Understand if your case is viable
We are going to show you how you can understand Customer Lifetime Value and your Unit Economics by creating a Software-as-a-Service (SaaS) Business Case in Lean-Case. It takes 3 steps and 30 mins to set up your customer pricing, set up the profile of a Sales Team with a Quota and the time plan when you add teams to your plan.
Please note that this blog post describes an earlier version of the Lean-Case service. In our latest version, the same functionality can be implemented but in a much more elegant way.
The idea behind a B2B Subscription Case follows a standard, real-life sales approach. A Sales Team with a quota has to acquire customers and you scale your business by adding Sales Teams along the timeline:
To model how revenues stack up, we have to think about these 3 levels shown in the figure below.
Step 1: The Customer Contract View
The Basis of a B2B Subscription Model in Lean-Case is an Average Customer Contract over the customer’s lifetime. An "average" customer doesn’t have a specific month in which his contract begins (and his lifecycle starts). The average customer lifetime starts in Month 1 of Year 1.
Let’s assume a customer subscribes 10 units at a monthly price of 100$. That means he generates monthly recurring revenues of 1.000$ and the contract has an Annual Contract Value of 12 x 1.000$ which is 12.000$ (see figure below)
how to ..
You must add a B2B Revenue Stream to Lean-Case. With a Product Plan and associated parameters like churn and expansion, you define the generic Customer Contract. For this Plan, choose a monthly billing period. Because the contract period is monthly, all parameters which you now enter must be values for a monthly contract, so enter 100$ as a price per unit per month and enter 10 units which you buy. Later, you can add parameters for price expansion, unit expansion and unit churn. Save your input to calculate the model.
Step 2: A Sales Team with Quota acquires customers
This is also why revenues in the Lean-Case Plan view are still 0. You must now add a Sales Quota and define when to hire Sales Teams. Let’s start to add a Sales Quota for Sales Team. In a SaaS B2B business , a Sales Team carrying a quota acquires customers. Let’s assume the Annual Quota of your Sales Team in Terms of Annual Bookings is 720k, i.e. to achieve bookings of 720k, you have to bill monthly recurring revenues of 60k. Achieving 60k of MRR at the end of the year means that you have acquire New MRR of $5k per Month.This Quota can be “converted” in a “New Number of Customer”-target, e.g. if a customer makes 1000 of MRR and the New MRR Quota for a Sales Team is $5000, then the Sales Team has to acquire 5 new customer per month or 60 new customers per year . This Quota can be “converted” in a “New Number of Customer”-Target, e.g. if a customer makes $1.000 of MRR and the New MRR Quota for a Sales Team is $5000, then the Sales Team has to acquire 5 new customer per month or 60 new customers per year.
Not e that the lifetime of an average Sales Team also follows a generic timeline starting in Year 1 Month 1.
how to ..
Go to the Revenue Menu and select the Plan View (Slide 1 in figure below)
Open the Revenue widget
Go to the Sales Team Quota and enter the Quota in terms of Annual Bookings of $720.000.
Confirm that the corresponding Quota Allocation is set to 100%. (in case you are adding more than 1 plan – you have to allocate the quota across your plans) (Later, you can also add parameters like Ramp-Up and Attrition)
Save your input to calculate the model
Go to the Check View again and select the view “One Sales Team” (Slide 2 in figure below).
You can see that every month the Sales Team acquires 5 new customers exactly meeting the quota of New MMR of 5k per month.
Let’s check how this looks like on a Yearly basis (Slide 3 in figure below).
You can see that every year the Sales Unit acquires 60 new customers and creates New MRR of 60k per year meeting its quota.
In the first year, the Sales Teams meets the New MRR Quota of 5k the Sales Units creating RR of 390k.
From the second year on, it also fully meets the booking target of 720k creating 1,11m of RR in year 2, 1,83m in year 3 and 2,55m in year 4.
Step 3: Many Sales Team acquire many customers
We now have to define when to hire your Sales Teams. Let’s now scale your case by defining when you hire Sales Teams and how many sales teams you want to hire. If one Sales Team carrying a quota acquires customers, many Sales Team carrying a quota will acquire many customers. Let’s assume you hire 3 Sales Team: one in January , one in July and one in October. Then the Quota for your Business is $5k in terms of New MRR between January and July, $10k starting as of July and $15k as of October. With Team A starting in January, we see 5 new customers per month, Team B starting in July acquires another 5 new customers per month and Team C will add 5 new customers as of October.
how to ..
Go to the Section Sales Team Sizing in you’re the B2B Revenue Widget (Slider 1 in screen below).
First, enter the profile of the Sales Team – in particular define the size of a team in headcounts and the related cost. If you enter 150%, you have 1.5 headcounts working in a team. This could be field sales rep working full time and a sales engineer working 50% of his time for this team.
Then enter the average annual cost for one full headcount in terms of base salary, variable salary and benefits & taxes. Let’s say the average full time headcount has a base salary of $40.000 and a variable salary of $10.000 and the company pays 20% of total salary in terms of benefits and cost. These values will be multiplied with 150%.
Then, enter the dates when you want to deploy Sales Team. In Lean-Case we call them Hiring Rules. There is already one rule set up to hire one team in the the first month of your case. The rule says that you should hire 1 team per month between January and January. That sounds a bit awkward, but this allow us to add many sales teams with just one rule- For example, to hire 1 Team per Quarter, we can add a rules that says “Hire 1 sales team per quarter between July and October”.
Now save your input to recalculate the model Go to the Check Menu again and select the third view “All Sales Teams” (Slider 2 in screen below).We can see that starting with Team A your business acquires exactly 5 new customers between Jan and Jun. With Team B starting in July and Team C starting in October we can see additional inflow of 5 new customers increasing the number of new customers per month to 10 as of July and 15 as of October. Fantastic you set up your first revenue model.
Now you can start tweaking and twisting your case.
On the revenue side, you can add additional plans e.g. yearly plan. Make sure that your inputs in this context will be yearly values. If you have more than 1 plan, allocate the quota for the Sales teams across the plans. You can add price expansion, unit expansion and unit churn to each of your plans and check the impact on the the 3 different views.
On the Sales Team side, you can add the time to Ramp Up a sales team in Month and a Sales Attrition Factor in % to your Sales Team.
On the cost side, you can add Cost of goods sold, e.g. hosting cost as 10% of revenues, onboarding cost as 100$ per new customer, a monthly retainer of $ 1000 for your call center and an add variable support cost of 20$ per month per existing customer – Cost of marketing or CAC by defining your cost of leads and the conversion rate to convert leads into paying customers.To define the cost of leads, you have to add your lead channels and the cost of a lead per channel, e.g. you create 50% of your leads through the web and the cost of a lead is $10. The other 50% of your leads you create via events and your cost is about 50$. That makes an average cost per lead of 30$
You also have to convert those leads into paying customers by adding your pipeline stages to Lean-Case. Let’s assume you convert 10% of your leads into opportunities, 20% of your opportunities into trials and 50% of your trials into paying customers. This should yield an overall conversion rate of 1%.
Let’s check by saving the model. You can see a conversion rate of 1% and you can also see that the cost to acquire 1 customer is $ 3000. Remember the average cost per lead is 30%$. Converting leads into paying customers at 1% requires you to have 100 leads for 1 paying customer. 100 times 30$ results in a CAC of $3000 per new customer
Now the revenue side including the revenue related cost is complete and it is time to check the Metrics Dashboard for your B2B Revenue Stream.