogan's membership fees paid upfront show.
What is the biggest risk of a recurring revenue model?
Complacency. Recurring revenue feels safe, so businesses stop improving the product, lean on hard-to-cancel flows, or let one big customer dominate. Columbia House relied on inertia, and Peloton's churn tripled once its boom faded. Keep earning the renewal and keep adding moat.
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Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- Fast Company: How Book of the Month Club survived 100 years of the publishing industry (2025)
- Quartz: Columbia House mail-order club shutting down in September 2026 (20 Aug 2026)
- GoPro: Fourth quarter and full-year 2025 results (5 Mar 2026)
- Car Wash Pro: Mister Car Wash to go private as growth moderates in 2025 (19 Feb 2026)
- Kogan.com FY26 results announcement (24 Aug 2026)
- Parliamentary Library: Bills Digest, Competition and Consumer Amendment (Unfair Trading Practices) Bill 2026
- Treasury: Unfair trading practices exposure draft (9 Feb 2026)
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.