NEW! 10x your website traffic while you sleep with Autopilot 🛩
Learn More
As we learned before, determining if an industry has infinite growth is very important in investing. The same goes for knowing when an industry is no longer viable! If you look at too many examples of how it’s grown, that makes your prediction about its future seem more likely.
But what if I told you that there are some industries where this theory doesn’t work? They may grow for a while, but they don’t stay afloat forever.
A good example of this is the magazine publishing business. Technology has completely changed the way people read media, and smart publishers have adapted to these changes.
However, technology isn’t changing any faster just because someone invented or discovered it, so direct-advertising models won’t last forever either. That being said, there are ways to calculate recurring revenue in the magazine publishing space, which can help investors determine whether or not this model will continue to be lucrative.
Recurrent revenues occur when something (or someone) produces income repeatedly without anyone doing anything in return. For instance, if I pay my friend $100 every month for her dog food recipe, then she gives me permission to use it as my own, that’s recurrent revenue. I didn’t earn the money, but I received it consistently.
So what is recurring revenue? This is when you pay for a service or product that costs to use, but there is also an additional cost per unit or requirement. With recurring fees, this price fluctuates depending on how much you use the service or product!
Recurring revenues are typically paid at one time every month or so, but can be limited in duration (for example, if you purchase a yearly membership to a site, then their recurring billing system does not allow for a lifetime license). This type of income is great because it doesn’t require as large of a budget up-front, which helps keep money saved for other things!
By having a recurring expense, you have already covered part of your expenses! These fees are usually lower level services such as Netflix or Spotify, where you only pay for what you use each month. Some companies will ask for more than the average to ensure people stay within budget, but overall, these fees work in your favor.
There are many ways to calculate recurring revenue, one of them being our topic today – calculating net profit.
In this step, we calculate how much money you will make in the rest of the months using the formula mentioned above. Simply subtract your monthly income in the past month from the total revenue in steps 1 and 2).
This calculation assumes that your monthly income is fixed for the rest of the year.
The Number of Days Between Your Launch and When You Started Receiving Monthly Income is an important metric to look at for determining if your business has reached IRRE (Infinite Recurrent Revenue) or not!
This calculation accounts for possible interruptions in income, such as vacations or major life events like having a child. If there are significant gaps, it can indicate that the nature of your product or service does not produce continuous flow of revenues.
It also gives us an idea of how sustainable your current revenue stream is. If you don’t see many gaps, then your income is more constant than what it was before! This is great news because it indicates that your business is more stable now than it was earlier.
However, it may be time to consider other ways to increase engagement with your content or products to keep traffic high. It could be due to limited availability of the product, but even just changing your marketing strategy temporarily while keeping the fundamentals the same is worth looking into.
So what is recurring revenue? This is when you pay for a service or product on a periodic basis. For example, if you are subscribed to Netflix for one month then there your payment ends. You would not be charged again until another month comes around. That is how most large companies make their money, so it is no wonder that they seem very powerful!
But just because someone else is paying for something does not mean you will always have work to do. It depends on whether enough people want the service or product. If nobody uses it, then why should you continue to offer it? This could be due to poor marketing, lack of quality, or there being a similar alternative already.
There are many ways to calculate recurring revenue, but one of the easiest is to multiply the average length of time users remain subscribed by their monthly subscription price.
This method assumes that longer periods indicate more value that user of the service. By adding this up, we get our recurring income.
In this stage, we calculate how much money you will make in the future by looking at the monthly cost to run your business!
We use a similar method as above to find the net income for the business. The only difference is that we subtract what it costs to operate your business per month from the amount you made in the last month.
For example, if you ran your business for one month and made $1,000 then the operating cost per month would be $500. Therefore, our equation looks like this: 1,000 - 500 = 500.
The Number of Days Between Launch and First Month of Revenues is an important metric to look at when calculating recurring revenues. If you launched your app in September, but you didn’t start generating any income until January, then that month would be considered part of your first monthly period!
This can also be tricky if you ever need to pause or cancel your service. For example, say you are giving away one free month of your paid service as a promotion. You will likely stop charging users for the month you gave them free access to, which would make it difficult to calculate this metric correctly.
You could potentially just exclude the time frame from the calculation, but that wouldn’t take into account potential future months that you would have been charged for. We recommend instead counting all available opportunity hours (OOH) as parts of your first month of revenues. This way, you get a more accurate measure of how many days it took to reach that milestone.
So how do you calculate recurring revenue? Simply multiply the total amount for all months in the given time frame by the number of days in each month to get your monthly recurring income!
This way, you will know what your average monthly income is per month. You can then compare this to your monthly expenses to determine if you are making enough money or not!
By doing this, you also take into account any one-time events that could affect your income such as an annual membership sale or major revamp of the service you use daily.
Saving some extra money every day makes a big difference over the long run!”
It is important to remember that although it seems simple at first, calculating recurring revenues takes slightly more math than just adding up everything.
In this stage, we calculate how much money you will make in your business per month! This is important because it determines how many advertisements or promotions you need to run to cover your costs. For example, if your monthly income is $1,000, then you would have 1,000 divided by 30 days = 3.3 ads needed to break even every day.
So how do you find the average? You take the total of all numbers under that column (in our case, it’s cost for advertising), add them up, and divide that sum by the number below it (the number of months).
In our case, it’s calculated as ($4,000 – $2,500)/30, which equals $833 per advertisement. The more expensive an ad is, the higher the ratio of cost per advertisement!
Now that you know what the average cost per advertisement is, you can use that to determine how many advertisements you need to hold steady to keep your revenue constant! Simply subtract the two numbers together, and you’ll see how much extra money you’d earn with lower cost advertisements.
