Recurring charges revenue streams are very useful for forecasting products or services that involve signups, recurring billings, cancellation rates, and the like. Some good examples are magazine subscriptions, gym memberships, or software-as-a-service products. If your business is building a subscription service, creating a reliable sales forecast is a critical step to understanding how your business will grow, and what the key drivers of revenue growth will be.
Note: When you create a recurring charges revenue stream, the revenue will be calculated into your financials according to how your forecast is set for multi-month charges. Read Changing the setting for multi-month charges.
To learn more about how to forecast and track your recurring revenue business, read these related posts:
- A complete guide to forecasting sales for your monthly subscription business
- The 5 metrics you need to track for your subscription business to succeed
Adding a recurring charges stream to your forecast
- From the Forecast tab, on the Revenue page, click the Add Revenue Stream button:
- Enter a name for your recurring charges revenue stream, then click Next:
- Choose Recurring charges, then click the Next button:
- Choose the month/year that you plan to begin signing people up for your subscription product or service:
Note: if your subscription starts before your forecast start date, choose Before plan start date. You'll find additional instructions about this option below, after these steps.
If you think you will have the same number of signups per month, choose Constant amount and enter the number per month:
If you expect different numbers of customers to sign up depending on the month (for example, if your business has seasonal highs and lows), choose Varying amounts over time. This will give you a grid so you can enter varying amounts:
Note: If you'd like to enter monthly numbers for more than one year of your forecast, you can update the amount of monthly detail in your forecast easily.
- Click Next.
- If you charge a setup fee (or other one-time charge) when customers sign up, enter that amount. If there is no initial charge, click No fee:
- Next, enter the amount you will charge for each period of the subscription - this is your renewal charge. This can be a constant price or one that varies over time (for example, if your subscription price varies seasonally):
- Finally, indicate how often you will charge your customers. This is your renewal period (for example, are your customers charged monthly, quarterly, every six months, etc.). Then click Next:
- Churn rate is the percentage of customers that cancel your service in a given month—when they leave, they’ve “churned out” and are no longer subscribing. For your business to grow, you need to add customers at a faster pace than they are cancelling their subscriptions.
If you're not sure how to estimate your churn rate, start with the number of customers you expect to cancel in a given month, and divide that by the total number of customers that you forecast at the beginning of that month.
Note: If the renewal period you specified is monthly, then the churn rate applies to monthly renewals. If your renewal period is quarterly, then the churn rate applies only to quarterly renewals (and not for the months in between). Also, the churn rate is applied to the number of customers you have at the beginning of each month - before any new signups are added. Subscribers are not charged for the period in which they've canceled.
- Click Save.
Starting a recurring charges revenue stream before the forecast start date
If your subscription began before the forecast's start date (Say, you have an existing business rather than a start-up), begin your revenue stream following the steps above. Under When will this revenue start, choose Before plan start date:
Then proceed with entering the number of new sign-ups, up-front fee, and renewal charge and period.
Finally, before entering the churn rate, you'll be able to indicate how many of your existing customers will have a renewal charge happening in the months listed:
When you enter your numbers here, it helps LivePlan calculate your customer retention and revenue accurately. LivePlan will also apply the churn rate to your existing customers, so you can accurately forecast how many of them will cancel in the initial months of your forecast.
If you are forecasting for an existing company, and your subscription charge happens every 2-12 months, then LivePlan will also use this information to calculate the prepaid revenue for these existing subscribers. The data will appear in your Starting Balances input. For more details, see Entering starting balances for an existing company.
Editing or deleting a recurring charges revenue stream
- To edit a revenue stream, click on its name in the table on the Revenue page:
- The edit overlay will appear. You can click on any of the steps across the top that you wish to edit. For more details, see How do I edit or delete forecast entries?
- To delete a revenue stream, click on the revenue stream's name in the table on the Revenue page:
- You'll see a small trash can icon in the lower left corner of the overlay. Hover over it, and click Delete:
- Click Confirm.
Where does this entry appear in the financial statements?
Your revenue streams will be used to calculate the highlighted lines the Profit & Loss, Balance Sheet, and Cash Flow table shown below:
If you've set your Multi-month charges to "Spread out multi-month charges," you will also see a Prepaid Revenue line in your balance sheet. Read Changing the setting for multi-month charges.