Lean-Case Tutorial - The eCommerce Template

Overview

This tutorial shows how to create a Lean-Case eCommerce model with a Get-Customer-Phase modelling the Lead-Generation Process of creating leads and converting them into customers and a Keep-and-Grow-Customer-Phase modelling the Buying Process of driving first time buyers to become loyal buyers. You learn how to set up all revenue streams across those two phases, connect the streams with conversion rules and validate the mechanics of your model. We are also showing you how to add all elements to calculate your unit economics - cost of goods sold and cost of selling. After learning these basics, you can get started to adjust your model.

All steps are described below and illustrated in video sequences.

For a Lean-Case SaaS B2B model, we break down the customer life cycle into two main phases. Each of which has a number of stages.

1. The Get-Customer-Phase models the Marketing Process of converting leads into first time buyers. We use the following three marketing channels to create leads are:

Paid Search
Organic Search
Direct Traffic (via other forms of advertising such as TV, newspaper ads, ..)

2. The Keep-and-Grow-Customer-Phase models the Buying Process on creating first time buyers and ideally converting them into loyal, long-term customers. This includes three stages:

First Time Buyers
Repeat Buyers
Loyal Buyers

This tutorial shows you how to

Set up the revenue streams for the Get-Customer-Phase(Step 1) and the Keep-and-Grow-Customer-Phase (Step 2)
Connect the revenue streams by setting up Conversion, Time Delay and Volume Metrics (Step 3)
Verify your model by validating Conversion Rules and Revenues (Step 4)
Add Cost of Goods Sold to Keep-and Grow-Customer stages (Step 5) and
Get Started to adjust your assumptions using benchmarks (Step 6)

Step 1: Set up the Get-Customer-Phase for All Revenue Streams

In Lean-Case Menu “Revenues”, we add all marketing channels of the Get-Customer-Phase as so-called revenue streams which model different revenue types (e.g. subscription revenues) and which can include several customer contracts - in an eCommerce context this could be used to model different products. Even though leads in the Get-Customer-Phase don’t create revenues, we use revenue streams to be able to set up forecasts and revenue related cost.

For the first marketing channel “Paid Traffic”:

Click the button “Add Revenue Stream” to create a revenue stream
Select a revenue type for this revenue stream by choosing “Transaction (Customer Contract)” from the dropdown (Note: For all stages in the Get-Customer-Phase with “0”-revenues, you could potentially select any other revenue type.)
On the top right side of revenue stream widget, enter the name of the stream; let’s start with “Paid Traffic”
Below that, also enter the name of the revenue plan/customer contract. As we only use one plan, just use the same description “Paid Traffic”
Go to tab “Forecast”. Enter the forecast how much traffic you expect, e.g. 100 visits via PAID SEARCH in January 2019 (later on you will adjust the forecast and spread it over all months)
Go to tab “Cost of Selling”, enter the cost to acquire the Paid Traffice lead of €2 per new visit. Add a volume based cost item by entering €2. as the amount, selecting driver "New Customer" and Revenue Stream "Paid Search"
Click button “Save” to save the revenue stream

Repeat the same procedure for the other marketing channels with:

for marketing channel Organic Search, enter a forecast of 100 visits at a volume based cost of €1 per visit
for marketing channel Direct Traffic, enter a forecast of 100 visits at a time-based cost of €100 per week

Step 2: Set up the Keep-and-Grow-Customer-Phase

Using the same procedure as above, set up a revenue stream for each of the three stages in the Keep-and-Grow-Customer-Phase.

As outlined in Step 1

Select the Revenue Type “Transaction (Customer Contract)”
Enter the name of the stream and the name of the plan

In addition, fill the revenue section with data for the average purchase behavior of your buyers. You have to enter the lifetime, the buying pattern and the revenues of your typical customer. Let's describe this for your first time buyer and assume that a first time buyer has a lifetime of 2 months before he decides to buy again or churn. During this time, this first time buyer buys 1 product in the first month at a price of €10:

enter the lifetime in field “contract duration” in months "2"
in Number per Transaction, select the spreadsheet widget to enter data for a time series and enter "1" into the first month (please check video)
in Amount per Transaction, enter the average price "€10"
in "Fee in % of Amount", enter your share of the revenue (100)
Go to tab Forecast, and set forecast to 0 (as you are not directly converting new customers, but leads are converting into First Time Buyers)
Go to tab Churn, and set churn to 100% (after 2 months, each first time buyer becomes either a Repeat Buyer or churns away)

Repeat these steps for the other two stages "Repeat Buyer" and "Loyal Buyer"

For "Repeat Buyer", enter a 3-months lifetime with a purchase of €12 in the 1st and a purchase of €14 in the 3rd month (seee video)
For "Loyal Customers", enter a 24 Months Lifetime with a purchase of €15 every second month

Step 3: Set up Conversion, Time Delay and Volume Metrics

When getting, keeping and growing customers, there are always four different types of metrics at play. These include:

Volume Metrics
Conversion Metrics
Time Delay Metrics
Financial Metrics

Set Volume Metrics

The more leads you generate, the higher is the volume. As we have seen in Step 1, Volume Data to create new leads is entered in tab "Forecast"

in Revenue Stream "Paid Search"
in Revenue Stream "Organic Search"
in Revenue Stream "Direct Traffic"

Set Conversion and Time Delay Metrics

After addressing as many leads as possible, it becomes a matter of converting as many of them as fast as possible to become first time buyers. We can add conversion rules to each revenue stream connecting all the stages with Conversion Rate and Time Delay Metrics.

Let’s assume that 2% of all "Paid Traffic" leads convert into First Time Buyers after 1 month.

Still under revenue stream "Paid Traffic", go to the “Churn and Movements” tab
Click button “+ Add Customer Movements” to add a conversion rule which “moves” customers from one revenue stream to another. For each conversion rule, input

Conversion Rate: under the “One-Time Conversion Rule” box, input a rate of 2%
“Move From”: select the revenue stream and contract type from which customers convert (here: stream “Paid Traffic” and plan “Paid Traffic”)
“Move To”: select the revenue stream and contract type to which customers convert (here: stream “First Time Buyer” and plan “First Time Buyer”)
Time Delay: enter the number of months it takes before conversion takes place. This is assumed to be 1 month
Click button “Save” to save the changes to the revenue stream

Repeat the above steps so as to connect each of the marketing channels and revenue stages with conversion rules. Following the same procedure for all subsequent revenue streams:

3% of Organic Traffic convert into First Time Buyers after 1 month
5% of Direct Traffic convert into First Time Buyers after 1 month
20% of First Time Buyers convert into Repeat Buyers 2 months after they became First Time Buyers
50% of Repeat Buyers convert into Loyal Buyers 4 months after they became Repeat Buyers
10% of ARR customers will convert into LTV customers after 1 month

Click button “Save” to save the revenue streams.

Step 4: Validate Conversion Rules and Revenues

Let’s now verify our model by validating the conversions mechanics and revenue patterns. This is a good step to get comfortable with the way Lean-Case works and calculates.

Verify Conversion Mechanics

To validate if your conversion rules work as intended, follow these steps:

Go to the topmost menu and select menu “Dashboard” and then click on sub-menu “Insights” which provides charts for all Lean-Case numbers
Say on tab “Revenue” and focus on the chart “No of Customers – All Streams”
According to the details we input for January, there was a total of 300 leads at the onset which are made up by 100 Paid Traffic, 100 Organic Traffic and 10 Direct Traffiv visitors. Hover with your mouse over the January bar to verify.
As 2% of 100 Paid Visits converts into to 2 First Time Buyers and 3% of 100 Organic Visits converts into to 3 First Time Buyers and 5% of 100 Direct Visits converts into to 5 First Time Buyers, there will be 10 First Time Buyers after 1 month
Easily verify by de-selecting the “Paid Traffic”, “Organic Traffic”, “Direct Traffic” entry in the chart’s legend

Repeat and validate the same steps for the next stages:

2 months after they became First Time Buyers,
20% of First Time Buyers convert into 2 Repeat Buyers
4 months after they became Repeat Buyers,
50% of Repeat Buyers convert into 1 Loyal Buyer

Verify Revenue Pattern

To validate if your revenue patterns work as intended, follow these steps:

Go back to the topmost menu on the screen and click on menu Revenues to check out graph “Total Revenues by Revenue Stream,”
in February, 10 First Time Buyers generate revenues of 10x€10 = €100 after 2 months
In April, 2 Repeat Buyers generate revenues of 2 x €12 = €24 with their first purchase
In June, the same 2 Repeat Buyers generate revenues of 2 x €14 = €28 with their second purchase
Starting in August, 1 Loyal Buyer generates revenues of 1 x €15 = €15 every other month for a period of 24 months

Step 5: Add Cost of Goods Sold to Keep-and-Grow-Customer stages

Cost of Goods Sold (CoGS) cover all the cost required to keep your existing customers running (looking at it differently: all cost still required in case you have stopped any new customer acquisition). We want to show you a few different ways how to add different cost types – based on time, based on volume drivers and based on percentages.

Let’s assume that we have a “Time-Based Cost” for Hosting of 100 per month.

Select revenue stream First-Time Buyer and go to tab “Cost of Goods Sold"
Under COGS Item, enter the description for your cost item, e.g. “Minimum Hosting Cost”
Under Amount, input 100

In addition, let’s assume a “Volume-Based Cost” of $5 as a product purchasing cost. The driver for this cost is the "Units Sold"

With this in mind, create a second “COGS Item” by clicking on button “+Add Cost of Goods Sold” and input “Purchasing Cost” as a descriptor
Click on the switch Time-based / Volume based to make this a volume-based cost
Under “Amount” enter €5 and select the volume driver by

Selecting the driver “per Units Sold” and
Selecting the revenue stream “First Time Buyer” for which this driver should apply

Repeat the last step also for revenue streams "Repeat Buyer" and "Loyal Buyer" to ensure that the Cost per Unit Sold is captured for all purchases by the customer across his lifetime.

After clicking “Save” to store the COGS inputs, you can check the COGS by revenue stream and period.