How To Plan Your Business Without Excel
Chapters 2 and 3
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
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.
When you then click the “Add Revenue Stream” button, Lean-Case guides you through a list of questions and explanations to enter your assumptions.
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:
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.
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
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?
Let’s select the Forecast Model "Marketing Budget". Then you must specify:
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 ...
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
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
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
Revenue Stream "Trials"
The revenue stream "Trials" becomes another "Funnel Stream" as it doesn't model any paying customers.
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.
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.
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.
Let's now set up 3 conversion rules.
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.
This means that ...
Business Plan - Explaining Marketing Cost per Deal
Check Revenue Movements
Now, let's also check the basic revenue calculation. That’s still easy to calculate.
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:
You'll find additional data in the table which calculate numbers required for value drivers used in Lean-Case, e.g.
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
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.
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.
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.
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
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
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.
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
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%
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.
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.
Start Your FREE
Lean-Case 7-Day Trial Today...
Click on the “Start My FREE 7-Day Trial” button above… discover the viability of any business idea in 20 minutes – and create your business plan in 2 hours or less…
(No "Excel Hell" and "Credit Card" required!)