Subscription Business Financial Model

Use this very detailed excel workbook and instruction sheet to model your subscription or membership business – It’s for education, not prediction!

This subscription & membership financial model by Subscription Insider was developed as a tool for would-be subscription businesses who either are planning a new launch or an acquisition.

It may also be useful for businesses who are doing a minimum of marketing and who want to see how their cash flow might change if they ramp up marketing and/or ancillary product offers.

Its purpose is educational and inspirational rather than strictly predictive.

Everyone’s business is slightly different, so it was impossible for us to create an easy-to-use model that would work with enormous accuracy for all. However, if you’ve not modeled this type of business extensively before, you probably will learn a great deal from it!

THE SUBSCRIPTION BUSINESS MODEL
EXCEL WORKBOOK
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Instructions:
Subscription  & Membership Business Excel Model

General Overview (Read this first)

Welcome to our subscription and membership business model spreadsheet workbook . This was developed as a tool for would-be subscription publishers who either are planning a new launch or an acquisition . It may also be useful for current publishers who are doing a minimum of marketing and who want to see how their cash flow might change if they ramp up marketing and/or ancillary product offers .

Its purpose is educational and inspirational rather than strictly predictive . Everyone’s business is slightly different, so it was impossible for us to create an easy-to-use model that would work with enormous accuracy for all . However, if you’ve not modeled this type of business extensively before, you probably will learn a great deal from it .

To get started:

#1. Review each page of this worksheet first, specifically looking for numbers you may need to research before you can use the model . For

example, you’ll need to know what months your current paid subscribers (if any) expire on, and how many searches per month are conducted for keywords related to your site’s topic on sites such as Google and Bing . You can use a printed copy of this worksheet to keep notes on .

#3.  Download the Model Spreadsheet and save it in

your computer using a name such as “Version 1 .0” .  Then if you decide to model several different options — such as price changes, save each version with a different name to keep records .

#4.  DON’T TOUCH cells marked in grey and orange as Calculations . These were very carefully calculated and if you break an equation, you may break the model elsewhere as well . If you do break something and can’t fix it, all is not lost, just download another fresh copy of the Model from Insider and start again .

#5 . Have fun! Once you’ve input your basic assumptions, try out changes in pricing, terms, marketing tactics, and other products to see how they might affect the bottom line . Chances are you’ll learn a lot, and perhaps be inspired to change your plans .



Detailed Info On Each Page or Tab in the model

Model Page #1: Basic Assumptions

Purpose:

The numbers you enter here will be used in the calculations that affect all the other pages of this model. They’re the basics of your subscription or membership business. Small changes will have a big impact on your revenues. If you have to guess, start low. The months you enter here will appear on all pages of the model.

Model Page #2: Pre-existing Paid Subscribers & Buyers

Purpose:

If you have a pre-existing subscription business (or you intend to acquire one), enter the numbers here. All subscription and membership publishers should be able to give you these numbers about their business — it’s accounting 101 to be tracking them. Because this model is based on recurring billing (automated renewals), we do not include months for subscribers that have been renewed very far in the future.

If you have a buyer list for (or intend to acquire) a paid content product that’s not sold on a subscription basis — such as a single access user, an ebook, a single download buyer, etc . — that does not overlap strongly with your intended subscription product, then use the last section on this page to budget a marketing campaign to turn those single-time buyers into subscription buyers. If the brand name is extremely similar and the topic is incredibly relevant to their original purchase, they’ll convert at a higher rate than any other list you market to. If the product was not content, but something else, then budget a far lower response rate. Content buyers are special people!

Model Page #3: Marketing – Subscription Offer Campaigns

Purpose:

These are marketing and advertising campaigns you’ll send to the outside world with a specific promotional offer — and response device (a landing page, a phone number, a reply card) — for your subscription or membership offer. This does not include tactics such as SEO and PR that drive general awareness and site traffic (those go on page 4.) It also does not include your in-house email newsletter.

You should have a general sense of the total size of your marketplace and the audience size of various media you would advertise on before you start this sheet. Otherwise, you may budget in excess of reality. You can budget to reach the same person through multiple media — in fact, you should do this, it’s a best practice in marketing because many prospects need to hear about a brand several times before they respond. However, you should not budget grossly oversized media buys that will reach people who are not remotely in your target audience. The good news is, small, more highly focused media buys tend to have higher response rates You can make more sales to the right group of 1,000 email names than the wrong group of 1,000,000 email names.

For each campaign, you have your choice of one of three offers:

1. Trial offer –– respondents will be presented with an offer for a trial membership or subscription. Your trial terms and conversion rates to regular paid subscribers are defined on page 1 of the model. For the sake of modeling, trials are assumed to start on the 14th of the month . Fully converted trials are added to your paid subscriber files. All trials are also added to your house email list on page 4 .

2. Direct sale — respondents are presented with an offer to buy a subscription right away. This is also known as a “hard offer”. Subscription prices and terms are defined on page 1 of this model. Also, see page 6 of the model for cross-sells and upselling efforts to the paid subscribers. Renewal income is automatically calculated by the model.

3 . Lead generation — respondents accept an offer for something free that does not require a credit card or other payment information. They have made no commitment to buy a subscription and probably should not be able to access subscriber-only content at all.  This offer may be an email newsletter, e-course, webinar, community access, or something else. Once they join your lead list, they are added to your email newsletter list as well as going through a conversion process defined on page 1 of the model.

If you’re not sure about search traffic, use your credit card to start a low-ball Google AdWords account and use its research engine to see estimated figures. More extensive search traffic keyword tools are available. in other places, tools such as Wordtracker are good, but Google’s a good place to start.

Model Page #4: Marketing – General Traffic-Driving & Brand Awareness

Purpose:

This is the traffic that you’ll drive to the general public pages of your site, where you’ll probably have subscription offers as well as other content. We also included your general email newsletter here, even if it goes to members or trials only, there’s a chance they’ll forward the newsletter to friends and expand your audience. Other traffic-driving activities could include social media marketing such as Twitter and Facebook.

One of the reasons we included branding and PR here is that some site marketers think they should only invest in campaigns they see direct responses from.  That can be a big mistake, especially for broad consumer brands and for any brand that’s a high-ticket item. For example, in B2B group sales, the person who buys may not be the evangelist or the decision-maker– in fact, there may be an entire committee you’ll have to reach and influence even though only one “contact” may be the final buyer for the organization.

If you’re not sure how much traffic you should be getting, look up a few competitors at free research sites such as well as reviewing competitor media kits (if any).  Assume all numbers are slightly inflated.

Model Page #5: Other Revenues – Ad & Sponsorship Sales

Purpose:

The biggest mistake new subscription companies make that are leveraging these lines of ad or sponsor revenue (Primarily media, content, publishing, apps and gaming) is is to budget accurately for healthy ad and sponsorship sales. The problem is, it takes a while for you to get then audience and brand strength to be worthy of a media buyer’s attention.

Then it can take several fiscal quarters to build relationships with the right media buyers and get on their budgeting map. In B2B, major ad buys may be budgeted a quarter or even a year out.   Even for PPC, you need a lot of traffic plus some testing to see which ad positions work best.

So, unless you have proven ad sales, budget the bare minimum and push it more months out than expected. And assume everyone will pay their bills a little late.

If you’re not sure about pricing, get copies of your competitors’ media kits and ad rate cards – which are usually available online.

Model Page #6: Other Revenues – Upsales, Products, Consulting & Events

Purpose:

In the old days, these were known as “ancillary revenues” and they could account for up to 40% of total revenues for some types of subscription companies. If you are publishing a membership company, even software companies with user conferences, and you’re not budgeting any of these, you are missing out on what could be significant profits. 

First of all, people who pay for your expertise are extremely likely to pay for more more on the same topic, especially if it’s from a trusted source they already have a relationship with. Your current paying subscribers or members should account for about 80% of your extra product sales.

Plus, prospects who are timid about buying a subscription, may convert to buying a single-item. These should account for about 20% of your extra item sales.   These sales usually involve extra costs at the very least in the marketing department time to arrange barters. So they are less profitable, but still useful.

You may notice we did not include real-world trade shows or conferences in this model. That’s because the costs and revenues are complex enough to warrant their own model — especially if you do accounting on an accrual basis (which is recommended.)

Model Page #7: Staffing & Business Costs

Purpose:

Even if you are an owner-operator, we urge you to go through this page in detail because you’ll find costs you may not have previously considered when planning your subscription business. For larger companies, usually you’ll find that staffing is your highest cost.  For companies that offer a very low-cost subscription with short terms (ie. month-to-month) you’ll gulp when you see here how much those credit card charges will eat away at your budget.

If you are launching a subscription, and want to include some R&D costs prior to launch here, put them in month one. We did not include room for any other major capital expenditures, investments, taxes, or loans here because it doesn’t belong in this sort of EBITDA model.  However, you can put hardware such as PCs in this model because many companies are not including them in capital expenditures anymore, now that they are fairly cheap

Model page #8: Income Statement – Accrual Method vs. Cash Basis

Purpose:

DO NOT TOUCH anything on this page. It’s an entire page of calculations. The top half shows your business on an accrual basis, the bottom as a cash basis. Entrepreneurs run their businesses by watching cash very carefully so you need the latter. However, if you sell your business someday, chances are you’ll be required to show accrued accounting books, especially if you sell a lot of annual subscriptions.

You’ll find that the biggest factor in changing numbers on this page are usually adjustments to the numbers you entered on page 1 .

Remember, all the sales are calculated using a mid- month trial start date .

Please do NOT use this page to budget your company to the dime. It’s a rough estimate based on data you plugged into an inexact model. Assume worst-case scenario — that you may not do as well as this or see cash as quickly. The purpose of this model is to see if you have a possible business at all, and how changing various levers, such as pricing, terms, marketing, and ancillary products offered, can directly impact your bottom line. It’s for education, not prediction!

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