Once you filled in the calculator it will produce a couple of key metrics:
- Break-even month: This is the month in which you first generate a net profit and have earned back the initial investments.
- Customer LTV: Net profit attributed to the entire future relationship with a customer. We calculate this by dividing the monthly ARPA by the average monthly churn.
- Monthly ARPA: This is an important leading indicator for your CLTV. We calculate this by calculating the net revenue by the all the fixed and variable costs for serving the customers excluding the initial investments you make. Hence, this ARPA is based on gross margins and not on the revenue itself. ARPA stands for Average revenue per account, but in this case the calculation is the gross margin per account.
- Average churn: If your monthly churn is 2% the average churn over a longer period is less then 2% as customers can only churn once. Hence, we calculate this by dividing the total amount of churned customers by the total amount of customers you expect to acquire and then divide it again over the period over which the business case is calculated.
We will also show a chart of projected profits, revenue and costs. This helps you see how your revenue, cost and profit grow or shrink over time and allow you to do some goal seeking.
Two items matter most when it comes to your business case:
- Your CLTV should be at least 3x higher then your CAC.
- Your break-even month should be around month 12, which means you have recovered all investments within a year.
Such business cases are known to scale well if they meet those two criteria.
Note: 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. 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.