Chapter 1 Subscription Economics: How Recurring Revenue Changes Everything 1. It’s a backward-looking picture. This is a preterite framework — it’s all about money already earned, expenses already paid, actions already taken. Subscription businesses are all about forward visibility — how much money I know I can count on over the next 12 months, so I can account, plan, and spend accordingly. 2. Sales and marketing are matched to past goods sold. It’s essentially a sunk cost. Subscription businesses need to think strategically about sales and marketing spend going toward driving future business. 3. This statement does not differentiate between recurring and nonrecurring dollars. That’s a fundamental oversight. That’s like saying there’s no difference between a dollar and a dollar that keeps buying every year for the next 10 years. Smart subscription businesses don’t think like this. Instead of revenue, they focus more on annual recurring revenue (ARR). Here’s a new income statement that illustrates this thinking. Subscription Economy Income Statement Annual Recurring Revenue $ 100 Churn (10) Net ARR 90 Cost of Goods Sold (20) General & Administrative (10) Research & Development (20) 40 Sales & Marketing (30) Net Income 10 New ACV 30 Ending ARR $ 120