Moving From a Focus On Acquisition to Recurring Revenue Models: Why and How

Starting a business is now more accessible than ever, but thriving in a crowded marketplace is a different challenge altogether. With more businesses vying for the same audience, relying solely on customer acquisition as a growth strategy is quickly becoming a thing of the past.

The key to long-term success lies in a recurring revenue model—one that prioritizes not only retaining customers but also helping them succeed. By focusing on delivering ongoing value and meeting your customers’ needs, you build trust and loyalty, turning one-time buyers into long-term advocates. Satisfied customers are more likely to return, renew, and even expand their relationship with your business, driving predictable, consistent revenue.

In this article, we’ll dive into why acquisition alone won’t secure sustainable growth, the benefits of recurring revenue models, and how to shift your strategy to focus on empowering your customers for mutual success. Discover how investing in your customers’ success can lead to stronger relationships and more reliable growth for your business.

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Why acquisition alone won’t drive growth 

Relying on customer acquisition alone is becoming an increasingly unsustainable strategy for driving growth, especially for SaaS companies. 

“Acquisition costs can skyrocket in competitive markets, and if you’re not retaining customers, you’re simply losing the investment,”

Says Rob Stevenson, the founder of BackupVault.

“We’ve learned that growth doesn’t just come from adding new customers; it comes from keeping them happy and engaged. If you can’t retain customers or reduce churn, you’re spinning your wheels with no real forward momentum.”

Acquisition-focused strategies often overlook the long-term value of customer retention and engagement, which are essential for sustainable growth. Let’s explore the key drawbacks of relying solely on acquisition:

1. The high costs of customer acquisition

According to Outbound Engine, acquiring new SaaS customers costs about five times more than retaining existing ones. This comes as no surprise, seeing as the SaaS industry is highly competitive, with numerous businesses offering similar products or services. 

SaaS companies often invest heavily in paid advertising, lead generation, and sales teams to get a prospect to try the product. But there’s no guarantee the prospect will keep using the product. If they stop, the money the company spent to acquire them goes to waste, and before long, these costs may become difficult to justify.

2. High drop-off rates for trial customers 

Many SaaS businesses offer free trials or freemium models to attract customers. While this strategy effectively brings in users, a large percentage of trial users fail to convert into paying customers. 

OpenView’s 2023 Product Benchmarks report revealed that only 10 percent of free trial customers become paid customers. That conversion rate decreases to five percent for customers on a freemium model. 

This means a significant portion of marketing and acquisition spend is wasted on users who never generate revenue. 

3. High customer churn rates 

Customer churn remains one of the biggest threats to SaaS businesses. Even if a business successfully acquires new customers, high churn rates can erode its revenue base, which means the company has to constantly backfill lost revenue. 

For example, a company with a 10 percent monthly churn rate would lose nearly all its customers within a year, meaning it would need to replace them just to maintain the same revenue level. This creates a growth ceiling where new acquisitions only compensate for churn rather than drive new growth.

4. Shifting market dynamics 

As the SaaS industry gets more saturated, customer expectations evolve, making it increasingly more challenging for businesses to stand out based on product features alone. SaaS businesses that focus exclusively on acquisition may struggle to maintain a foothold as newer entrants offer more innovative solutions or more attractive pricing models. 

That’s why creating a stellar customer experience is key to keeping customers loyal. In Salesforce’s recent State of the Connected report, 80 percent of customers say that the experience a company provides is as important as its products and services. 

With 65 percent of customers expecting brands to adapt to their changing needs and expectations, focusing only on getting new customers is not a sustainable business strategy.

5. The rise of predictable revenue models 

Companies are increasingly implementing subscription-based price models because of the predictability and stability they provide. Subscription models allow businesses to forecast revenue more accurately, manage cash flow better, and invest in long-term customer relationships.

Recurring revenue models: A modern alternative

The premise of an acquisition-focused strategy is expanding the customer base as quickly as possible, often at the expense of long-term retention strategies. Problems kick in when customer acquisition costs (CAC) skyrocket as the market saturates. Over time, the increased spend eats into profits and leaves less room for reinvestment in the product or customer success strategies.

If acquisition efforts slow down — whether due to market conditions or budget constraints — the entire business can face a sharp revenue decline. This is especially true for SaaS companies offering freemium or one-off sales models, where a failure to upsell or retain customers creates holes in the revenue stream.  

In contrast, companies that prioritize recurring revenue models focus less on the sheer number of customers and more on keeping the customers they already have, while encouraging them to spend more over time.

1. What is a recurring revenue model?

A recurring revenue model is a business strategy where companies generate consistent, predictable income by offering products or services on a subscription basis or through ongoing payments — typically monthly or annual. 

This model is common in SaaS businesses (HubSpot, Salesforce), streaming services (Netflix, Amazon Prime), and membership programs, where customers pay for continued access to a product or service over time.  

2. How recurring revenue models drive sustainable growth 

Shifting to a recurring revenue model not only reduces the pressure on businesses to constantly acquire new customers but also presents opportunities for upselling and cross-selling, among other revenue generation opportunities. 

“Instead of constantly chasing new business, you can invest in building deeper relationships and improving your product”

Explains Aaron White, the CEO of Outbound.com. The saying, ‘Cash is king, but recurring cash is even better,’ applies here — steady, recurring income gives businesses the stability to scale with less volatility.”

Here are some financial benefits of adopting a recurring revenue model: 

1. Predictable revenue streams

In traditional one-time sales models, revenue can fluctuate significantly depending on market conditions, product launches, or seasonal demands. 

However, in a recurring revenue model, businesses receive consistent payments from existing customers (usually monthly or annually). 

This stability allows them to manage their cash flow more effectively, plan budgets, and invest in growth initiatives, like product development, marketing, and customer support. 

A company that knows it will generate $500,000 in monthly recurring revenue (MRR) can forecast its operating expenses, predict profitability, and allocate funds for scaling operations. 

This is beneficial during economic downturns or competitive market changes because recurring revenue provides a financial cushion that protects the business from sharp revenue declines. 

2. Customer preference 

Customers prefer recurring revenue models because they allow customers to pay for what they need, with the option to upgrade or downgrade anytime they wish to. 

This preference translates into higher customer retention rates and a steady revenue stream for businesses, as customers are more likely to stay subscribed over time.

3. Higher company valuations

Investors and stakeholders often favor companies with recurring revenue models because these businesses tend to have more stable, predictable revenue and better growth prospects than businesses with irregular or seasonal revenue. 

Take Slack, for example. Slack’s ability to expand revenue from its existing customers by offering tiered pricing plans and advanced features is one of the reasons why Salesforce acquired the company for $27.7 billion in July 2021. 

3 Metrics for measuring recurring revenue 

Tracking the right metrics is crucial to ensure your recurring revenue strategy works. Here are the three most important metrics to focus on and why: 

1. Monthly recurring revenue 

Monthly recurring revenue (MRR) is the total revenue a company generates from its recurring subscriptions in a given month. This metric offers a clear view of short-term growth and business health. 

You can calculate your MRR by multiplying the number of active subscribers by the average revenue per user (ARPU). For example, if your SaaS business has 100 customers paying $50 each month, your MRR is: 

MRR = 100 customers x $50 = $5,000

There are different types of MRR you can track, including: 

• New MRR: The revenue added by new customers.
• Expansion MRR: The revenue gained from existing customers upgrading or buying additional features.
• Churned MRR: The revenue lost when customers cancel their subscriptions.

2. Churn rate

Churn refers to the percentage of customers who cancel or fail to renew their subscription during a given period. Reducing churn is crucial for businesses because it stabilizes revenue and maximizes growth by retaining existing customers rather than replacing them with new ones.

The formula to calculate churn rate is: 

Churn rate = (Number of customers lost during a period / Total number of customers at the start of the period) x 100

Take Spotify, for example. If Spotify has one million premium subscribers at the start of the month but loses 50,000 due to dissatisfaction or competition, its churn rate would be: 

Churn rate = (50,000 / 1,000,000) x 100 = 5 percent 

While Recurly’s research showed that the overall churn rate is four percent, the average churn rate for your business depends on your market and industry. 

Image source

[Alt: average churn rate for industries, recurly research]

Notice how the digital media industry has a churn rate nearly twice that of the software industry. As a rule, you should keep your churn rates within (or slightly lower than) your industry average.  

If your churn rate is too high, it means you’re losing customers faster than you acquire them. But if it’s too low, that might indicate that you aren’t spending enough on customer acquisition. It’s a delicate balance.  

3. Customer lifetime value

Customer lifetime value (CLV) represents the total revenue a company can expect to generate from a customer over the entire duration of their relationship. 

A high CLV indicates that customers are staying longer and spending more, which is the ultimate goal of any recurring revenue model. 

You can calculate your CLV by multiplying the average monthly revenue per customer (ARPU) by the average customer lifespan (in months or years): 

For example, if a customer spends $50 per month on a SaaS subscription and stays for 24 months, the CLV is: 

CLV = $50 x 24 = $1,200

How to transition from acquisition to a recurring revenue model

You can shift from an acquisition-focused strategy to a recurring revenue strategy in just three steps: 

1. Accelerate adoption

When customers adopt your product or service into their everyday lives and derive value from it, they’ll likely stay loyal to your brand. Some ways to accelerate product adoption include: 

• Develop personalized onboarding programs to guide new users through key product features and functionalities to help them understand your product better. For example, Dropbox uses in-app onboarding prompts to help new users quickly learn how to upload files, share folders, and collaborate with others.

• Create comprehensive educational resources, such as a comprehensive and scalable onboarding program, video tutorials, online courses, knowledge bases, webinars, or interactive product tours to help customers get up to speed.

• Segment customers based on their specific needs or use cases, so you can tailor your onboarding and training to address each unique pain point. 

• Invest in a customer success team that can proactively reach out to new users, offer guidance, and troubleshoot any challenges during the early stages of adoption. 

Learn more: 4 Strategies to Improve Revenue Retention: Calculations & Benchmarks

2. Nurture toward renewals

In a recurring revenue model, you must nurture customer relationships throughout their lifecycle. This keeps customers satisfied, prevents churn, and increases the likelihood of subscription renewals. Here are some ways to nurture your customers: 

• Regularly communicate with customers to understand their needs and provide continuous value. You can do this through automated email campaigns, in-app notifications, and personalized touchpoints. 
• Offer discounts for annual plans or loyalty programs to encourage customers to renew their subscriptions. For example, GetResponse gives folks who sign up for a 12-month plan an 18% discount and a free custom domain for a year. 

[Alt: recurring revenue models, getresponse pricing tiers]

• Create opportunities for customers to provide feedback through surveys or user interviews, then act on that feedback by improving your product or offering new features. This reinforces to customers that their input matters.

3. Drive account expansion

Beyond renewals, one of the most effective ways to drive growth within a recurring revenue model is through account expansion. Here are some ways to expand accounts:

• Offer customers tangible reasons to upgrade to higher-tier plans. Usually, you’d need to provide additional features, increased functionality, or improved service as part of the upgrade. Zoom does this quite well — users who initially sign up for free plans are frequently upsold to paid tiers by seeing the value of features such as extended meeting time, additional participants, and recording capabilities.
• Identify opportunities to cross-sell products/services that complement your core offering. For example, HubSpot offers marketing, sales, and customer service tools, and regularly cross-sells them to customers so they can create a seamless experience across departments. 
• Creating product bundles encourages customers to see value in expanding their relationship with your company, especially if you sell the bundle at a discounted price. Microsoft 365 bundles its suite of apps (Word, Excel, Outlook, etc.) with cloud storage and advanced security features. This encourages businesses to buy a comprehensive package rather than a single product. 

Customer education as a driver of recurring revenue

Earlier, we discussed how tutorials, knowledge bases, and webinars can help your customers adopt your product more effectively. These efforts fall under the broader practice of customer education—a critical strategy for fostering long-term success.

By investing in customer education, you equip your customers with the knowledge they need to maximize the value of your product. Educated customers are not only more likely to adopt your product quickly but also to stay loyal and deepen their engagement over time. This loyalty drives repeat purchases, renewals, and even upselling opportunities, making customer education a powerful lever for generating recurring revenue.

“At RecurPost, we conduct webinars every Thursday, which allows us to educate users about our features, offer tips, and answer live questions. This way, we help them realize the full value of our product. When customers feel empowered and confident using the platform, they’re much more likely to renew their subscriptions.”

Here’s how customer education helps drive customer retention:

1. Engaging customers at scale 

Customer education allows you to engage with your entire customer base at scale, ensuring that every user, regardless of size or industry, can access the resources they need to be successful with the product.

Take Hootsuite, for example. On Hootsuite Academy, users can find free and paid self-paced certification courses to help them master the platform and learn more about social media. In its Resource Library, Hootsuite offers users free tutorials and demos, webinars, tools, and templates. This ensures that users at all levels — from startups to enterprises— can effectively use the platform. 

[Alt: recurring revenue models, hootsuite academy]

2. Delivering streamlined, impactful learning experiences 

Customer education programs help you deliver impactful learning experiences at critical moments in the customer journey at scale: during onboarding (when users need to learn the basics) and renewal time (when customers may need a refresher or additional value demonstration). 

For example, Zendesk’s online training program sorts learning resources into five use cases: Admin, Agent, CX Analyst, Sales Teams, and Developers. There are product foundation courses, product deep dives, and an exam prep course to help users get their certifications.

[Alt: recurring revenue models, zendesk training program] 

How Thinkific Plus supports the shift to recurring revenue

Hootsuite Academy wasn’t always the extensive learning hub it is today. Over a decade ago, the company’s goal was simply to teach folks how to use the Hootsuite dashboard properly. 

This goal evolved when Hootsuite’s team saw an opportunity to use education to connect with its existing customers, attract new customers, and position itself as a leader in the social media industry. 

With Thinkific Plus, Hootsuite created several in-depth courses about the Hootsuite platform and social media. Since its launch in 2011, Hootsuite Academy has successfully trained over 450,000 students. At the time of writing, the social media certification program, which costs $199, has been completed by over 72,000 people. 

Read: How Hootsuite uses Thinkific Plus to scale customer education and drive business growth

Meet Thinkific Plus 

Thinkific Plus is a comprehensive, scalable solution designed to empower businesses to create impactful customer education programs. By focusing on customer success, product adoption, and retention, Thinkific Plus helps you build stronger relationships while driving recurring revenue.

What you’ll get: 

• Course Creation Tools: Simplify course creation with a drag-and-drop builder and templates designed for ease of use.
• Digital Downloads: Create engaging learning products like eBooks, guides, and templates to reach new audiences and expand your earning potential.
• Multiple Learning Environments: Cater to diverse customer segments with tailored learning experiences across different stages of their journey.
• Robust Analytics: Leverage powerful analytics insights into customer behavior and engagement to optimize your education programs and make data-driven decisions.
• Integrations: Seamlessly integrate Thinkific Plus with your existing tech stack to deliver a unified and efficient customer education experience.
• SCORM Compliance: Thinkific Plus is SCORM-compliant, which means you can easily import existing content from third-party LMSs into Thinkific Plus in minutes. Create interactive learning experiences with games, simulations, and self-directed learning paths to amplify customer engagement.

Whether you’re scaling your customer education efforts or driving growth through recurring revenue, Thinkific Plus equips you with the tools to succeed.

Discover how your business can leverage education to enhance customer success today.

When your customers win, so does your business.

Platforms like Thinkific Plus are making it easier than ever for growing businesses to build and launch their first customer education academy. With specialized tools for content creation, engagement, and analytics for continuous improvement, enabling your customers and fostering business expansion is more achievable than ever.

Ready to embark on this transformative journey? 

Request a demo of Thinkific Plus and start shaping the future of your customer experience today.

FAQs

1. Why is shifting from an acquisition-focused strategy to a recurring revenue model important?

Relying solely on customer acquisition can be costly and unsustainable due to high churn rates and rising acquisition costs. Shifting from an acquisition-focused strategy to a recurring revenue model will help you prioritize long-term customer retention and expansion, which leads to predictable and stable revenue growth.  

2. How does customer education drive recurring revenue?

Customer education drives recurring revenue by empowering users to fully understand and derive value from a product. Educated customers are more likely to remain loyal, renew their subscriptions, and upgrade their plans.  

3. What role does Thinkific play in supporting recurring revenue business models?

Thinkific Plus supports recurring revenue models by helping businesses build scalable customer education programs and academies, providing tools like online course builders, webinars, and digital downloads. These resources help businesses educate customers, reduce churn, and increase product adoption, driving recurring revenue.