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Business Case Calculator

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Introduction

You can get a quick impression of the profitability of the business case for a subscription business using this calculator. This works very well in particular for Software-as-a-Service (SaaS), Product-as-a-Service (PaaS) or food box business cases.

Just follow all the steps and submit the data to let us calculate the business case. If you want to learn more about each step you can click on the (?) icon on the right side of each card or visit the About page.

This calculator's purpose is to project the future gains of an commercial investment decision in marketing or introducing a new proposition. If you're looking to project a series of investments you either have make multiple projections per investment or download the spreadsheet template so you can tweak it to your liking.

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General settings

General information

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General settings

In order to calculate a business case we need to know a few basic things to size it up.

The calculator consists of four parts:

  • General settings, such as your currency and VAT rates
  • Revenue parameters (for up to three price plans)
  • Fixed cost parameters, such as your marketing budget for the business case and R&D Costs
  • Variable cost parameters, such as a production or purchase cost for the products and cost per new customer
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Subscription Revenue

Size and length of the business case

How long will it take to acquire those customers?

Which % of customers churns each month?

Which % of customers default on their payments?

Which % of customers upgrade to a more expensive plan?

Which % of account expansion do you expect?

How much will you charge your customers?

Prices will include taxes such as Sales tax or VAT

How do the customers spread across plans?

Divide in percentages

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Subscription Revenue

In order to project future revenue need the following information:

  • Period: Number of months for which we want to calculate revenues and costs.
  • Amount of nem customers: Total amount of new customers you expect to acquire with the marketing budget.
  • Warmup period: Time it takes to get the projected amount of customers.
  • Prices: In order to calculate the subscription revenue we allow you to set up to three product prices.
  • Churn: This is the monthly number of customers (in percentage) which cancel their subscriptions. You calculate your churn as follows: Number of cancellations in a month / Total number of customers in that month.

I recommend you to do this for several past months and calculate the average percentage of those months. By the way, this is not the same as dividing the total number cancellations in 4 months by the total number of customers you served in those same for months.

You can also enter some advanced parameters:

  • Payment defaults: This is the percentage of non-paying customers which end up churning due to default.
  • Customer upsell percentage This is the percentage of customers who upgrade to a more expensive plan each month.
  • Account expansion percentage This is the percentage of extra revenue on top of the base subscription fee. This is useful in case you charge customers something extra based on the actual use of the product.
  • Spread: You can divide across the products how much of it your customers will purchase, in case you have specified multiple product plans.

Note: This calculator also supports net negative churn. If you think you'll earn more from your customers over time you can do so by specifying an average percentage of monthly account expansion and/or a fixed percentage of customers who promote to a higher plan each month.

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Fixed Costs

What are your project investments?

What are your fixed monthly costs?

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Fixed costs

There are two types of fixed costs:

  • Investments: you can specify up to three budgets for upfront investments. Note that we consider your marketing budget as part of this as well.
  • Fixed monthly costs: You might have some fixed monthly costs which are the same regardless of the amount of customers you serve.
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Variable Costs

What are your one-off costs per customer?

These costs apply on each customer

What is the cost for each product?

These costs apply on the specific product in the plan

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Variable Costs

You might have certain costs per customers. These are either one-off costs for activating or offboarding a customer (such as shipment costs) or these might be your fixed or relative transaction costs for collecting payments.

Also, the products you sell might come at a cost-price. There are two types of costs:

  • One-off
  • Recurring

One-off costs are typical for PaaS offerings. Product costs will be deprecated over the depreciation period. Such cost lower your CLTV as that calculation will be based on your gross margins.

Recurring costs tend to be applicable in case of subscription boxes for food, for example.

With SaaS the costs for each product tend to be zero unless you can attribute certain specific product investments directly to this business case.

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Results

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This may lead to incorrect calculations.

Calculating the business case...

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Metric Value
Break-even month{{ results.breakeven }}
Customer LTV {{ results.cltv }}
Monthly ARPA {{ results.arpa }}
Average churn {{ results.avgchurn }}
CAC {{ results.cac }}
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Results

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.
  • CAC: The cost of winning a customer to purchase a product/service. In this calculator we'll use all your Project Investments to calculate the CAC.

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:

  1. Your CLTV should be at least 3x higher then your CAC.
  2. 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.

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Download results

Do you like to get behind all the details of this calculation?

Download the spreadsheet so you can make your own changes to it. Also, the spreadsheet itself contains a couple more fields you can fill in.

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