• Includes the effects of different numbers of issues published each month

• Investigates the differences between accounting for subscriptions on a profit and loss basis and on a cash basis

• Separates subscription revenues into earned and deferred income, month-by-month

• Includes the revenue and cash flow effects of multiple subscription prices and 2- and 3-year subscriptions

• Accounts for credit orders; the cost of bad debt copies; Direct Debits and, for international publications, converts local currencies into the base currency

• Includes the cost and revenue implications of conversions and renewals

• Forecasts future expires and ensures that the timing of new subscription promotions offsets months with high expires

• Ensures that additional copies are added to the print order projection at the correct time and that the printing and distribution costs associated with the extra copies are added to the production budget

• Evaluates the effects of price increases

• Forecasts how changes in circulation will effect the publication's ability to generate advertising sales

PC-based worksheets certainly ease the burden of performing manual calculations but ad-hoc DIY worksheets cannot possibly include the combined effects of all the subscription acquisition, up-sell, cross-sell and renewal campaigns.  There are just too many variables for in-house developed worksheets to handle.

This is where circulation models come in.  Circulation models are off-the-shelf software packages which contain pre-programmed financial simulations of all the variables involved with circulation, advertising, editorial and production. The complexity of circulation development through paid subscriptions is particularly well catered for: hence the name circulation modelling.

Circulation modelling is widely used in the USA, where circulation via paid subscriptions is the norm rather than the exception, but is less well known in Europe.  The technique is based on a rigorous financial analysis of all the variables involved with subscriptions, and on the inter-relationships between circulation, advertising, editorial and production functions.   A large number of US publishers use proprietary circulation models as the cornerstone of their budgeting and planning processes: in many cases the reports produced by circulation models form the basis of annual budget and financial review reports.

In its widest sense, circulation modelling is a three-stage process.  Most European publishers carry out the first and second stages but, as yet, only the largest publishers complete the third stage.

Stage 1:
Subscription Managers use Lifetime Value models to forecast the profitability of each new subscription promotion campaign.  Lifetime Value models are loaded with the following data:

• The number of promotional efforts in this particular campaign

• Forecast response rate, pay-up rate and (one- and two-years later) the forecast renewal rates for this campaign

• Subscription prices (for the first and subsequent subscription years)

• Acquisition and renewal promotion costs

• Run-on printing costs per copy, fulfilment costs per copy and postage costs per copy

• The number of issues despatched each subscription year

• Additional revenues generated from this particular campaign (such as advertising, list rental, reader offer and merchandising sales)

Lifetime Value models provide Subscription Managers with campaign specific information such as:

• Forecast subscription volumes in the first and subsequent years

• Forecast subscription revenues

• Forecast profit contribution (before fixed costs and overheads)

• Campaign performance metrics (such as cost per order, return on investment, £ returned per £ spent, and forecast Lifetime Value)

• Forecast subscription volumes

• Forecast subscription revenues

• Forecast promotion costs

• Forecast profit contribution

• Forecast lifetime value

Source Ranking models allow Subscription Managers to optimise their new subscription promotion budgets.  An additional 10,000 new subscriptions may need a promotion budget of £50,000, for example, but an additional 15,000 new subscriptions may need a promotion budget of  £100,000.

Stage 3:
Subscription Managers and Finance Directors use Publishing models (also called circulation models) to quantify the effects of different subscription development strategies; carry out “what-if” scenarios; and calculate overall subscription marketing budgets for new subscription, up-sell, cross-sell and renewal campaigns.  These models are loaded with the following data:

• The number of different sources of new subscriptions and the price, term length and payment method combinations for each source group

• Expiry months of existing subscriptions

• Renewal rates by new subscription source group and by renewal segment (such as second time direct-sold subscriptions)

• Direct Debit details

• Pay-up rates from credit (or “bill-me”) subscriptions

• Subscription acquisition, renewal and fulfilment costs

• Production set-up and run-on costs (ie printing, wrapping, postage and wrapping costs)

• Newsstand cover prices, sales volumes, sell through percentages and retained earnings by channel

• Newsstand promotion costs

• Free circulation volumes and promotion costs

• Display and classified advertising pages sold, together with their associated page rates

• Ancillary revenue sources such as list rental, merchandising, books, binders and back issues

• Editorial, administration and overhead costs

Publishing models calculate circulation volume, revenue, profit and loss, and cash flow projections on a month-by-month basis, usually over 3-years or 5-years.  Monthly and annual totals, and category summaries are produced for:

• Forecast circulation volumes by category and forecast total print order projection

• Movement in subscription volumes, month-by-month

• Forecast earned and deferred subscription income

• Forecast subscription marketing budgets (for new subscriptions, up-sell and cross-sell orders, and renewals)

• Forecast profit and loss and cash flow for the entire publication

Testing the consequences of adopting different business development strategies is made easy with publishing models.  Questions such as.…

• How much investment do we need to grow our circulation by 10,000 within 18 months?

• What is our most profitable combination of subscription sources?

• What is the financial effect of improving our renewal rate by 1%?

• Would we generate more profits if we encouraged more subscribers to pay through Direct Debits?

• How much would it cost to launch a new publication?

….can be investigated and quantified.  Circulation modelling techniques allow publishers to:

• Evaluate the financial performance of their publications and identify the most critical items which affect profitability.  A 1% improvement in renewal rate, for example, may increase the profitability of the entire publication by 15%

• Quantify the profit potential of an entire publication, especially when planning new launches and buying or selling existing titles

• Manage the changes in circulation mix between newsstand, paid subscriptions and free circulation

• Generate the largest financial returns from the least marketing budget