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The standard income statement can be modified to better suit the needs of a subscription company by differentiating between recurring and non-recurring revenue. This is crucial as recurring revenue is the cornerstone of a subscription company. Additionally, sales and marketing expenses should be treated as an investment in customer acquisition and retention, rather than a sunk cost. Lastly, the income statement should provide a forward-looking view of the company's financial health, rather than just a backward-looking picture of what has already been earned and spent.
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But, the standard income statement does not differentiate between recurring and non-recurring revenue—which is a problem when recurring revenue is the cornerstone of the subscription company. Also, it treats sales and marketing as a 'sunk' cost, rather than the key to driving the business forward. Finally, it is a backward-looking picture of what has already been earned and spent, not a forward-looking view of the company.
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Subscription services have grown revenues 8X faster than the S&P500 and 5X faster than US retail sales. This new business model is why Adobe, Netflix,...
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