The value of contractual services to a vendor or partner is recurring revenue. When a service provider knows a customer payment is coming on a certain date, revenue recognition is more reliable and predictable. This is unlike transactional sales, which are episodic and unpredictable, leading to variable sales bookings and revenue recognition.
The recurring-revenue model leads to greater profitability because services scale more than transactional products and conventional technical support. And it’s contingent on two things: 1) the continuous addition of new customers and 2) the retention of existing ones.
The more customers sign up for a service program, the more recurring revenue the vendor or partner receives. If a customer renews its contract perpetually, recurring revenue will continue to increase and remain predictably positive.
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