Recurring Revenue Forecast
Recurring Revenue defines the health of subscription business. Recurring revenue is the committed revenue that comes in periodically, either as Monthly (MRR) or Annually (ARR) for the life of a customer.
With the change in business model from ownership to subscription, the growth of the company now relies heavily on recurring revenue vs just the initial investment. Tracking Recurring Revenue for any SaaS company gives us important insight to help us understand if the revenue is growing or is it being lost.
Hence Recurring Revenue forecast is one of the most important in projecting a SaaS companies future.
While it might seem that forecasting Recurring Revenue should be a straight forward and is a very predictable task, but in reality, a lot of real life changes can challenge this big time.
It can be done based on historical data of growth, upsell, expansion and contraction and churn rate.
But to get a much most accurate picture and any chance of improving it, specially when you have a medium to high touch, high paying customers, it makes sense to enable every customer success manager to update forecast individually for each of the portfolio accounts.
Some of the SaaS metrics used to forecast recurring revenue are:
- Customer Lifetime Value (CLTV or LTV)
- Account Expansion
- Account Contraction
- Customer Success Manager (CSM) – Expected to be most accurate and also helpful to take any corrective action and improve the growth rate.
How does Forecasting help?
- Customer Retention
- Opportunities to promote up-sell/cross-sell
- Revenue Growth
- Financial planning