The subscription component can be used to model recurring revenue and lets you set the following:
- Subscription price: Enter the price you are going to charge for your subscription. If you need to vary the price, for example to model a price rise, click Enter in table.
- Renewal Period: This input lets you set how often this payment happens
- Number of subscriptions from before the plan started: Enter the last renewal date of existing subscriptions, which will then be set to renew during your plan's timeframe.
- Set cancellations (churn): This input allows you to enter the number of subscriptions that cease to be active in that period.
- Set refunds Use this input to enter how many new purchases will be refunded.
- Adjust when the cash payments are received: If there is any delay to the cash payment for your subscription, set this here. This will only affect Cash Flow based reports and charts.
- Add a Cost of sales component: Click to add a direct cost of sale related to this subscription. This will be added as a separate component as a 'child' of this component in the plan to the left.
- Add an Inventory component Click to add an inventory cost related to this subscription. This will be added as a separate component as a 'child' of this component in the plan to the left.
A big part of modelling a subscription based business is deferring revenue. Here is how deferring revenue works across each report:
- On the CF, a cash payment happens whenever the subscription is paid by a customer.
- On the P&L, the revenue from this transaction is spread over the renewal period of the subscription.
- On the balance sheet, the subscription shows as a liability, which reduces over the length of the subscription.
We'll explain how this works in Brixx by using examples further down the article.
Here is where you can enter the pricing of your subscription. If you offer multiple subscription services, simply add another subscription component to your Brixx plan!
This is where you will enter your subscription renewal period. If you have a monthly subscription you would enter one month, if you had an annual subscription you would enter 12 months.
Your renewal period will determine the numbers presented to you on your P&L account, balance sheet, and cash flow.
In the above example, I offer a 12 month subscription for a service. If we look at my balance sheet, you'll see that you have some prepayment liabilities each month.
You'll also notice that the payment goes down each month, that's because slowly, you're delivering your service to the customer. So, consequently, your prepayment liabilities will decrease.
If, however, you have a 1 month renewal period, then you won't have any prepayment liabilities, because you are delivering your service month on month.
Finally, if you have a 2 month renewal period, then you will have prepayment liabilities which is half of what you owe, and in the second month you will not have any prepayment liabilities. That is because by the end of the second month, you have delivered your service.
Going back to the example of the 12 month renewal period, let's take a look at how the P&L account and my cash flow statement would look like.
As you can see, the P&L does not say you have collected £120 pounds of cash straight away. Instead, it shows you have collected £10 each month.
If we take a look at the cash flow statement, however, you'll see that I collected the cash at the start of the plan. That is because the subscription renews in January. This is when the customer pays me.
If you look next January, you can see that I've also collected £120 worth of cash. However, the P&L continues to show that I have only gained £10 each month of that year.
So, as you can see, when accounting for deferred revenue, while you have collected cash straight away, the prepayment is still classified as a liability as it represents something that you have not fully earned yet. Instead, owe to the customer.
Number of subscriptions from before the plan started
Switch the toggle on to enter the number of subscriptions you received from before the plan started. This option will only be available to you if this component starts at the beginning of your plan.
How far back you will be able to enter existing subscriptions depends on what your renewal period.
If you have a 12 month renewal period, you will be able to enter up to 12 months before. Whereas if you have a 3 month renewal period, you will only be able to enter three months before the start of the plan.
Set cancellations (churn)
Businesses that offer subscription based services may experience a number of cancellations each month. Switch the toggle on to enter your cancellation rate.
This will only affect subscriptions which are up for renewal in this period.
There are a few ways you can enter your cancellation rate (churn).
The first option is to enter a percentage of all subscribers that cancel each period.
You can also manually enter the amount of cancellations you get - if this fluctuates every month account for this using the Enter in table input.
Subscription based services may have to refund their customers from time to time. Switching on the set refunds toggle will provide you with several ways to enter the amount of refunds you get.
Similarly to the set cancellations input, you can either enter the percentage of refunds you get for each period or manually enter this number.
Take a look at our component tips guide to learn about the different ways you can enter your data that are universal to all types of components.