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.
In this guide, we'll explore how effective subscription management and revenue forecasting work to drive long-term business success.
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.
In these cases, 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.
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-based, or renewal rates versus churn averages, you can use these numbers for predictive analytics and create forecasts on the conservative and aggressive (optimistic) sides.
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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 the corresponding information separately or even manually. This can reduce the risk of revenue leakage and 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 visualise 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.
Using a subscription management tool like Younium can make this easier. You can create custom reports with the metrics that matter most for your business. These custom reports help you get insights at a glance and make strategic decisions quickly.
Image via Younium
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 straightforward, using several sources of data can become problematic in getting an accurate picture of revenue recognition.
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). Then, separate what depends on customers not canceling 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 customers' billing cycles and each element that can affect your cash flow.
Here is when you also want to include 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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1. What is the connection between subscription management and revenue forecasting?
Subscription management and revenue forecasting are closely connected because effective subscription management ensures data accuracy and visibility, which are two critical ingredients for reliable forecasting. Without managing subscriptions well, forecasting future revenue becomes guesswork.
2. Can small businesses benefit from subscription management and revenue forecasting?
Absolutely. Whether you run a startup or a mid-sized company, having strong subscription management and revenue forecasting processes enables better budgeting, risk reduction, and smarter growth strategies.
3. What tools can help with subscription management and revenue forecasting?
Integrated platforms that combine billing, customer data, and analytics are ideal for subscription management and revenue forecasting. These tools can reduce manual data entry, prevent errors, and provide real-time forecasting capabilities.
4. What are the factors to consider in forecasting revenues?
When it comes to subscription management and revenue forecasting, several critical factors must be considered, including:
5. How often should businesses update their revenue forecasts?
Revenue forecasts should be updated regularly, monthly or quarterly, to reflect changes in subscription data, customer behavior, and market conditions.
Mastering subscription management and revenue forecasting is important for any business operating under a subscription model, especially those dealing with variable billing structures.
When you have full control over your subscription data, you'll be better prepared to recognise revenue, anticipate and plan for future financial scenarios.
So what’s the way forward? Invest in tools and processes that centralise data, streamline billing, and improve analytics.
Subscription management software supports you and your team with forecasting subscription revenue, head over to our subscription insights to learn more about how it works for B2B businesses.