Budgeting with SIBP: Subscriptions & Licenses

Welcome back to our ongoing series on the built-in budget line type models that are available in Sage Intacct Budgeting and Planning (SIBP).  Previously, we explored the basic components of budget line type.   With that knowledge, we can now tackle the more advanced Subscription & Licenses Models.

What is Churn?

Before we get started, it is important we understand what Churn represents.  Churn is a measure of revenue degradation as the result of customer cancelations. Whether represented as an amount or percentage, churn is the rate that customers fail to renew their subscription. Churn is used in SIBP’s subscription and licenses budget line types, providing a convenient means of factoring churn rate into budgeting.

Simple Subscription

The Simple Subscriptions budget line type enables you to budget for recurring revenue streams with the ability to apply a discount rate.  The budget line type works best with any revenue model that has consistent cash flow received in regular intervals, like a streaming subscription or any subscription-based membership program.

The key components of this budget line type are booking amount, occurrence, subscription period, and churn percentage.   Simple Subscription is consistent with all budget line types in that the core components are still amount, occurrence, and spread.  The major change from the default budget line type is the introduction of Churn percentage in the budget line calculation.   Let’s take a closer look at each component:

• The Total Contract Value represents the total amount budgeted as a Simple Subscription. This could represent one specific revenue stream that will be grouped together.  It could also represent the total contract value of all simple subscriptions budgeted as a whole.
• The Subscription Period determines how many periods to recognize the Total Contract Value over.  The model assumes the subscription is always renewed at the end of the subscription period.

• Any revenue based on a subscription model will inevitably experience Churn because of cancellations.  Churn percent in the simple subscription discounts the total contract value when it is renewed.  

• The repeat bookings feature determines the frequency we can expect the Total Contract Value to repeat itself.  In the examples above, repeat bookings is set to “Once”, and indicates in what period the revenue will begin to be recognized throughout the Subscription period.  Adjusting the repeat bookings will layer in additional subscriptions based on frequency and how new subscriptions are added.

Perpetual Licenses

The Perpetual License budget line type consists of an initial amount representing the license fee with a percentage of the license allocated for support.  Just like the Simple Subscription budget type, identify, designate, and determine the: repeat bookings, amount, support percentage, support period and churn percentage.  The Perpetual License budget line type is distinguished from the Simple Subscription budget line type by the addition of the Support Percentage & Support period variables.

• The support percentage is a percentage of the License amount that is recognized over the support period.   The support portion of the Perpetual License is the recurring portion.
• The support period refers to the number of periods that the total value of the license support percentage is recognized over.  

SaaS Subscription

SaaS subscription budget line type is an advanced version of the Simple Subscription that is specifically designed for SaaS (software as a service) product, sold on a monthly or annual contract. Using this type of revenue will allow you to calculate subscription revenues according to either Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR).  Unlike other budget line type, this model assumes that there is a current MRR (or ARR if the subscription type is annual) that is currently being recognized. 

• Beginning MRR is the current in flight recurring revenues that may be taken from the prior years actuals.  
• New MRR bookings is the amount that is add to the inflight recurring revenues as a result of new subscribers.
• MRR Churn modifies each recurring revenue period by a fixed percent or amount, based on the selected spread. Altering the spread enables for budgeting churn that may change from one period to the next.
• MRR Expansion functions in the exact opposite manner as MRR churn.  Instead of reducing the revenue each period, revenue is increased to reflect budgeted growth.  Utilize the spread to make budgeting for MRR expansion more dynamic.

What’s Next?

Next time we will start wrapping up with some of the less common Revenue Budget line types.  Our Budgeting with SIBP series will then take a break, but we will be back with more in the future.  In the meantime, let us know how you have utilized the budget line types to setup your revenue, expense, and service models.   We would love to hear your successes and struggles using Sage Intacct Budgeting and Planning.

In the meantime, Register for the webinar: How AI Will Transform Financial Management Thursday, 04/08 at 11:30 AM PT / 2:30 PM ET.  Join Sage for a discussion of AI and the impact it will have on how you manage your financials. Our panel will be discussing AI, the benefits for companies of all sizes, and how you can prepare today for the financial management of tomorrow.

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