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Recurring Revenue: Beyond the Subscription Model

Two dollar signs in an infinity symbol to present the notion of recurring revenue

When people hear the term “recurring revenue,” more often than not, they assume that means a subscription business model (in software, this is referred to as Software as a Service, or “SaaS”). Many founders think that their non-SaaS businesses won’t qualify for alternative capital sources that have a recurring revenue requirement. At Sage Growth Capital we are intentionally different: we believe recurring revenue is not limited to SaaS and we are actively seeking companies outside of the SaaS model.  This article will explain how we define recurring and recurring-like revenue as well as how it applies in our decision making process when we consider making an investment.


Key highlights of this article:

  • Background on the concept of recurring revenue

  • Sage’s definition of recurring-like revenue to qualify for revenue financing investments

  • Examples of non-SaaS companies with recurring-like revenue

Background on recurring revenue


Businesses have been adopting recurring revenue models as early as the 19th century when people in the UK could buy a subscription to get their milk delivered on a regular basis. Since then recurring revenue models have really taken off after businesses discovered the subscription model in the late 90’s, largely initiated by software companies such as Salesforce, NetSuite and Concur. 

Previously, software companies sold software applications that usually required installation on a local server or computer and charged a one-time fee. With the advent of web services and hosting, software companies were able to shift from a one-on-one engagement to a one-to-many model as they could offer their software solutions on cloud services and charge a recurring fee to access and use the software.


The subscription model became the new gold standard for software companies initially and eventually spread across every other industry (you can probably find a subscription for anything today from alcohol to kids’ toys and groceries - think: those boxes you get in the mail monthly). The reason for this surprising overhaul of business models can be captured by the business benefits:

  • Consistent and predictable revenue streams – Businesses can have more stable income streams as they bill customers in regular periods and can provide either unlimited or pay-as-you go offerings.

  • Ongoing value delivery – Customers who have subscriptions expect ongoing, regular access to software, physical goods (i.e. boxes delivered to their homes), or services (i.e. gym memberships).

  • Customer retention – Businesses have an invested interest to keep customer satisfaction high as that will keep a steady inflow of regular income.

  • Automatic renewal – Most subscriptions renew automatically by default, simplifying payments and increasing predictability for businesses.


The benefits of recurring revenue models also expanded outside of the business operations as investors found businesses with predictable revenue more attractive, which led to higher valuations than companies with traditional or transactional revenue models.


What are recurring-like revenues then if not subscription-based?


A recurring-like revenue stream is one that a business generates on a regular basis, usually at consistent intervals. While the subscription model is a well-known example of recurring revenue, there are other strategies that businesses can use to establish a consistent and continuous income flow that is attractive to Sage Growth Capital. Here are some key attributes and questions we ask ourselves when evaluating your revenue streams:


  • Consistent – Are your revenue streams predictable? Not because of subscriptions, but because of your business model and the way you engage with your customers. For example, are you able to confidently translate inventory stock into sales or do you stress about not knowing when inventory will clear?

  • Repeatable - Although your customers might not sign up for monthly contracts, do they come back and buy from you time and time again? Revenue financiers look for the repeatable nature of your sales especially with existing customers. This can also translate into low churn metrics. 

  • Diversified – Is most of your revenue today coming from a handful of contracts or grants? Companies in this stage or with high customer concentration don’t qualify for revenue financed capital as it's a model that requires multiple revenue streams. Expanding product SKUs or services can be effective in diversifying your revenues.

  • Growing – Revenue financiers will also evaluate your past and future growth rates. One difference between us and traditional equity investors is we won’t spend time on metrics mapping out the future, and we’re not interested in your company valuation. Your historical performance will be more crucial for us. A future plan to grow sales will weigh less than showing us two years of demonstrated growth.  


An RF Model for Non-tech Companies


Alleviating some of the constrictions and bias around the definition of recurring revenue has allowed Sage Growth Capital to create a revenue financed product that can offer non-dilutive growth capital to more industries than just SaaS. For example, our portfolio company Naked Sports was making apparel products and selling through traditional brick-and-mortar distribution channels. They made it through our investment committee vetting process when evaluating their revenue streams because:

  1. Their revenues were consistent in that they had multi-year contracts with distributors who saw high levels of repeat purchases.

  2. They had multiple distributors across their primary markets and expanded into other international markets.

  3. They showed strong annual growth for the two previous years before applying.


Revenue isn’t the only criteria that goes into our decision-making process, but it is a significant factor that can easily disqualify your company. If your business is on a path to growing revenues and has good margins today then we’d be happy to consider you for funding.



In conclusion, the traditional subscription model is not the only way to generate recurring revenue. Businesses can strategically design their offerings to encourage repeat business, foster customer loyalty, and generate a predictable stream of income using a variety of innovative approaches.


About Sage Growth Capital

Sage Growth Capital makes revenue-financed investments in companies at any stage who need growth capital. It is our mission to provide a more flexible funding option to growing companies who do not fit traditional equity or lending models. To learn more about Sage Growth Capital or to apply for funding visit:

About Revenue-Financed Capital

Revenue-financed capital (RFC), also referred to as royalty financing, revenue share or revenue-based financing (RBF), is a non-dilutive form of growth capital where investors receive a percentage of monthly revenues until a set amount has been paid. RFC differs from equity financing as the investor does not obtain ownership of the company and it differs from debt financing as there is no collateral required and payments are variable. RFC is designed to empower entrepreneurs to grow their businesses with non-dilutive capital that aligns with their sales cycles.

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