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