Lean-Case Tutorial - The SaaS B2B Template
Overview
This tutorial shows how to create a Lean-Case SaaS B2B model with a Get-Customer-Phase modelling the Sales Process of converting prospects into customers and a Keep-and-Grow-Customer-Phase modelling the Account Management Process. You learn how to set up all revenue streams across those two phases, connect the streams with conversion rules and validating the mechanics of your model. We are also showing you how to add all elements to calculate your unit economices - churn, cost of goods sold and cost of selling. Finally, we provide an example how to add organizational units to your model with jobs, groups, team roles and manager roles. Headcounts can be automatically calculated driven by the number of sales teams, customer quotas or revenues. After learning these basics, you can get started to adjust your model.
The SaaS B2B Model
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.
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 Sales Process of converting prospects into customers who sign up for your service. A typically SaaS Sales Process incorporates four stages:
2. The Keep-and-Grow-Customer-Phase models the Account Management Process on on-boarding first time customers and ideally converting them into loyal, long-term customers. This includes three stages:
This tutorial shows you how to
Step 1: Set up the Get-Customer-Phase for All Revenue Streams
We add each stage of the Get-Customer-Phase in Lean-Case Menu “Revenues” as so-called revenue streams which model different revenue types (e.g. subscription revenues) and which can include several customer contracts - in a SaaS context often referred to as revenue plans (e.g. Enterprise Plan). Even though customers in the sales process don’t create revenues, this is a required step.
For the first revenue stream “Prospect”:
Repeat the same procedure for all the other revenue streams. At the end of it all, your Get- Customers-Phase should have four revenue streams, one for each stage.
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
In addition, select the billing interval from “Billing Period” dropdown and enter the Average Monthly Recurring Revenue (MRR) for a customer contract – setting it to
Click button “Save” to save the revenue stream.
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:
Set Volume Metrics
To start with, let’s set up the major volume driver: The more prospects are created, the more volume we can potentially generate in our model. Let’s assume that we can address “1,000,000” new prospects for the month of January 2019:
Set Conversion and Time Delay Metrics
After addressing as many prospects as possible, it becomes a matter of converting as many of them as fast as possible to create paying customers. We can add conversion rules to each revenue stream connecting all the stages with Conversion Rate and Time Delay Metrics.
Let’s assume that 10% of all prospects will convert into MQLs after 1 month.
- Conversion Rate: under the “One-Time Conversion Rule” box, input a rate of 10%
- “Move From”: select the revenue stream and contract type from which customers convert (here: stream “Prospect” and plan “Prospect”)
- “Move To”: select the revenue stream and contract type to which customers convert (here: stream “MQL” and plan “MQL”)
- Time Delay: enter the number of months it takes before conversion takes place. By default, 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 stages with conversion rules. Following the same procedure for all subsequent revenue streams:
Click button “Save” to save the revenue stream.
Step 4: Set up the Keep-and-Grow-Customer-Phase
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:
Repeat and validate the same steps for the next stages:
Verify Revenue Pattern
To validate if your revenue patterns work as intended, follow these steps:
Step 5: Add Cross-Selling Revenues for Professional Services
Very often in SaaS Models, companies offer professional services to clients, e.g. for onboarding, integration or training. In Lean-Case, we have developed a separate forecast model called “cross-selling” for this purpose. An additional revenue is cross-sold to an existing customer base.
In order to carry out this step, we first need to add another revenue stream:
Let’s assume that we are able to cross-sell Integration Services to 20% of our Live Customers with a time-delay of 1 month and that the average service per customer takes 2 hours at a rate of $100 per hour.
The chart “Total Revenues by Revenue Stream” will update to also show Service Revenues.
If we cross-sell services to 20% of all the 100 new Live Customers in the month of May, then 20 Live Customers will buy our one-time integration services with a delay of 1 month in June. This is why our one-time service revenues show a figure of $4,000 in June which is the product of 20 customers multiplied by 2 hours multiplied by $100 per hour.
Step 6: Add Churn for all stages in the Keep-and-Grow-Customer-Phase
By now, we have created a linear model and made the calculations transparent. However, the success of a SaaS Business Model is highly determined by Churn. In Lean-Case, you can model Customer Churn and Revenue Expansion. Please note that customer churn is dependent on the billing period. If customers contract for a month, a quarter or a year, they can only churn after a month, a quarter or year. 10% yearly churn obviously has a much different impact than 10% monthly churn.
To add customer churn, select the respective revenue stream and go to tab “Customer Movements” (as churn is actually a specific customer movement).
Next, go to ARR Customers under Revenue Streams, who have Quarterly Contracts.
Next, go to LTV customers who operate under a Yearly Contract system.
Step 7: Add Cost of Goods Sold to Keep-and-Grow-Customer stages
Cost of Goods Sold (CoGS) covers 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” of 1,000 per month growing at the rate of 2% per quarter.
In addition, let’s assume a “Volume-Based Cost” of $100 occurs every time when a new Live Customers is onboarded. As we have seen above, Live customers are the result of direct conversions. This is what we call an Expansion Customer.
- Selecting the driver “per Expansion Customer” and
- Selecting the revenue stream “Live (customer)” for which this driver should apply
On top, let’s assume a “Volume-Based Cost” of $10 per month for customer specific hosting for every existing Live Customer (which we refer to as “Ending Customers” in Lean-Case).
- Selecting the driver “per Ending Customer” and
- Selecting the revenue stream “Live (customer)” for which this driver should apply
Finally, let’s assume a “Percentage-based Cost” of 3% of all Live Customer revenues for payment processing.
After clicking “Save” to store the COGS inputs, you can check the COGS by revenue stream and period.
Step 8: Add Cost of Selling to model your Sales Organization
Cost of Selling is related to all direct costs to acquire new customers. Depending on the go-to-market, SaaS business can pursue different organizational models (see picture). This picture shows different organizational models for SaaS businesses targeting SMBs, mid-sized businesses or enterprises. In Lean-Case, we have the flexibility to model any of these or combinations thereof for the Get-Customer as well as Keep-and-Grow-Customer-phase.
Let’s assume, you target Small and Medium-sized Businesses (SMBs) and that based on-targets you have the following organizational requirements:
Please remember – the numbers we select in this example are only chosen to illustrate calculations but are not related to real benchmarks.
Add Sales Team for Inbound Marketing
As shown above, the major volume of the model is driven by the number of prospects created by the forecast in revenue stream Prospects. To scale the volume further, we assume that Sales Teams drive the number of prospects. In Lean-Case, we model this in 2 steps by:
Define sales teams via a forecast model
To define a sales team via a forecast Mode, follow the followig steps:
Adding headcounts to the sales teams
To be able to also track headcounts, we are adding teams and headcounts in menu “Headcount”.
- for a Sales Team, select “Cost of Selling – Direct” from dropdown cost type
- assign this direct cost to revenue stream “Prospects”
- Enter “1” in Team role
- Select “Per All Sales Team” from the dropdown and
- Select “Prospects” from the lower dropdown
Add a Team Role with a target
To add team roles with targets, proceed as above. Add more teams: be able to also track headcounts as we are adding teams and headcounts in menu “Headcount”.
Step 9: Add Engineering Team with Managers
Let’s take the final step. To demonstrate how to use the entire headcount functionalities, let’s add an Engineering Team with a CTO job, a Group of Engineers and Lead Engineers as Manager Roles.
Add the CTO job
You find 4 different tabs in a team widget. To add an individual job:
Add a Group of Engineers
To add a group of team members with similar salary profiles:
Add Lead Engineers
To be able to also track headcounts, we are adding teams and headcounts in menu “Headcount”.
Step 10: Getting Started
Congratulations! At this point, you have set up and validated the basic structure of the Lean-Case model for your business. From here, you can start adjusting the assumptions to reflect the actual company and business details. These include forecasts, churn rates, salary targets and sales quotas among others.
