I’ve never met any company that couldn’t – or probably shouldn’t – be using Products in salesforce to forecast revenue.
But here’s the rub.
Many of us sell products and services that involve recurring revenue. And that means you need to use standard or custom product schedules.
Unfortunately many companies that use salesforce think this is difficult to do.
But it isn’t. And you shouldn’t be put off.
In fact, making the effort to forecast recurring revenue in salesforce has many benefits. For example it:
– Increases visibility of committed and pipeline revenue streams.
– Improves the ability to manage customer payments.
– Ensures opportunities are managed to secure the full anticipated revenue.
– Improves cash flow management and production planning.
– Removes the labour intensive headache of forecasting on spreadsheets.
So here are 5 examples of companies that manage recurring revenue in salesforce. We bet you can spot at least one that is similar to the products and services your company sells.
If they can do it, so can you.
(Just for the record, all screenshots below are taken from real GSP customers but the actual data displayed is fictional).
1. Service Contracts with recurring revenue
Let’s start with the absolute easiest one.
Service Contracts typically have a fixed duration and recurring revenue over the life of the contract. This recurring revenue is easy and simple to forecast in salesforce using product schedules.
Linx Printing Technologies, for example, sell service contracts of 1, 2 or 3 years to support and maintain the printing equipment they sell. Payment terms on the service contracts can be monthly, quarterly or annually.
Linx have created the various service contracts in salesforce as Products. For each product, a default revenue schedule has been created.
A default schedule is the revenue schedule that will be automatically applied when a sales person adds a product to the opportunity.
For example, the product that represents the 2-year service contract with monthly payments, has a default of 24 revenue schedules. The 3-year, annual payment service contract has default of 3 revenue schedules. And so on.
Here’s how it looks in a dashboard chart and report. We’ve used three examples of 1-year service contracts to keep down the size of the image.
2. Products with deposits or multiple part-payments
MAM Software provides management software solutions to the automotive, building and distribution industries.
Each opportunity can contain multiple products including software, hardware, licenses, service contracts and professional services.
Like many companies MAM charge an initial deposit. Further payments are due when the products are delivered. Subsequent invoices and payments are triggered upon implementation and customer sign-off.
In other words there’s recurring revenue for a short period of time, albeit the payment amounts are not necessarily identical.
There are two ways to handle this type of recurring payment – standard salesforce product schedules or custom schedules.
Standard product schedules
Using the standard functionality the sales person enters the core data required to create the schedule.
This will create an initial recurring revenue schedule of 4 payments @ £750. However the sales person now has a chance to modify the date and amount of each schedule.
The result is a series of recurring schedules that correspond with the payment arrangement agreed with the customer.
Custom product schedules
It’s imperative for MAM to record this schedule of payments in salesforce.
- Contractual payment agreements are visible to appropriate users.
- Goods are prevented from being shipped to customers that haven’t paid their deposit.
- Professional services and implementation work can be triggered based on customer payments.
- Sales people can accurately forecast upcoming pipeline and committed revenue.
- Finance has the visibility needed to manage credit control effectively.
However this means that additional information must be entered for each recurring payment – the status, for example.
Unfortunately the functionality associated with the standard product schedule in salesforce has several constraints – additional fields such as ‘payment status’ cannot be added for example. It also requires sales people to manually calculate the amount and timing of each schedule.
MAM overcome these constraints by using custom product schedules.
Sales people record the deposit and repeat payments using a Visualforce page embedded within the Quote.
The scheduled payments are automatically calculated based on the default payment terms – for example, 20% upfront deposit, 60% upon delivery and so on.
If additional products are added to the Quote then the deposit and recurring revenue calculations are automatically updated. Once the deal is agreed with the customer the final Quote is synced with the Opportunity and both are locked to further changes.
The Finance team within MAM use these payment records to send invoices. When the invoice is paid the relevant payment term is updated and the next project stage can begin.
The structure gives MAM a robust dashboard view of pipeline and committed recurring revenue. It also enables product delivery, implementation and commissioning activities to be scheduled based on invoices and customer payments. It also means MAM can easily compare expected with actual orders on framework agreements.
In summary, if you simply need to record the basic recurring revenue schedule agreed with the customer then standard product schedules are likely to meet your needs. Anything more complex – then use custom product schedules.
3. Transactional products
Some companies sell high volumes of products that the customer will use on a monthly basis. But at the outset, the actual number of units or transactions per month can only be guessed at.
Brainstorm, for example, sell text messages to accompany their software products that enable companies to get real time feedback on their customer service performance.
A large deal might require as many as 1 million text messages, to be used over 12 months.
To manage this Brainstorm has created Text Message as a product in salesforce.
Sales people add the product to the opportunity and enter the estimated volume of units and unit price. They then add a revenue schedule based on the duration of the contract.
Each month, the account manager updates the forecast revenue schedule with the ‘actual’ revenue that was generated. We can see this in the figures for January to April in the screenshot above. Optionally the account manager also updates future schedules based on the latest available information.
This means the reports and dashboards provide a clear view on two key things. First, the actual revenue that was generated from the text message product on each of the opportunities. And second, the projected revenue for future months.
4. Distributor sold products / run-rate recurring revenue
Gilbarco Veeder Root is the worlds’ leading supplier of petrol pumps and related retail equipment. In addition to their direct business, Gilbarco also sell significant volumes via distributors.
Revenue from these distributors is ‘guaranteed’ in the sense that there’s an ongoing commercial relationship and contractual arrangement with the distributor.
At the start of each year each account manager forecasts the product volumes that will be sold by his distributors. He does this based on historic information and his knowledge of the distributors business.
To reflect this revenue in the pipeline reports and dashboards, Gilbarco take a similar approach to the transactional product example shown above.
In other words the account manager creates an opportunity for the estimated annual volume. At the same time she creates a revenue and quantity product schedule that reflects anticipated month-on-month orders.
Every month the revenue and quantity product are updated based on the actual volumes received. At the same time she modifies the schedule for the following months based on latest understanding of the distributor pipeline.
So again it means that there is an up to date view of confirmed deals and pipeline revenue based on the latest information. This is critical information to Gilbarco in production management and financial planning.
Find out what Derek Davis, Sales Support Director at Gilbarco Veeder Root has to say about working with GSP.
5. S-curve recurring revenue
Taylor Woodrow undertakes major construction and infrastructure projects such as motorways, tunnels and railway lines on behalf of government agencies.
The sales pipeline for these projects can last many years. As can the construction and engineering work that results from a deal.
Yet like any other business, Taylor Woodrow needs to forecast the anticipated revenue for pipeline and closed won opportunities.
For any given opportunity the revenue can be predicted – it’s either going to be a straight line, or more commonly, an s-curve.
The s-curve profile reflects the fact that at the beginning of each project there’s a comparatively modest design and set up cost. At the end there’s commissioning and sign-off. However in the middle, there’s a major chunk of heavy duty construction going on!
To manage this Taylor Woodrow use an s-curve function built into the opportunity.
The opportunity owner enters start date, end date and number of months, projection method (straight line or s-curve) and the system does the rest.
Taylor Woodrow amalgamates the recurring revenue from all projects in reports and dashboards to produce a predictable view of anticipated income.
So did you spot a company that operates in a similar way to your own? Try making the effort to implement product schedules to forecast recurring revenue – there are major benefits to be gained!
And if you have a question – or want to talk to us about helping you forecast recurring revenue – simply get in touch.