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 $200,000 in subscription revenue this season.
You think you could increase that amount, let’s say, 10% next season, so you budget $220,000 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.
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 800 this season for $200,000, which is an average of $250 per package.
Let’s suppose subscription packages have been increasing about 3% a season and you are planning a 2% increase in prices.
When you multiply 824 by $255 per package, that's $210,120 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 $220,000 in subscription revenue with a 2% price increase, you would need to sell 863 packages, an increase of 8% over the current season.
That’s quite a bit more than the 3% 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!