How does a cloud company finance
Let's talk about how one of the main components of a cloud company is arranged - finance.
A few simple metrics - MRR , CLV , CAC - help the company to assess the economy. In this post, we will talk about how to count and interpret them.
The main feature of a cloud company is that it sells a service, not a license. In practice, this means that customers pay access to a subscription solution, usually monthly.
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From a financial point of view, this is an advantage. We are well insured against seasonality of sales - most customers work throughout the year. Monthly revenue ( MRR - Monthly Recurring Revenue) can be calculated using a simple formula:
MRR = ARPU * number of clients
ARPU - the average monthly payment of the client. If your service has only one paid tariff, then ARPU, naturally, will be equal to its cost. The fork of our service rates is quite large - from 400 to 6,400 rubles, and the average payment is approximately equal to 2,000 rubles.
The MRR figure makes it possible to understand how fast a business is growing. Let me explain this in more detail: it seems that the easiest way to look at the amount of customer payments. If in June we received more payments than in May, then all is well - we are growing. In fact, this is not so.
Current payments are strongly influenced by various promotional activities for customers, such as promotions. A good offer, such as “pay for a year - get a discount”, can greatly increase current payments. But this does not speak about the growth of the business - with the help of the stock, we simply stimulated customers to transfer their future payments to this month.
If we calculated the MRR and saw that in a month it grew by 10% - this will be a completely objective comparison.
MRR shows us the payment of all customers for one month. Now let's calculate how much one client pays for the entire period of his “life”.
Customers remain customers until they pay their subscription. We must understand that customers do not use the service forever. They close projects for which automation was needed, switch to other products, finally, just go out of business.
The average customer lifetime can most accurately be measured by the monthly outflow from the entire customer base. For example, if the outflow per month is 5%, the client’s lifetime is 1 / 0.05 = 20 months.
Knowing this number, you can calculate another important metric - CLV (Customer Lifetime Value). This is the profit that your average customer will bring during the entire period of work.
CLV = (ARPU - expenses) * average time of the client’s “life”
For a cloud service, the costs in this formula are the cost of support (salaries of employees, telephone, documents from legal entities) and technical infrastructure (servers and their maintenance). With low tariffs, even such seemingly insignificant expenses as postage - sending closing documents for accounting - can significantly lower the LTV.
In the first approximation, it suffices to count the CLV “average in the hospital”. But such an average number is not very useful. Customers must be divided into groups. As a rule, the cloud service already has ready segmentation - by tariffs.
Customer segmentation can produce unexpected results. For example, the cost of our two tariffs is 6 times different, but the CLV of customers on these tariffs is already 28 times (!). This is due to the fact that users of more expensive tariffs work with the service much longer.
The CLV itself does not have much value. However, by measuring CLV, you can intelligently plan the costs of attracting new customers. Costs consist of the cost of advertising, expenses for events, salaries, bonuses of sellers and marketers, and so on. This metric is called CAC - Customer Acquisition Cost. In the first approximation, you can simply divide the monthly budget of the marketing and sales department by the number of new customers for the same period.
It is clear that the company cannot spend on attracting a new client more money than it subsequently receives from it. Such a model will lead a business to disaster. In practice, a good indicator for the cost of attraction is not more than a third of the value of the client.
CAC <CLV / 3
Just like CLV, CAC needs to be segmented. For example, we consider CAC for individual channels (context / SEO / social network) and individual campaigns in context. As a result, we can manage the budget of individual campaigns based on statistics, rather than our own guesses.
The listed metrics are useful in their own right. But the most important thing is that they can be used for realistic planning.
His main task is to draw up a financial plan, that is, a schedule for receiving revenues and expenses. This allows you to predict the cash flow , that is, the amount of money in the company's current account.
The basis for revenue planning is the MRR metric, which we discussed above. This is the amount of payments that the company will receive each month. MRR depends on ARPU and the current number of clients, so in fact the plan is based on these two indicators.
The cost of attracting a new customer - CAC - is usually greater than its first payment. In fact, each new client is unprofitable at the beginning, and only after 2, 3 or more months pays off and, finally, begins to make a profit. The financial plan takes this effect into account and shows cash flow problems in advance if they may arise.
In our company, the monthly budget is drawn up at the beginning of the year. These figures are recorded, and each month are compared with the fact. As a result, we know that the company works better or worse than the plan and, if necessary, we promptly make changes.
In this post, we wanted to share tools for analyzing and managing the finances of a cloud company. We hope they will help you in the same way as they help us develop the Moysklad service.
A few simple metrics - MRR , CLV , CAC - help the company to assess the economy. In this post, we will talk about how to count and interpret them.
MRR: how to evaluate business growth
The main feature of a cloud company is that it sells a service, not a license. In practice, this means that customers pay access to a subscription solution, usually monthly.
')
From a financial point of view, this is an advantage. We are well insured against seasonality of sales - most customers work throughout the year. Monthly revenue ( MRR - Monthly Recurring Revenue) can be calculated using a simple formula:
MRR = ARPU * number of clients
ARPU - the average monthly payment of the client. If your service has only one paid tariff, then ARPU, naturally, will be equal to its cost. The fork of our service rates is quite large - from 400 to 6,400 rubles, and the average payment is approximately equal to 2,000 rubles.
The MRR figure makes it possible to understand how fast a business is growing. Let me explain this in more detail: it seems that the easiest way to look at the amount of customer payments. If in June we received more payments than in May, then all is well - we are growing. In fact, this is not so.
Current payments are strongly influenced by various promotional activities for customers, such as promotions. A good offer, such as “pay for a year - get a discount”, can greatly increase current payments. But this does not speak about the growth of the business - with the help of the stock, we simply stimulated customers to transfer their future payments to this month.
If we calculated the MRR and saw that in a month it grew by 10% - this will be a completely objective comparison.
CLV: how long does your client live?
MRR shows us the payment of all customers for one month. Now let's calculate how much one client pays for the entire period of his “life”.
Customers remain customers until they pay their subscription. We must understand that customers do not use the service forever. They close projects for which automation was needed, switch to other products, finally, just go out of business.
The average customer lifetime can most accurately be measured by the monthly outflow from the entire customer base. For example, if the outflow per month is 5%, the client’s lifetime is 1 / 0.05 = 20 months.
Knowing this number, you can calculate another important metric - CLV (Customer Lifetime Value). This is the profit that your average customer will bring during the entire period of work.
CLV = (ARPU - expenses) * average time of the client’s “life”
For a cloud service, the costs in this formula are the cost of support (salaries of employees, telephone, documents from legal entities) and technical infrastructure (servers and their maintenance). With low tariffs, even such seemingly insignificant expenses as postage - sending closing documents for accounting - can significantly lower the LTV.
In the first approximation, it suffices to count the CLV “average in the hospital”. But such an average number is not very useful. Customers must be divided into groups. As a rule, the cloud service already has ready segmentation - by tariffs.
Customer segmentation can produce unexpected results. For example, the cost of our two tariffs is 6 times different, but the CLV of customers on these tariffs is already 28 times (!). This is due to the fact that users of more expensive tariffs work with the service much longer.
CAC: how much is a customer?
The CLV itself does not have much value. However, by measuring CLV, you can intelligently plan the costs of attracting new customers. Costs consist of the cost of advertising, expenses for events, salaries, bonuses of sellers and marketers, and so on. This metric is called CAC - Customer Acquisition Cost. In the first approximation, you can simply divide the monthly budget of the marketing and sales department by the number of new customers for the same period.
It is clear that the company cannot spend on attracting a new client more money than it subsequently receives from it. Such a model will lead a business to disaster. In practice, a good indicator for the cost of attraction is not more than a third of the value of the client.
CAC <CLV / 3
Just like CLV, CAC needs to be segmented. For example, we consider CAC for individual channels (context / SEO / social network) and individual campaigns in context. As a result, we can manage the budget of individual campaigns based on statistics, rather than our own guesses.
Financial plan: company control panel
The listed metrics are useful in their own right. But the most important thing is that they can be used for realistic planning.
His main task is to draw up a financial plan, that is, a schedule for receiving revenues and expenses. This allows you to predict the cash flow , that is, the amount of money in the company's current account.
The basis for revenue planning is the MRR metric, which we discussed above. This is the amount of payments that the company will receive each month. MRR depends on ARPU and the current number of clients, so in fact the plan is based on these two indicators.
The cost of attracting a new customer - CAC - is usually greater than its first payment. In fact, each new client is unprofitable at the beginning, and only after 2, 3 or more months pays off and, finally, begins to make a profit. The financial plan takes this effect into account and shows cash flow problems in advance if they may arise.
In our company, the monthly budget is drawn up at the beginning of the year. These figures are recorded, and each month are compared with the fact. As a result, we know that the company works better or worse than the plan and, if necessary, we promptly make changes.
In this post, we wanted to share tools for analyzing and managing the finances of a cloud company. We hope they will help you in the same way as they help us develop the Moysklad service.
Source: https://habr.com/ru/post/228931/
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