Need some clarity on Subscription Products? Here it is! Subscriptions can be divided up in a few different ways.
There are two pricing options here. Fixed Price or Percent of Total.
Fixed Price subscriptions are products that have just that, a fixed price. This fixed price can either be a one specific price for the product -or- be obtained from a table of prices or “rate card” as some folks call it. The rate card is a set of prices for a given product, divided up by a set of tiering criteria such as quantity range.
Percent of Total subscriptions are products where the price is calculated based on a specific percentage of the total cost of the quote. Common products that are percent of total are warranty products and maintenance products.
- Perhaps you have a warranty covering products purchased and the cost of which is 10% of the products that are being purchased.
- Or maybe you are a SaaS company and sell perpetual licenses to your software. You might have a yearly maintenance fee that is priced to be 20% of the perpetual license purchase price.
There are two type options here. Renewable or One Time.
Renewable subscriptions are those that renew after each term (most commonly 12 months). A standard example is a magazine subscription. You get an issue every month and each year your subscription is renewed. This renewal is a chance to update/change the customer’s subscription for the next year. Pricing might be increased with a yearly uplift or you might attempt to upsell the customer to more issues per year. Either way, this is a way to enter your customers into another sales cycle every single year.
One Time subscriptions are those that do not renew each term but are still priced/paid on a monthly basis. Something like this would be a warranty. The warranty lasts a specific amount of time and does not renew (unless you want it to).
Important Revenue Points
Subscription Products allow your finance team to track a number of different revenue points. ARR, MRR, NRR, ACV, and TCV.
- Annual Recurring Revenue (ARR) – How much cash is a customer (or your whole business) bringing in each year?
- Monthly Recurring Revenue (MRR) – How much cash is a customer (or your whole business) bringing in each month?
- Non-Recurring Revenue (NRR) – How much of your revenue is non-recurring (non subscription)?
- Annual Contract Value (ACV) – Similar to ARR but includes NRR in the first year.
- Total Contract Value (TCV) – Total of all years and including NRR.
Now we get into something more complex. Subscribed assets are when you have assets like a bank of meeting rooms or hardware equipment that you want to rent and manage. The way this works is you, as a business, buy a thing. The thing gets created with a serial number, id number, room number, etc. You set this thing up as a product in your system, quote it which generates an asset. You want to rent this thing (asset) out to your customers. When quoting, your customers end up subscribing to the thing for a certain time period. You set this up as a subscription to the asset.
Now you are equipped with a basic information about subscription products!