Revenue Items

Revenue refers to the money generated from normal business operations. It is the top line figure from which costs are deducted to determine net income.

Types of Revenue

There are various ways in which businesses revenue, but the most common types include:

  • Recurring Revenue– or subscription business where the customer pays a committed amount on an interval based on a contract to deliver services.
  • Non-recurring revenue – where the customer pays one time upon invoicing.
  • Usage based Revenue – where the customer pays based on the consumption of goods or services.

Typically, there is a pre-established contract which outlines the price for the goods or services as the customer consumes those resources. The company would then invoice the customer for the goods or services consumed.

There are a few related concepts in Revenue that is important to understand when using them for scenario building, especially with subscription business models. Bookings, Billings and Revenue are related items and are defined as such:

  • Bookings are when the customer signs a contract to buy and use your product for a given period of time. It is important to note that bookings are not revenue until the product is delivered and can be recognized. The concept of Revenue Recognition is an important one. Please checkout this excellent guide from ChargeBee (Ultimate guide to SaaS Revenue Recognition in 2021).
  • Billings is the sum of invoices sent to your customers based on the interval specified when the contract is booked.
  • Revenue is the actual income earned when you deliver the promised service to your customers. US GAAP standards states that revenue can only be recognized once its “earned”.

Recurring Revenue

Committed Monthly Recurring Revenue (CMRR)

CMRR is often used in scenario planning because it’s a forward-looking metric that combines currently committed monthly recurring revenue (from all active contracts), new bookings and churn. CMRR is a useful metric for projections and therefore very commonly used for scenario planning. Committed Annual Recurring Revenue (CARR) is the annualized version of the CMRR. The formula for CRR is as follows:

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Committed Monthly Recurring Revenue (CMRR)

CMRR = Existing MRR + New Business bookings + New Upsell Bookings - Downgrade Bookings – Churn.

Adding a recurring product line item in the scenario under Revenue could use CMRR. To arrive at the CMRR – the following components must be included as described above.

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Implementation Notes

The projected revenue can be forecasted for each product or product family. It is also important to breakout and treat recurring business as being separate from non-recurring revenue.

Existing MRR

This would be the existing committed recurring revenue. This would be calculated from existing contracts and what the customers have committed to buy.

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Implementation Notes

The existing MRR can be calculated using the Timeseries Expansion functionality in fullcast and implementing a metric that calculates the monthly committed MRR.

Expansion and Contraction

The expansion of the business can be identified as several categories of additions including:

  • New Business – i.e., new customers acquired
  • Expansion/Upsell – i.e., growth from the existing committed amounts
  • Cross-Sell – i.e., growth from selling new products to the same customers
  • Price Increases – i.e., increase in price for existing usage.

This would be the projected additions to the revenue. Each of the above models can be projected using various methods listed below. For example, the new business type of expansion could be as a result of marketing spend while expansion and upsell is a factor of customer growth and potential within existing customers.

The expansion growth numbers can be arrived at based on various methods which are described in the section below. Each of the methods starts with another already understood variable.

Methods for arriving at Expansion or Contraction

When scenario planning it is possible to arrive at the additional revenue that needs to be added based on other contributing factors. There are several models that can be used to arrive at the amount of additional revenue required to meet the goals:

  • Increment over last year’s revenue
  • Productivity based models
  • Funnel Conversion rate-based models
  • OTE Multiplier
  • Production constrained
  • Custom provided

For more details and implementation details see section on Revenue Expansion and Contraction Models

Non-Recurring Revenue

Nonrecurring revenue refers to non-subscription-based revenue.

Existing Commits

This could be existing commitments if any or the starting amount for the fiscal year. Any commitments must be represented as a starting amount every month.

Additions

The models are very similar to the ones discussed above – except they would be non-recurring revenue.

  • New Business – i.e., new customers acquired
  • Expansion/Upsell – i.e., growth from the existing committed amounts
  • Cross-Sell – i.e., growth from selling new products to the same customers
  • Price Increases – i.e., increase in price for existing usage.

Churn/Returns

  • Returns – who cancel their contracts and return the product
  • Refunds – amounts returned to the customer for various reasons