How to Design Recurring Revenue That Actually Recurs

The Linear Fallacy

Here's how most people think about the customer journey: someone discovers you, they sign up, they use your product, they stick around, they pay you, they tell their friends. A nice clean line from stranger to advocate.

The funnel. The pipeline. The journey.

It's a useful mental model—if you're selling something once. A car. A house. A wedding photography package. The customer enters at the top, exits at the bottom, and if you've done your job well, they might refer someone else to enter that same funnel.

But what happens when your business model isn't built on one-time transactions?

What happens when the customer doesn't exit?

This is where the linear model breaks—and where most recurring revenue businesses go wrong.

What AAERRR Gets Right—And Where It Stops

When I introduced the Admiral's Framework—adding Engagement to the original Pirate Metrics—it was to acknowledge something obvious that the original framework glossed over: the actual work of delivering value.

AAERRR gives us Acquisition, Activation, Engagement, Retention, Revenue, and Referral. Six stages. A vocabulary for describing where work is and what's happening.

For project-based businesses—solar installations, consulting engagements, coaching programs with defined endpoints—this works beautifully. There's a beginning, a middle, and an end. The customer moves through the stages, the work completes, and the relationship either renews or concludes.

But SaaS? Subscription boxes? Monthly retainers? Membership communities?

The customer hits Engagement and then... what? They don't leave Engagement. They live there. Month after month, billing cycle after billing cycle, they're still being engaged.

The framework describes the container correctly. But it doesn't describe what happens inside it when the relationship is ongoing.

Engagement as a Container

Here's the shift: in recurring revenue businesses, Engagement isn't just a stage. It's a container for a cycle that repeats.

Think about what actually happens each month with a SaaS customer. They use the product (Engagement). You need them to recognize the value and choose to stay (Retention). Their payment processes (Revenue). And ideally, you identify moments where they're experiencing peak value and invite them to share that experience (Referral).

Then the cycle resets. Next month, same four stages. And the month after that. And the month after that.

The funnel becomes a flywheel. AAERRR becomes AA(ERRR).

Acquisition and Activation still happen once—they get the customer into the container. But inside that container, ERRR cycles continuously.

This isn't just a semantic distinction. It changes how you design the work.

What Each Stage Means in the Loop

When ERRR becomes cyclical, each stage takes on a specific operational meaning:

Each stage feeds the next. Strong Engagement creates the value that Retention can communicate. Clear Retention justifies the Revenue transaction. Successful Revenue means the customer is still there for the next Referral opportunity. And each Referral potentially brings new customers into the AA stages, starting the cycle for someone new.

The Loop in Practice

Consider a B2B SaaS product—let's say a project management tool with monthly billing:

Or consider an executive coaching retainer:

The loop isn't theoretical. It's a design pattern—a way of organizing the recurring work so nothing falls through the cracks.

Why Most Recurring Businesses Fail at This

Most subscription businesses invest heavily in Acquisition and Activation—getting customers in the door. Then they treat everything after as a single undifferentiated blob called "customer success" or "account management."

The result? Engagement happens haphazardly. Retention is measured but not actively created. Revenue is collected but feels transactional. Referral is an afterthought—a quarterly NPS survey that nobody acts on.

This is accidental work applied to recurring relationships. And it shows up in the metrics: high churn, low expansion revenue, referral programs that generate nothing but discount codes.

The ERRR loop makes each stage visible and therefore designable.

You can't improve what you can't name. And you can't systematize what you haven't separated into distinct stages with clear inputs, outputs, and ownership.

Designing the Loop Deliberately

If you're running a recurring revenue business, here's how to apply this:

Map your current loop. What actually happens during a billing cycle? Where are you strong? Where are you weak? Most businesses discover they're doing Engagement reasonably well (that's the core product), struggling at Retention (no deliberate value communication), treating Revenue as purely administrative, and ignoring Referral entirely.

Define the triggers. When does each stage activate? Retention might trigger on the 25th of every month. Referral might trigger when a customer hits a usage milestone or gives positive feedback. Make the timing explicit rather than hoping someone remembers.

Assign ownership. Who is responsible for each stage in the loop? In small teams, it might be one person wearing multiple hats. In larger organizations, you might have product owning Engagement, customer success owning Retention, finance owning Revenue, and marketing owning Referral. The point isn't the specific division—it's that someone is explicitly accountable for each stage.

Measure the loop, not just the funnel. Traditional metrics focus on acquisition (new MRR, new customers) and the end result (churn, NRR). But if you want to improve recurring revenue, you need to measure each stage of the loop: Are customers actually engaging? Are they receiving and recognizing value? Is the revenue transaction smooth? Are you capturing referral opportunities?

The Deliberate Work Connection

This is what deliberate looks like in recurring revenue: not just acquiring customers and hoping they stick around, but designing the ongoing relationship as a system.

The ERRR loop gives you vocabulary for the work that happens after the sale—work that, in most businesses, is invisible until something goes wrong. A customer churns. An expansion opportunity is missed. A potential referral never materializes.

When the loop is accidental, these failures feel random. When the loop is deliberate, you can see exactly where it broke and fix it.

The funnel gets customers in. The loop keeps them—and grows them—deliberately.