Entering a 3-Year SaaS App Contract with Annual Billing
Q: I have a recurring SaaS app that subscribers will sign up for a 3-year contract with annual billing. How do I enter that in the Startup Financial Model app and how does your app deal with the assumptions?
A: It is critical to get all of this right in a pro forma, but most pro forma templates do not handle this situation properly. Fortunately, our app handles this effortlessly with very few inputs and gets all of the accounting correct for you, for each and every month of your plan so you always know where you are at in terms of recognized revenue, cash, and deferred revenue liability.
For an offering with a three-year contract with annual billing, you would enter as follows:
1. Type and Length of Sale (we are showing an example name and an example contract renewal rate at the end of the three years):
2. Pricing and Revenue Share Assumptions (we are showing $1,200 annually, but recognized revenue of $100/month x 12 months, so therefore the monthly pricing equivalent is $100 and we are showing the Billing and Cash Collection assumption of “Billed annually and collected in advance” - that way your recognized revenue, cash flow, and deferred revenue liability will automatically calculate properly for you for each month of the life of the contract):
For a more detailed explanation of how our app easily handles the complexity of advanced payments in a recurring SaaS business plan, please see our support post How Deferred Revenue is Handled with a SaaS Business Model with Annual Payments
And for a detailed explanation of how our app automatically creates a comprehensive CLTV analysis for your SaaS app, please see our support post Customer Lifetime Value (LTV) Calculations