ionicons-v5-q Business Case Calculator

Learn more about PaaS metrics



Product-as-a-Service business cases have many moving parts, but fortunately all Paas companies can rely on the same metrics to know how well it is performing. These are the actionable metrics which matter most to achieve sustainable and accelerating growth:

  • Churn
  • Account expansion
  • Customer Lifetime Value (CLTV)
  • Customer Acquisition Costs (CAC)
  • Profitability
  • Break-even period

Product-as-a-Service business cases can be very capital intense. Also, the cost of servicing customers in a subscription model which includes the use of a product can come with many different cost parameters. All the handling costs, product costs (depreciated or not) and such lower the margin per customer and ultimately the margin per customer sets the CLTV. Examples are:

  • The initial purchase or production of a product. This investment has to be depreciated over time.
  • The initial shipment or installation cost of the product so the customer can use it.
  • Any fixed monthly cost to serve all subscribers.
  • Return shipment costs in case the customer cancels the subscription.

The gross monthly margin per customer determines the long-term profitability of your business case. People call this your Average Revenue Per Account (APRA), but this term not entirely correct as it should take into account your gross margin instead of only your revenue when you operate a Product-as-a-Service business.

Next to that a minor change in churn will have a tremendous impact to the other key metrics:

  • CLTV: the net profit attributed to the entire future relationship with a customer.
  • CAC: the cost of winning a customer to purchase a product/service.

Churn can be a cancellation or even a customer who defaults on their payments. On the opposite site of churn there can be account expansion, for instance if customers upgrade to a higher service plan.

The ratio between CLTV and CAC matters as well:

  • 1:1 or less: The company gets into financial difficulties because more is paid for customers than they are worth.
  • 3:1 is a very good level because the customer relationships are solid and customers are acquired for the right price. higher than 3:1 means the company has untapped growth potential to acquire customers.

If you do this right you get to two other key metrics:

  • Profitability: are your commercial efforts generate a profit at all in the long run?
  • Break-even month: when have all your marketing investments been recovered? As mentioned above, this should be within 12 months ideally.

All these metrics are actionable. You might have to increase prices or shift to a different price plan altogether in case you can’t make the CLTV/CAC ratios work. It might even mean a shift in strategy.


How it works

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.

Although PaaS businesses revolve around a few metrics, it can get complex fairly quickly. For instance:

  • Only a slight shift in churn can dramatically impact your CLTV and so can your fixed costs for servicing customers.
  • In case you expect customers to upgrade from cheap price plans to more expensive ones, this too can have a positive impact on your CLTV.
  • Your product purchases or production investments have to be depreciated over time and have an impact on the profitability of the business case.

We've noticed that a correct calculation which factors in all these effects can become cumbersome to figure out.

The Business Case Calculator has automated all these calculation to produce reliable outcomes. You can add up to three price plans in the calculator, which is the common amount of price plans PaaS companies tend to offer.

You can best use this calculator to produce an ROI calculation of a marketing, sales and or product investment. If you anticipate to get more customers by investing 100k in marketing, this calculator allows you to justify that investment (or not). You would have to consider how such an amount is spent and how long it takes before the investment materializes into new customers. You can do that by using a warmup period. This is because you might not get all the new customers within the same month you've invested your marketing budget.