technology-strategy-marketing-for-profitable-growth 407 . 843 . 6603   
Your new favorite technology people

Free business financial calculators to measure your profitable growth



Financial terms don't have to be a mystery



Business Essentials
Breakeven
Gross Margin
Cost Markup
Set Price Using Markup
Return on Investment (ROI)

SaaS Metrics
Customer Acquistion Cost (CAC)
Customer Churn
Customer Lifetime Value (LTV)
Monthly Recurring Revenue (MRR)
SaaS Company Viability



We know that phrases like "what is your breakeven?" and "what is the LTV of your customer?" can turn a creative mind into a dark, oxygen-deprived black hole.

Understanding the numbers that measure your business performance are critical to your success. When you begin to see how they all work together, making even small, incremental changes can have a big effect.

Our simple calculators do the work for you. We even give you an example to follow and the formula if you really want to know.




What is a Breakeven Analysis?



In its simplest form, the breakeven point tells you how many units of goods you need to sell to cover all of your fixed and variable costs.

Variable costs are those that change as the number of units produced changes. These costs include such things as labor and materials.

Fixed costs, on the other hand, do not change with units produced. Examples are rent, utilities and property insurance.

Breakeven occurs when your business is neither making nor losing money.








How to Calculate Breakeven



Determine the following three things:

  • 1. Your fixed costs.

  • 2. The average variables costs for all items you sell. If you want to determine the breakeven for a single item type where the costs are the same, then determine the actual variable costs for that item.

  • 3. Determine the average unit price for all items you sell. Again, if you are doing a breakeven analysis on a single item where the price doesn't vary, then find the actual unit price.




Simple Breakeven Formulas Cheatsheet



  • Total expenses = variable costs + fixed costs

  • Total expenses = (units x variable cost per unit) + fixed costs

  • Since the variable costs are often not the same for every unit, you can think of the variables costs as an average for the breakeven analysis. At breakeven

  • Price x units = (units x variable cost per unit) + fixed costs

  • Determining the number of units that needs to be sold to arrive at breakeven gives you
  • Breakeven units = fixed costs/(price – variable cost per unit)

  • Example: Your monthly fixed costs are $6000. The average unit price for the things you sell is $4 and the average variable cost per unit is $1. That means for every item you sell, you have $3 covering your fixed costs. To breakeven, you need to sell 2000 units.

    2000 units = $6000/($4-$1)

    It's easy to calculate breakeven price as well as breakeven units as we did in the example above. Since we know that 2000 units is breakeven and the price per unit is $4, the breakeven price is simply

    $8000 = 2000 x $4.

    To calculate gross margin percent:

  • (Price – variable cost per unit)/price = gross margin percentage







  • How to Calculate Gross Margin




    What is Gross Margin?



    Gross margin, or profit margin, is the percentage of profit you earn after deducting the costs of goods sold from revenue.

    These costs of good sold, referred to as COGS, are variable costs that change as the number of units produced changes. These costs include such things as labor and materials.

    Fixed costs, on the other hand, do not change with units produced. Examples are rent, utilities and property insurance.













    How to Calculate Gross Margin



    Determine the following two things:

    • 1. Your variable costs for the items you sell during a given period.

    • 2. The total revenue earned for this same period.


    Simple Gross Margin Formula Cheatsheet



    To calculate gross margin percent:

  • (Revenue – variable cost per unit)/revenue = gross margin percentage







  • How to Calculate Markup Price




    What is Markup?



    Markup is the percentage over and above the cost of the product. It is used to determine the ideal selling price for the product or service.

    To calculate Markup, enter the Price and COGS.
    To calculate the Price from Markup, enter the COGS and Markup %











    How to Calculate Markup



    Determine the following two things:

    • 1. Your variable cost for the item.

    • 2. The selling price for the item..
    •  

      Example --

      Price = $250
      Cost = $ 50
      Markup %=- 400

      400% = (($250 - $50) / $50 x 100)


      How to Calculate Price from Cost Markup



      Example --

      $250 = $50 x 4.00 + $50

    Simple Gross Margin Formula Cheatsheet



    To calculate markup percent:

  • (Selling price - cost) / cost x 100) = markup percentage


  • To calculate price from the markup percent:

  • Selling price = cost + (cost x markup percentage/100)








  • How to Calculate Return on Investment (ROI)




    What is Return on Investment?



    Return on investment, often referred to as ROI, is the actual dollar gain or loss from an investment. This is a simple calculation that will guide you in making all business investment decisions.

    Investment cost is the initial dollar amount you invested.

    Investment gain is the dollar value of the investment now.








    How to Calculate Return on Investment



    Determine the following two things:

    • 1. Your initial investment amount.

    • 2. The actual dollar value of the investment today.


    Simple ROI Formula Cheatsheet



  • ROI = (Gain - Initial Investment) / Initial Investment






  • How to Calculate Customer Acquisition Cost (CAC)




    What is Customer Acquisition Cost?



    Customer acquisition cost (CAC) is the amount of money you spend on sales and marketing to acquire a subscriber.

    When this sales and marketing cost is combined with your gross profit number for the same period, you can calculate an important ratio: the CAC ratio. This is a valuable metric because it puts the basic CAC cost into a longer term projection number.

    Depending on how you express the ratio (we'll show you that in the calculator), it will tell you

    • 1. either the percentage of your sales and marketing expenses that you will recover in one year
    • 2. or the years it will take you to recover your customer acquisition sales and marketing expenses.

    In either case this is a key metric is measuring the profitability of your SasS business.






    How to Calculate Customer Acquisition Cost and Ratio



    • 1. Determine the total revenue from subscriptions in a given month. Make sure you don't include one-time setup, onboarding and administration fees.
    • 2. Determine your sales and marketing expenses during the month.
    • 3. Determine how many new subscribers you added during the month.

    • Your CRM and accounting system are excellent sources for this information.

    Tips to keep in mind as you measure these costs ...

  • In the early stages of your SaaS business, it's likely that you will first acquire "friends and connected relationship" subscribers. These are the low-hanging fruit customers who will kick-start your subscriber base. This means your early numbers might be skewed since the sales and marketing expenses may not be an accurate reflection of ongoing customer acquisition costs.

  • Often the sales and marketing expenses do not occur in the same month that the new subscriber is acquired. There is typically a lag between customer awareness and purchase.

  • The more closely you track and monitor customer acquisition activities with sales, the more accurately your CAC costs and ratios will be.






  • Example ...

    Period: 8/1/2020-8/31/2021
    Revenue
    Monthly Subscriptions Revenue $ 600
    Cost of Goods Sold (COGS)
    Data Center Expenses $ 250
    Internet Expenses $ 150
    Gross Margin $ 200
    Sales and Marketing Expenses
    Social Media Ads $ 1500
    Content Writer $ 2200
    Sales Salary $ 4500
    Total Sales and Marketing $ 8200
    Customer Acquisition Costs
    New Subscribers Acquired 50
    Cost of Customer Acquisition $ 164
    Cost Recovered in One Year 29% (Ratio 1)
    Years to Recover Expenses 3.42 years (Ratio 2)






    Simple Customer Acquisition Cost Formula Cheatsheet



    CAC = Total sales and marketing expenses for the month / Number of new subscribers acquired during the month.

    Gross margin = Monthly subscription revenue - monthly sales and marketing expenses (COGS)

    Ratio 1: How much of the month's sales and marketing expenses will be recovered in one year:

    CAC Ratio 1= (Gross margin *12) / Sales and marketing expenses

    Ratio 2: How many years it will take you to recover your initial sales and marketing investment:

    CAC Ratio 2=Sales and marketing expenses / (Gross margin *12)





    How to Calculate Customer Churn




    What is Customer Churn?



    Customer churn is the number of customers who cancel their subscriptions during a period. This is an easy metric to measure and is often done monthly or quarterly.

    While the numbers are an accurate indicator of subscriber gain and loss, they do not reflect the entire subscriber flow. Using sociographic, demograhic and subscriber history data together provides a more meaningful analysis of subscriber behavior and engagement.






    How to Calculate Customer Churn



    • 1. Determine the total number of customers you have at the beginning of the period..
    • 2. Determine how many customers you have at the end of the same period..

    • Your CRM or accounting system are excellent sources for this information.

    Example

    It is the first of the September. You had 1000 subscribers on August 1. At the end of business on August 31 you had 975 subscribers.

    975 / 1000 = 25 customers lost for a 3% churn rate.

    On the other hand, if you had 1000 subscribers on August 1 and had 1225 on August 31, then

    1225 / 1000 = 225 customers gained for a 23% subscriber increase.

    Simple Customer Churn Formula Cheatsheet



    Churn = ((Ending customer count - beginning customer count) = gain/loss / beginning customer count)





    What is Customer Lifetime Value?



    Customer lifetime value (LTV) is the average total revenue you expect to earn per customer. In it's simplest form, the customer lifetime is determined by the monthly revenue for the customer x the anticipated number of months' retention.

    How to Calculate SaaS Viability



    This simple metric is most often combined with several other SaaS calculations to produce a key set of SaaS monitoring numbers. The LTV:CAC ratio is a measure you will visit often. It is a key indicator of the potential viability for your SaaS company. While there is no one absolute ratio, 3:1 or greater is generally accepted as a healthly number. Anything below this ratio is a red flag to revisit the individual SaaS metrics.



    Your calculations can be based on any period or product category. Just be sure that all of your numbers are for the same period and product..

    Number of Customers
    MRR per Customer $
    Margin %
    Churn Rate %
    Customer Acquisition Cost (CAC) $




    How to Calculate SaaS Health

    • 1. Determine the packages you offer and the monthly pricing for each.
    • 2. Determine the number of subscribers for each package.
    • 3. Determine the average subscriber lifetime (retention) for each package.
    • 4. Determine your gross margin.
    • 5. Determine your churn rate.

    • Your CRM and accounting system are excellent sources for this information.




    Example ...

    Package Monthly Price # Subscribers Avg. Months
    Starter $ 10 500 12
    Growth $ 25 1000 30
    Premier $ 75 750 24
    Total Subscribers   2250  

    Monthly recurring revenue (MRR) = (($10 x 500) + ($25 x 1000) + ($75 x 750)) / 2250 = $ 96,250 / 2250 = $42.78

    Average revenue per account (ARPC) = (($10 x 500 x 12) + ($25 x 1000 x 30) + ($75 x 750 x 24)) / 2250 = $ 960

    B2B Solutions Company
    Total Subscribers 2250
    Customer Acquisition Cost (CAC) $ 300
    Average MRR per Customers $ 42.78
    Monthly Churn Rate 2.3 %
    Margin 85 %
    LTV $1,581
    LTV:CAC Ratio 5.27

    ($42.78 x .85) = $36.36 / .023 = $1,581

    $1,581 / $300 = 5.27







    Simple Customer Lifetime Value Formula Cheatsheet



    From the MRR calculator:

  • MRR = Monthly subscription revenue per number of customers)

  • From the churn calculator:

  • Churn = ((Ending customer count - beginning customer count) = gain/loss / beginning customer count)

  • From the gross margin calculator:

  • Gross margin = (Revenue - cost of goods sold) / revenue

  • Putting it all together:

  • (MRR x margin) / churn) = LTV per customer

  • LTV:CAC = LTV/CAC






  • How to Calculate Monthly Recurring Revenue




    What is a Monthly Recurring Revenue?



    Often referred to simply as MRR, monthly recurring revenue is the amount of total monthly revenue generate from subscriptions.

    This does not include one-time setup, onboarding or other non-recurring fees generated from a subscription. This non-recurring revenue should be reported under a separate P&L line item.









    How to Calculate Monthly Recurring Revenue



    • 1. Determine the total number of customers you have for each subscription plan.
    • 2. If you have customers who have paid in advance on a multi-month subscription plan, then divide the total subscription value by the number of months in the plan.
    • 3. Add all of the subscription values together to get the total monthly revenue.

    Example

    You have 1000 total subscribers. 500 of them have subscribed to the $10 starter plan payable monthly. The other 500 customers have purchased the $300 premier plan billed annually.

    (500 x $10) + (500 x $300/12) = $17,500

    Simple MMR Formula Cheatsheet



    Annual or paid-in-advance subscription payment:

    MRR = (Prepaid subscription revenue/number of months) x number of customers)

    Monthly subscription payment:

    MRR = (Monthly subscription revenue x number of customers)








      Partnering as Your Outsourced CIO and CTO
      Taking Your Growth Strategies from Idea to Execution
      Managing Your Internal Company Security
      Building Productivity Tools and Services
      Discovering New Growth Opportunities
      Building Valued Customer Experiences
      Creating SaaS Revenue Streams
     Our Trusted Strategic Partner Promise

    Quest Technology Group
    315 E. Robinson Street
    Suite 525
    Orlando, FL 32801
    Tel: 407.843.6603

        


    © 2020 Quest Technology Group, LLC All rights reserved.