Modeling a One-Time Setup Fee and Recurring Revenue Stream for the Same Offering
Many business models have a one-time initial purchase (such as a setup fee or a device or hardware purchase) and a recurring revenue fee (such as a maintenance fee, license fee, or subscription fee) for the same customer. The Startup Financial Model captures both types of revenue assumptions, allows you to link the sales and purchases very easily, enter different assumptions on billing and collection for each as appropriate, and to indicate that both offerings are for the same customer so that your customer count is accurate.
Let's take an example scenario to show you how easy this is to model with very few inputs, but that will give you a very detailed financial model with the cash implications:
One-time device sale/setup of $2,500 paid in advance with sales of 10 new customers per month for each month of the five year plan with the first sale in the 3rd month; plusRecurring monthly license/support subscription of $250 that starts the month after installation and that is billed quarterly in advance on a 12-month contract, but anticipated to be collected in the second month of the quarter. The contract renewal rate is anticipated to be 90% of all customers at the end of each contract term.
To enter the assumptions, we will enter two different offerings for the same customer, one for the setup service or hardware and one for the subscription service with the same quantity added for each for each month. The good news is that we’ve made it really easy to model this by simply linking Offering #2 to Offering #1, so you don’t have to re-enter the customer acquisition expenses or sales forecast assumptions.
Here’s how the entries and output will work:
Offering #1 – One-Time Setup and Device Sale Inputs
The Type and Length of Sale entries will look like this:
The Pricing and Revenue Share entries will look like this:
And the Sales forecast entries will look like this (you can enter for each month or use our handy Auto Fill feature to fill in your 60 month forecast with only a few clicks):
If you calculate and look at the Sales report, you can see the results as follows in terms of the sales detail, with sales starting in the 3rd month of the plan (showing you the first several months - there are monthly, quarterly, and annual views):
As well as the Revenue detail in terms of Cash, Deferred Revenue, and Receivables:
Offering #2 - Recurring Monthly License Fee Inputs
The Type and Length of Sale entries will look like this:
The Pricing and Revenue Share entries will look like this:
Because the offering was entered as Monthly Recurring, many more billing options are available; we will use the choice that matches our assumption above of Quarterly billing that is collected the second month of the quarter:
And the Sales forecast entries will look like this as we link the forecast to Offering #1, the One-Time Setup and Device Sale with a one month lag (note that only four simple entries populate the entire forecast:
Once we save and calculate those entries, we can see the details in the Sales report on sales...
...and Revenue, Cash, Deferred Revenue, and Receivables:
Because both offerings are to the same customers, we then remove the duplicate customer count...
...and all reports from Income Statement, to Cash Flow to Balance Sheet to Key Metrics is automatically calculated to shows hundreds of pages of detail. This is an example of the Key Metrics report showing both offerings consolidated with the 10 customers (for simplicity we did not fill in any cost assumptions):
