I created this calculator based on my experience as a founder and investor of several Software-as-a-Service companies. We often struggled to make a cost benefit analysis for investment decisions.
More so, we've seen many subscription businesses pass by at Firmhouse. Subscription businesses revolve around a couple of key metrics:
Customer Lifetime Value (CLTV) is a prediction of the net profit attributed to the entire future relationship with a customer
In any case you want to get to a healthy CLTV, but this also depends on other items, such as the Customer Acquisition Costs, defined as follows:
Customer Acquisition Costs (CAC) is the cost of winning a customer to purchase a product/service.
The ratio between these two metrics matter as well:
In summary, the ROI calculation and cost benefit analysis for a subscription business case revolve around these metrics:
There are lots of moving parts which can influence these metrics. One of the largest leading indicators of these is churn. This is the decrease (in monthly percentage) of paying subscribers.
The calculator is a single form which you can fill out. It contains up to 30 parameters to produce a cost benefit analysis for your business case. You can calculate your return on investment (ROI) in a few minutes.
It needs only a few basic parameters to get started, such as a selling price of your product, the number of customers you expect and such items. You can keep it either very simple or make a very sophisticated cost benefit analysis.
You can use the calculator best for making an ROI calculation on certain one-off investment decisions such as scaling up your marketing budget or planning a pilot business case for an entirely new line of subscription offers.
The calculator allows you to specify revenue and costs for at least three different products. It also takes into account certain fixed and variable costs such as payment processing fees. Most importantly it projects your growth and churn of customers. This is based on:
Additionally, it takes into account product costs. This is particularly relevant for Product-as-a-Service business cases, in which certain devices or machine will have to be financed. These costs will be depreciated over a number of months.
This calculator does not take into account any operational overhead, such as research costs, operational costs for operating the business (office rent for example) or salaries of employees and managers. We recommend that any salaries that you pay for marketing and sales of the product should be added to the total marketing budget in the sheet, so your CAC will be calculated accurately.
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