Why control of data and efficient subscription management is crucial for forecasting
by Niclas Lilja, on Dec 11, 2018
When ensuring that you can secure opportunities for revenue recognition, companies must have control over their master data. By never missing an opportunity for upsells, renewals, and other events within the customer lifecycle, you can be confident in the revenue you'll be bringing in. But there is another critical outcome for having efficient subscription management - forecasting. When you can predict future revenue and cash flow accurately, you'll find that you are in a much better position to budget properly and allocate resources in the right way, without too much risk.
Why can't forecasting exist without proper subscription management?
Proper forecasting can only be accurate if you have a reasonable amount of security when it comes to your subscriptions and data accuracy. This can prove challenging especially if you are a B2B subscription business that offers varying types of contracts and complex solutions such as usage ratings and hardware rentals in addition to standard term values, because it can be difficult to show any kind of stability in monthly recurring revenue. But you don't necessarily need to have consistent month to month returns in order to have the proper conditions for forecasting.
Alternatively, proper subscription management will allow you to easily handle variations in contracts with different customers in a way that will feel more stable than what you may currently be used to. Then, when you are managing the data regarding your subscriptions and offerings, such as billing rates, on time payments versus delinquencies, usage, or renewal rates versus churn averages, you can use these numbers for predictive analytics, and create forecasts on the conservative and aggressive (optimistic) sides.
How to control data for forecasting
In addition to having comprehensive subscription management, you need to make sure your data is accurate, and aggregated easily. If you are using too many different reporting tools, such as an invoicing tool that has separate data from your financial reporting tool, and another for customer data, then you will need to import corresponding information separately or even manually. This can be troublesome for creating accurate forecasts efficiently.
By importing data into one system automatically, you will be in a much better position to be able to use relevant data to visualize patterns and averages that can then be used to make predictions about the revenue and - maybe more importantly - the liquidity you will secure in the future. Of course one of the benefits of the subscription model is that typically you have a base contract value that can easily be calculated for the future due to specific agreements that may be valid for a year or more. But when your terms are not so straight forward, using several sources of data can become problematic in getting an accurate picture for revenue recognition.
Creating forecasts based on subscription management and accurate data
To use your subscription management and imported data to do accurate forecasting, you want to take stock of what is guaranteed to come in (based on contracts, or baseline subscription fees) and what depends on customers not cancelling and/or customers actively renewing subscriptions. It's possible that your results may also have other dependencies, such as milestones that are contingent on some kind of deliverable or result, or short term fees for onboarding, special campaign pricing, etc.
While revenue forecasting can be challenging for complex subscription businesses, cash flow forecasting is especially tricky, but also crucially important. To execute these forecasts, you need to have a clear picture of each of your customer's billing cycles, and each element that can affect your cash flow. Here is when you also want to be including expenditures and overhead costs so you can properly calculate the liquidity your business will have in order to make informed decisions about things such as hiring, or software and service investments. Without seeing the full picture of your subscriptions and each element that contributes to potential fluctuations in cash flow, you may be unable to prepare for worst case scenarios.
Forecasting is a necessary business tool for identifying business performance and creating future budgets. But subscription businesses with complex pricing and contract systems can struggle with accurate methods to execute forecasting. By having more control over your subscription data and implementing proper subscription management, you will be in a better position to create revenue and cash flow predictions.
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