 # Collaborators Are Curious Learners and Readers

## 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.

 Fixed Costs \$ * Unit Price \$ * Variable Costs \$ *

## How to Calculate Breakeven

Determine the following three things:

• 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.

 Revenue \$ * COGS \$ *

## 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 % Price \$ COGS \$ Markup % (no decimal)

## 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.

 Investment Cost \$ * Investment Gain \$ *

## 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.

 Revenue * Cost of Goods Sold (COGS) * Sales and Marketing Expenses * New Subscribers *

## 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: 8/1/2018-8/31/2018 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.

 Number of Customers - Beginning of Period * Number of Customers - End of Period *

## 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.

 Monthly Subscription per Customer \$ * Total Customers *

## 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

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

Monthly subscription payment:

MRR = (Monthly subscription revenue x number of customers)

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