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Step 1: Revenue Potential -
Set up Lifecycle


To answer the question "What is your revenue potential?", learn how to Set up your Customer Lifecycle with 4 major components

  • Revenue Streams Add Funnel, Subscription, One-Time or Pay-per-use Revenue Streams to model the customer lifecycle and customer contracts
  • Volume Forecast –  Pick Forecast Models to feed volume into the lifecycle model
  • Conversion RulesAdd Conversion Rules to simulate up-selling and convert customer from one stream to the next
  • Churn  – Add Churn to mimic contract cancellations to create volume for the pipeline and sales funnel
Lean-Case Question 1

Add Volume with Revenue Stream "Signup"

First, let’s start by adding the Revenue Stream "Signup" which creates the volume for our our entire funnel. If you are here for the first time, you can activate the Beginner Mode.

BeginnerMode

When you then click the “Add Revenue Stream” button, Lean-Case guides you through a list of questions and explanations to enter your assumptions. 

Lean-Case Add Reveneue Stream


For this tour, it would take a bit too much time to use the Beginner Mode so let's switch it off, but of course we recommend you use it when you get started. Click the button "Add Revenue Stream".

Lean-Case provides different kinds of revenue streams to model the Get-Customer as well as the Keep-and-Grow-Customers Phase of the Customer Lifecycle with different types of revenues:

  • Funnel Streams  model the stages of sales funnel (the Get-Customer Phase) with traffic and pipeline volume as well as cost to acquire customers (e.g. leads, prospects, signups or free trials)
  • Subscription Revenue Streams model paying customers who pay a subscription price to have access to a product or service. Subscriptions are typically paid by units, e.g. by user, server.
  • One-Time Revenue Streams model paying customers who pay one-time for services such as consulting or buy products over a specific contract duration
  • Pay-Per Use Revenue Streams model pay-per use revenues applying minimum revenues, $-fees to process transactions or %-fees as a percentage of sales volume
Types of Revenue Streams

As Signups do not generate revenues, let’s pick “Funnel Stream” from the list.
Enter the name of the stream “Signups”, let’s use the same name for the contract.

NameRevStream

Let's now check our assumptions for this revenue stream. The business spends a marketing budget of $100k per month on Google and Linkedin Advertising to convert leads into signups.

Business Plan - Marketing Budget and Cost per Lead

model_leads

The Marketing Budget creates the pipeline volume we talked about earlier. To create new volume (that means a flow of new potential customers), we use the Forecast Tab of the Revenue Stream. 

To understand how many signups can be created given a Marketing Budget, we must also define how much it cost to acquire a lead. This can be done in the Cost-of-Leads Tab.


Add Forecast "Marketing Budget"

A Forecast Model allows you to define how many new customers of each customer type are signed up as leads or contracted as buyers every period.

Forecasts create the volume required to grow and scale your business, e.g. traffic volume (new leads), pipeline volume (new opportunities) or customer volume (new customers).

Select the Forecast Model which best suits your go-to-market approach. How do you scale your business over time? 

  • by the number of New Customers (e.g. if you directly sell to customers online), 
  • by the number of New Sales Teams (e.g. if you follow an inside or outside sales model), 
  • by the number of New Sales Partners (e.g. Distributors or Point-of-Sales),  
  • by the Revenue Target set for your company, sales teams or sales partners or 
  • by the Marketing Budget available?

Let’s select the Forecast Model "Marketing Budget". Then you must specify:   

  • the time period from which month to which month you spend the marketing budget to create pipeline volume and 
  • enter the amount of the marketing budget. Next to the field, you find a small icon symbolizing a Table. Wherever you see this icon, you can launch the Lean-Case spreadsheet widget to adjust the time series for this parameter. However, we recommend to only do that after you have fully created your model and validated its calculations.
tab_forecast

Add "Cost per Lead"

To understand how many signups can be created given the marketing budget, you must also enter how much a leads costs and how many leads can actually be converted into Signups.

In the Tab "Cost of Leads",  we set up 2 lead channels and we assume that 50% of leads are created on Google and 50% on Linkedin. For each of the channels, we then enter our assumptions. We assume that ...

  • a landing page view on Google costs $1 and that 1% of leads convert into signups, i.e. that you need 100 leads to create 1 signup. This means that the cost to acquire 1 signup is $100 (=100x$1)
  • a landing page view on Linkedin costs $2 and that 2% of leads convert into signups. i.e. that you need 50 leads to create 1 signup. Compared to the Google channel, your conversion is better but the cost per lead is higher. The total cost to acquire 1 signup is also $100 (=50x$2)
Tab_costofleads

Well, if you have a marketing budget of $100,000 and the cost per signup is $100, then you should create 1,000 new signups per month (= $100,000/$100). This is actually a very realistic number.

Business Plan - Explaining Cost per Lead

Training1

We can easily check this in Lean-Case. Go to  the sub-menu Revenues > Manage and select the tab "Movements Table". For all Revenue Streams, you can check how customers move through your Funnel. The chart shows that there are 1,000 new signups per month 

Movements Table

Add Revenue Streams "Trials", "Basic" and "Enterprise"

Let's now add the other revenue stream "Trials", "Basic Deal" and "Enterprise Deals" one-by-one to our project to be able to connect them with conversion rules.

Business Plan - Assumptions Conversions, Churn and Revenue

RevStreams

Revenue Stream "Trials" 

The revenue stream "Trials" becomes another "Funnel Stream" as it doesn't model any paying customers.  

Rev Stream Trial

Revenue Stream "Basic Deal" 

The revenue stream "Basic Deal" becomes a "Subscription Revenue Stream". You can see that Lean-Case supports different flavors of subscription revenue streams. They depend on different contract lifecycles. 

SubsRevTypes

However, as long as subscription revenues remain flat over the contract lifetime both flavors deliver the same results. That's why we recommend to use the Fixed Lifetime Model. This model doesn't only support the export of all data to Excel, but also the export of a fully working Excel model  - yes - including formulas!


Let's enter the name of the revenue stream, the name of the customer contract and set the field "Price per Unit" to $500.


With the field "No of Units per Month" set to 1 by default, this will result in Monthly Recurring Revenues of $500 (=$500 x 1) 


By default, the billing period is set to "Monthly". This means that Basic Customers renew their contracts on a monthly basis. All other assumptions, we will add later.

Rev Stream Basic

Revenue Stream "Enterprise Deal" 

For the revenue stream "Enterprise Deal", we are doing it exactly the same as for the revenue stream "Basic Deal". We add it as a Subscription Stream (Fixed Lifetime) but with MRR of $1,000.

By default, every revenue stream models one customer contract. In SaaS, a customer contract is what we would typically call a Price Plan in the real world. In eCommerce this would more likely relate to different products or product baskets. If you want, you can add more than one customer contract to a revenue stream. You will find more information in our help center.


Connect Revenue Streams with Conversion Rules (Upsale)

Now, you are ready to connect the revenue streams and really model the Customer Lifecycle.


You do that by adding conversion rules which actually simulate the successful upsale or conversion from a signup to a paying customer.


Add a Conversion Rule by clicking the  "+ Add Conversion Rule" button above the revenue streams to set up a new rule. Note that this button only appears if you have two or more revenue streams set up.

AddButton

Let's now set up 3 conversion rules. 

  • Our first rule defines that 20% of Signups convert into Trials and that this takes a time delay of 3 months
  • Our second rule defines that 10% of Trials convert into Basic Deals and that this takes 1 month and 
  • Our third rule defines that 20% of Basic Deals convert into Enterprise Deals after another 3 months
AddConversion

After saving the rules, we can see that the first revenues have been calculated after 4 months. That seems to be a good sign but before checking the revenues, let's check how customers move through the funnel.

Check Customer Movements

Let's recap those numbers. You check them in Revenues > Manage > Movement Tables.

  • given the Marketing Budget of $10,000 per month and the Cost per Signup of $100, the business creates 1,000 new Signups per month. 
  • 20% of all new Signups convert or upsold into Trials with a delay of 3 months. If we check the Signup Revenue Stream, this means that - after 3 months - there are 200 Lost Signups due to this Upsale per month - AND - if we check the Trial Revenue Stream this means that - after 3 months - there are 200 New Trials from Upsale per month.
  • 10% of all new Trials convert into Basic Deals with a time delay of 1 month.  If we check the Trial Revenue Stream this means that - after 1 month - there are 20 Lost Trials due to this Upsale per month - AND - if we check the Basic Deal Revenue Stream this means that - after 1 months - there are 20 New Basic Customers from Upsale per month.

This means that ...

  • the overall Signup-to-Deal Conversion is 2% which can be calculated simply as 20 Deals divided by 1,000 Signups or as 20% multiplied by 10% and
  • the Marketing Cost to acquire a new Deal is $ 5,000 which can be calculated as $100 per Signup multiplied by 50 Signups required for 1 Deal or by dividing the Cost per Signup by the Signup-to-Deal conversion rate of 2%

Business Plan - Explaining Marketing Cost per Deal

Training2

Check Revenue Movements

Now, let's also check the basic revenue calculation. That’s still easy to calculate.

  • 4 months after Signups were created: 20 convert into Basic Customers each with MRR of $500 which gives us New MRR of $10,000 ( = 20 x $500)
  • 3 months after Basic Customers signed up: 20% of them which means 4 (=20 Basic Customers * 20%) are upsold to Enterprise Customers.
  • If we check the Basic Revenue Stream this means that - after 3 months - we are loosing 4 Basic Customers and show Lost Revenue due to Upsale of $2,000 (=$500 x 4). But if we check the Enterprise Deal Revenue Stream this means that - after 3 months - there are 4 New Enterprise Customers creating New Revenues from Upsale of $4,000 (=$1,000 x 4).
  • In total, the upselling results in an additional $2,000 of MRR. 

Understand Movement Tables

As you can see in this example, the Movement Menu is very helpful to get transparency. You can check the movements of Customers, Revenues and Units. Below the movement chart you also find the table which shows you all numbers in detail.


Let's look at the Customer Movement table. You'll find:

  • Customers at BOP (Beginning of each time Period) - which represent the number of Customers at each period
  • New Customers from Forecast - which are a result of the volumes created by the Forecast Module
  • New Customer from Upsale - which are new customers in a revenue stream as a result of an Upselling Conversion Rule.
  • Lost Customers from Upsale - which are lost customers in a revenue stream because they are upsold to another revenue stream as a result of an Upselling Conversion Rules. 
  • Renewable Customers - which are customers who have to renew their contracts after contracts expired. Monthly Billing means that contracts are renewed on a monthly basis.   
  • Churned Customers - which are the number of customers not renewing their contracts as a result of churn.
  • Net New Customers - which are sum of New Customers from Forecast, New Customers from Upsale Lost Customers from Upsale and Churned Customers
  • Customers at EOP (End of each time Period) - which represent the number of Customers at the end of each time period. The Customers at the End of a given period become the Customers at the beginning of the next time period. Let's say that we have 1,000 customers at the End of January, then we start with 1,000 customers at the Beginning of February 
MovTables

You'll find additional data in the table which calculate numbers required for value drivers used in Lean-Case, e.g.

  • Customers Sold  - which are the sum of new and renewed contracts - customers which were sold to but excluding upselling contracts
  • Net New Upsale Customers - which is the balance of New Customers from Upsale and Lost Customers from Upsale  
  • New Customers from Forecast and Upsale - which are the sum of New Customers from Forecast and New Customers from Upsale

Add Cross-Selling

The last thing on the revenue side is to add the Cross-Selling Revenues. We assume that we can cross-sell two-day projects at a daily rate of $1,000 per day to interested Enterprise customers so these are integration revenues of $2,000 per Enterprise customer.


Business Plan - Assumption Cross-Selling

Model CrossSell

To model Cross-Selling In Lean-Case, we add another revenue stream and use a specific Forecast method.

The revenue type for this stream is One-Time Revenues. There are also 2 different flavors of One-Time Revenues. If your One-Time Revenues can be created in a 1 month period, also select the Fixed Lifetime Model. Fixed Lifetime Models do not only support data Export but full Model Export.

OneTimeRevenue

We assume that we can cross-sell two-day projects at a daily rate of $1,000 per day to interested Enterprise customers so these are integration revenues of $2,000 per Enterprise customer.

Lean-Case revenue type


Now, how do we connect the cross-selling to our Enterprise customers?


Cross-selling in Lean-Case is just another forecast model.


We assume that we are cross-selling integration services to our enterprise customers and that 50% of them buy them with a delay of 1 month.

CrossSelling


Let’s save this and check.

We have 4 new enterprise customers per month, 50% of them - so 2 - buy our integration services. 2 x $2,000 gives us $4,000 of Integration revenues per month.


Add Customer Churn

We can see almost linear revenue growth – monthly, quarterly and yearly.


Revenues over five years sum up to $ 19 M

 

Rev5yrs_wo churn

But unfortunately, that’s not what we are seeing in SaaS Daily Life because customers also churn away.  For our project, we assume that churn is 2% for our Basic and Enterprise customers.

Business Plan - Assumptions Churn

Model Churn

You can add churn for each revenue stream in the tab "Churn & Conversion." 


Because the plans are billed Monthly, customers can renew their contracts or churn on a monthly basis. This is why this is 2% is churn on a monthly basis.


Churn

When we save this data, we can see that our growth is no longer linear. 

Actually, revenue starts plateauing. What is happening here? The acquisition of new customers is just good enough to compensate for the customers which are churning.

This is actually very expensive. We are spending money to get new customers into the door instead of spending money to keep the existing ones happy.


A 2% monthly Churn reduces the $19 M 5-year-Revenues  by 30% to $13.5 M

ChurnYearly1

In this example - if you agree to adjust the churn rate automatically - Lean-Case recalculates the Monthly Churn Rate of 2% into a Yearly Churn Rate of 21.5%

ChurnYearly2


You can - of course - check the number of churned customers in the Customer Movements tables – but let me show you an alternative way.



Review data in the Check Menu

All numbers which Lean-Case calculates, you can check in the Check Menu. The Check Menu gives you a lot of transparency to understand the calculations which are happening in Lean-Case. We can filter all data by revenue stream and metric type.

And we can check the Customer Movements Tables for both plans.

Remember we have 20 new Basic Customers per month.  

As the basic plan is a Monthly Plan - we have our first churn already after the first months. If this were a quarterly plan, we would have our first churn only after the third month.

CheckPage

Answer Question 1: What's your revenue potential?

We have now entered all the data to answer the first business question: What's your revenue potential?


Earlier we saw that revenue potential totals $ 19 M over 5 years without churn. Due to churn this number finally decreases by 30 % to $ 13.5 M. 


To answer the next business question on business viability "Is Customer Lifetime Value significantly higher than Cost of Customer Acquisition?", we have to enter all revenue related costs.

Rev5yrs_with churn

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