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How to Forecast Recurring Revenue

Alex Wunderlich
September 17, 2021

Recurring revenue seems pretty simple on the surface, but just because recurring revenue is “predictable,” that doesn’t mean forecasting recurring revenue is easy. Month-over-month growth assumptions can paint a general picture of MRR for investors, but if you really want accurate projections - the type that’ll help you navigate strategic decisions and optimize your finances - you’ll ultimately need a more detailed forecast.

The bad news is that financial modeling can send you down a spreadsheet rabbit hole pretty quickly, and it’s a nightmare to regularly update that data and check on formulas, which means a lot of founders unfortunately don’t leverage their forecasts often as they should.

The good news is that there’s a MUCH easier way to do it!

Step 1 - Build Your Model in a Minute

Typically, you’d need to pull historical performance data, drop it all into a spreadsheet, link various sheets, hack together some formulas, carefully eliminate the #REF’s, and tinker with formatting until everything looks right. We always hated that, so we built Clockwork.

If you use QuickBooks Online or Xero as your accounting system, you can connect to Clockwork with a click and get all of your data synced up in about a minute. As soon as you’re connected, you’ll get performance dashboards, a custom 5-year financial model that learns the behavior in each account, a 52-week cash flow forecast that accurately models the way you collect and spend, plus powerful tools to explore “what if” scenarios and best/worst case assumptions, all with your own real-time data. 

Too easy, you’ve got your models. Now what? Well, nobody knows your business better than you do, so you’ll probably want to drop a few of your own assumptions into the forecast. More good news: That’s really easy too!

Step 2 - Dial in Your Assumptions

The hardest part about recurring revenue assumptions isn’t how you build them, but rather figuring out what to build. In other words, what inputs will drive your forecast and how are they related? This will all depend on the specific drivers in your business, the behavior of your recurring revenue, and how new business is generated, but we’ve boiled down some of the most common examples below:

Recurring Revenue with Churn and Expansion

This is an easy one. If your recurring contracts never upgrade/downgrade or churn, then you can easily forecast the recurring portion of your revenue with 0% month-over-month growth. If you expect some churn, you could model month-over-month decline. Alternatively, if there’s a mixture of churn and expansion, then you may want to look at historical Net Revenue Retention to guide your assumption. For example, if 12 month net retention is 105% then you could use 5% year-over-year growth to model that behavior in your recurring revenue. Easy enough.

Check out this interactive example to see how it’s done in Clockwork:

(Mobile users: we recommend rotating your phone or viewing from desktop)

Modeling New Revenue

Presumably you also generate new revenue on top of your recurring base, so now we’ll show you how to add multiple rules to an assumption (i.e. recurring revenue + new revenue) to get that forecast even more dialed in. By adding custom formulas on top of your existing rule(s), you can pretty much model anything you’d like, but we have a few common examples below:

First up is a simple sales pipeline example:

Another approach is to model large, individual opportunities based on when you expect them to close:

And if you want, you can even apply different % probabilities to those opportunities across time:

Other Considerations

Keep in mind that you have full flexibility in the Assumption Builder, so you’re not limited to the options above. Depending on your business and how complex you’re trying to get, you may also choose to break out monthly vs. annual subscriptions, or different product/service lines, which basically just means building different rules specific to those segments.  

It should also go without saying, but you’ll want to forecast your expenses too. As you probably saw above, it’s super easy to build out those rules in Clockwork’s Financial Model (assuming our automated logic didn’t already nail the forecast when you connected), but we had to mention it. 

Step 3 - Stay in the Loop

Now that you have a completely dialed-in financial model (which should’ve only taken ~15 minutes), what do you do with it? That could be its own textbook, so we’ll just say that in general, you need to make sure you regularly refer back to your financial model to see how you’re performing vs. plan, and to update your forecasting assumptions when things change. You can learn a lot about your business just by observing what’s going on and regularly challenging your assumptions (or testing new ones altogether). On the flip side, there’s no telling what you’re missing if you let your models sit untouched for too long. Since Clockwork updates automatically every hour, you can literally login anytime you want to get a real-time pulse, without any of the headaches of updating if you want to check up on your finances every day, go for it!

Reach out to our team using the chat icon (bottom-right) or shoot us an email at and we’ll take care of you!

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