Recurring Revenue - Part 3: Opportunity and Opportunity Product

Continuing the series on how to quote, forecast and measure recurring revenue...

What I'm trying to determine with Opportunities are the:

• First-Year Value, and
• Monthly Recurring Revenue

Ultimately, I want to be able to forecast based on these amounts. Monthly Recurring Revenue (MRR) is probably my most important metric as a SaaS provider, so I want to move away from forecasting on the Amount field (which typically represents the total contract value of an opportunity). FYV is kind of an in-between measure; it includes start-up charges (training, setup) and the first 12 months of service, but excludes multiple years of service.

I'm basing these on custom fields on the Opportunity (Term, the service duration in months) and Product (Category).

I have one field to add to the Opportunity Product:

• Recurring Charges: If the Line Item's Product Category (see the first post in this series) is either Subscription or Over Time, the Recurring Charges are set to the Line Item's Total Price; otherwise to 0. As with the Quote Line Item (see the prior post), this is NOT a formula field. Instead, I populate it via a simple workflow rule and field update. This field is read-only except for the System Administrator profile.

Note that I'm making an important assumption about the 'Over Time' products. I'm expecting to use this for services that will be performed and billed over time. The assumption is that the services will be performed steadily over the term of the deal. (Again, if this is not sufficient, you probably want to look into Product Schedules for the greater flexibility.)

I have three additional custom fields to add on the Opportunity object (recall we added a few custom fields, two dates and one checkbox, back in this series' first post):

• Recurring Charges: this is rollup summary, a sum of the Opportunity Products' Recurring Charges.
• FYV: this is a currency field. The calculation for this field is the non-recurring charges, plus up to 12 months of the recurring charges: If(Term < 12, Amount, (Amount - Recurring Charges) + (12 * Recurring Charges / Term)). However, it's not a formula field; rather it's populated by workflows so that I can use this field for forecasting (more on that in the next post). And it's only editable by admins.
• MRR: Like FYV, this is a currency field, populated by workflows and read-only except for admins. The value is simply Recurring Charges / Term, but in this case I use the BLANKVALUE function to treat Term as 12 if it's not populated. (I conditionally require this field, but only above some deal probability; until then, the one-year assumption will suffice).

Now I have everything I need on both the Opportunity and Opportunity Product. Let's see how this looks at the Opportunity Level for the Quote I created last time. Recall that I have a 24-month term with three line items: $2400 for a Subscription charge, $150 for One Time items, and $600 for services performed and billed Over Time.

Here are the resulting calculations:

The recurring charges are the same as we calculated for the quote. That translates into a $125 MRR ($3000 divided by the 24-month term). The FYV comes from 12 months of the monthly recurring revenue (12 * $125) plus the $150 one-time charges.

Next time, we'll set up forecasting for the MRR and FYV custom currency fields.