In our new video series on budgeting with data, we kick things off by tackling a common budgeting approach for subscriptions. Discover why relying solely on percentage increases may not reflect reality and learn how to build more accurate subscription revenue budgets based on solid data. Join us on this journey towards better financial planning!
This video is the first in our series on using data to budget revenue.
Today, we're tackling a common budgeting approach for subscriptions that might sound familiar - calculating a certain percentage increase on the current year's subscription revenue.
But here's the big question: How often has this method reflected reality?
There is a better way to budget subscription revenue.
Raise your hand if you've ever applied a blanket percent increase to your current year's subscription revenue and used that as your budget.
Did you just raise your hand?
Now, answer this question: How close did you actually get to that number?
Chances are, you've experienced some significant variances.
Let's walk through a scenario to illustrate this approach.
Imagine you received two hundred thousand dollars in subscription revenue this season.
You think you could increase that amount, let’s say, ten percent next season, so you budget two hundred twenty thousand dollars in subscription revenue.
On what are you basing that increase?
Will subscription prices increase ten percent next year?
Or will you sell ten percent more subscription packages at the same price?
And if you’re going to sell ten percent more packages, what are you going to do differently to achieve that growth?
By the way, how many more packages will you have to sell?
The Problem with Percent Increases
It’s easy to see how this approach to budgeting creates many more questions than answers.
The problem with relying solely on percentage increases is that it often doesn't account for the dynamic nature of your circumstances.
That's why using a data-driven approach can make a world of difference.
So, what's the alternative?
Building your subscription revenue budget based on solid data.
Data-Informed Budgeting
For each subscription package you offer, start your budget with how many packages you expect to sell.
Next, calculate the average price paid for subscriptions this season.
If you are going to increase prices, increase the average subscription price by that same percentage.
For example, you sold eight hundred packages this season for two hundred thousand dollars, which is an average of two hundred fifty dollars per package.
Let’s suppose subscription packages have been increasing about three percent a season and you are planning a two percent increase in prices.
When you multiply eight hundred twenty-four packages by two hundred fifty-five dollars per package, that's two hundred ten thousand one hundred twenty dollars in projected revenue.
By starting with concrete data points, you're creating a more accurate budget that aligns with your organization's historical trends.
By the way, to achieve two hundred twenty thousand dollars in subscription revenue with a two percent price increase, you would need to sell eight hundred sixty-three packages, an increase of eight percent over the current season.
That’s quite a bit more than the three percent growth you have historically achieved.
The Bottom Line
So, here's the takeaway: Data-driven projections are your secret weapon in creating realistic revenue budgets.
In our upcoming videos, we'll dive deeper into specific data points and strategies to refine your single ticket and annual fund budgets.
Stay tuned for more!
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