In this workout, we're asked to calculate the total billings and total revenues, assuming the company we're looking at is a mature pre IPO or IPO stage company using the assumptions that we have. So the key thing to note here is that billings and revenues are not the same. Billings are the cash that we receive from our customers, but revenue is what we're allowed to show in our income statements. The issue here is that not all of the subscriptions would've been sold at the beginning of the period, and as a result, not all of the annual subscription service would've been delivered by the end of the year. So in our assumptions here, we're asked to assume that we got a 95% renewal rates as a 3% annual price increase, and that we've got total new customer growth of 15%. We're also asked to assume that 70% of the sales made in the year can be recognized as revenue in the same year. The first thing that we need to calculate is our total subscriptions. That's the cash we receive for these annual subscriptions. We have 6,000 from last year. This is 5,000 from renewing customers and 1000 from new customers. As a result of that, we can figure out our subscriptions from the renewing customers by taking last year's number, multiplying it by 95%, assuming that 95% of them stay around and multiplying this by one plus the price increase. This will give us the expected subscriptions from the renewing customers in year one, but also in year one. We're also gonna get some new customers, and those new customers are gonna grow at 15%. So we'll take last year's number and multiply that by one plus that 15% growth rate. This will give us our total billings for the period, and we can then copy this across for year two as well. So this is giving us the cash that we're expecting to receive in year one and year two respectively. However, this is not what we'll see in the income statement. In order to get this into our income statement, what we need to do is split up the cash that is received in each of these three years into the amount that can be recognized in the income statement because the service has been delivered, which we're gonna assume is 70%, and the amount that can't be recognized in the current accounting period because the service hasn't been delivered on these annual subscriptions yet. So as a result, we're going to take the total subscriptions, that's the cash we received, and multiply it by the 70% for year zero, and then we'll also then say, well, of the 6,000 that was received in cash in year zero, we didn't actually recognize 1,800 of it because it was deferred into year two. That does get us back to the total billings of 6,000, and then we can copy this across to the right for all three years. We can then go onto what things actually look like in terms of total revenues in the income statement. For year one, what we're gonna be able to recognize is 4,299 at 60% of The the cash that was received in year one, but we can't recognize the remaining 1,812 because that service hasn't been delivered to the customer yet.

What we can recognize though, in year one is the revenue that was not recognized in year zero. So cash received in year zero, but not recognized because the service for those subscriptions hadn't been delivered by the end of year zero, it will have been delivered in year one though, so we can recognize that revenue in year one to give us total revenue of 6,029 in year one. We can copy this across to the right for year two to see that what we're actually seeing in the income statement each year is part of the sales that have been made this year, but also part of recognizing sales that were made historically. As a result, when forecasting the future growth of the business for these kind of subscription model services, it tends to be based on the subscriptions rather than the revenue in the income statement.