3 Replies Latest reply on Jan 15, 2013 3:49 PM by 12850

    Accounting for Subscription Based Revenue

      Hey Guys,

      For those of you who have some kind of a service sold that involves upfront costs and then subscription fees thereafter, how do you go about attributing the revenue generated from subscriptions to marketing ROI?

      It's easy to calculate the set-up costs from the initial sale, but after that, easily compiling data on dynamic subscription revenue seems quite daunting. Our subscription model is very dynamic in that fees are accumulated on certain per-use charges that can (and many times do) differ from month to month for a single client.

      Just curious if anyone has some type of strategy for reining all this data in and then attributing to ROI!
        • Re: Accounting for Subscription Based Revenue
               Hi Caleb,
               Its a very interesting problem, and one i've previously tried to solve.
               Working within the realm of Salesforce and Marketo and utilising Campaigns and Opportunities, you could create some sort of automation between your subscription tool and Salesforce to attribute the fee's charged to a customer to an Opportunity in Salesforce, and automate the creation of these opportunities every month. (assuming you bill monthly)
               You would then have your original Marketing campaigns show up as influential (in salesforce reporting) and either creating FT or MT revenue (in Revenue Explorer) over any of the orginial opportinities that get created. If you also perform customer development/retention campaigns, assuming those are set up in both tools, those will have revenue attributed to them as well, as we assume that those campaigns increase the likelihood that the customer continues to use your service.
               The above covers showing the revenue associated with each campaign, the next step is to add costs to the programs/camapigns and then the ROI is yours for the understanding.
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          • Re: Accounting for Subscription Based Revenue
            We're a cloud services provider,so we fall under the criteria you are discussing. There is an up-front implementaiton and training fee, but the bulk of the revenue is from the monthly recurring revenue (MRR). We do have usage-based products, but our offerings are predominatly pre-set per-seat costs and we always do have a contract term. Usage based products basically get a placeholder value in the initial contract based on averages. This total montly contract value is multiplied by the term, giving us the total contract value. This is what is used to determine ROI and marketing effectiveness.

            If you are heavily usage-based and are looking to project a total contract value, perhaps you could have a formula that calculates averages based on certain criteria such as employee size, industry, etc. Use this for a field on the Oppotunity called "Projected Contract Value" and calculate based on that. If you're looking to verify and analyze any deltas later (which would certainly help make your projections more accurate), add a second field called "Actual Contract Value" that would be populated by your billing software once a contract comes to term.

            Hope this helps generate some ideas. Best of luck!
            • Re: Accounting for Subscription Based Revenue
              Thanks for the responses guys, that's definitely some food for thought. This is quite a difficult bear to tackle so any different perspective is helpful!

              @Alex: That makes a lot of sense!

              @Tom: I see what you're saying. Unfortunately for us, our contracts work based off of monthly minimums, but they aren't usually hard to reach so data on chargeable usages typically varries from month to month. Also, contracts are on a month to month basis as well so it basically gets more and more interesting for marking to capture data as we dive deeper into the after sales revenue.

              I do like  the idea of utilizing projected and actual contract value. After a while we could definitely take that data and begin projecting. I think it will just take some time to get relevant data and then begin sorting  everything out.