Perpetual And Recurring Revenue Measurement Options

“Perpetual” and “recurring” refer to the way revenue from sales is recognized over a predetermined period or until canceled. To transition legacy perpetual offerings to software-as-a-service or cloud-based subscription offerings, sales operations must value sales opportunities in new ways. Recurring revenue streams can be term- or usage-based, potentially making opportunity valuation more complex.

Cloud computing has brought accessibility and savings to IT by replacing hardware and software “perpetual” on-premises solutions with more flexible and utility-like software-as-a-service (SaaS) and similar recurring revenue offerings. Transitioning offerings from a perpetual to a subscription model requires a company to decide how to value revenue streams for managing opportunities and the pipeline, forecasting, establishing quotas and creating sales plans. These decisions are further complicated when perpetual revenue streams (e.g., software licenses, hardware, and professional or other one-time services) coexist with recurring SaaS streams. In this report, we describe the characteristics of perpetual and recurring revenue streams and explain how to value and measure them.