Able to produce a recurring revenue model where products are shipped to customers on a monthly basis

Description

Modeling a recurring revenue within Corporate Performance Management (CPM) software requires capabilities to accurately track and predict regular sales cycles from monthly product shipments. This function enables businesses to effectively plan and manage recurring revenue streams, which are critical for organizations operating on a subscription-based or recurring sales model.

Example Use Case

Scenario: An e-commerce company selling beauty box subscriptions wants to accurately predict its recurring revenue based on the monthly product shipments to its customers. The CPM Software currently in use doesn't support an accurate model for the recurring revenue prediction.

Solution: The company implements new CPM software that has the capability to model a recurring revenue stream. By accounting for factors such as subscription churn rate, expected growth, and seasonality, the software accurately predicts the monthly revenue from future product shipments and unit demand for the manufacturing process. This helps the company to predict cash flows, balance inventory, and plan for growth.

Considerations

The market is full of recurring revenue models, but they're usually only focused on software subscription businesses. This leaves out any business who not only takes in subscribers, but also ships a physical product as a result of that subscription. This complexity is crucial, as it comes in many flavors that are hard to track in Excel:

• Sending a single product each month
• Allowing the customer to create a monthly kit from a set of products each month
• Standard monthly box dictated by the seller with the ability to for the buyer to add product, much like a wine club
• Products in a kit along with a subscription to an app, like a weight loss tracker

This subset of potential revenue models, while not all inclusive, represents the bulk of what we see when sellers are looking to market their product direct to consumer. These models are complex, as they are not the same for each and every customer, making revenue planning a bit unpredictable.

To solve this, some products will group like-buyers together and apply predictive algorithms to determine the best forecast. That requires data, which many sellers do not have. In those cases, other driver predictions are needed (often web traffic conversion rates and such) to build a fully-featured revenue model.

If done right, a revenue model for subscription product businesses can dramatically improve the state of the business and the responsiveness of leadership to buyer demand changes. Doing this entirely in Excel can be done, but so slowly that sellers often lose sight of customer preference changes until it is too late.

Questions to Ask a Vendor

• Accurate Modeling: How accurate is the recurring revenue modeling feature of your software? Can it take into account variables such as churn rate and seasonality?
• Real-time Updates: Does the system allow for real-time updates and adjustments based on recent sales and shipment data?
• Forecasting Capabilities: What kind of forecasting features does your system offer for recurring revenue models?
• Customer Preferences: How will it accommodate a model where the customers can choose different products in a bundle each month?
• Upsell and Downsell: Will the system allow us to plan for expected upsells to existing customers, and potential reductions in service?