Hey Lenny - this is awesome, thanks for sharing. While this mental framework is helpful for me personally because this is how I think, how do you suggest practically using this framework across the company? What teams should be aware of this? How should it be communicated and used, specifically?
one of my favorite concepts Lenny, thanks for sharing man...i just finished a spreadsheet that models out b2c subs growth in a way that might be more helpful to founders focusing on the inputs per cohort or experiment group if you're interested just lmk (dms open on twitter)
ARR in this context can be a great output metric but it is vulnerable to being misleading if you're iterating on the model whatsoever (changing pricing, etc)
This is a fantastic piece, thank you for sharing. I'm sure that I'll find myself rereading this for a while, at least.
I'm really curious to find out if top-down B2B businesses can also become product-led instead of being sales-led, and are there businesses that have already transitioned. Also are sales led organizations as scalable as product led.
Fantastic and super useful post. Thank you very much! Just a quick question — shouldn't we subtract the churned users/subscriptions in the section 'B2C with subscription-based pricing (trial or freemium)'?
Great post; establishing a shared understanding of the revenue equation and underlying driver tree is the foundation for a lot of valuable follow-on analysis.
Small nitpick: The B2C (free) equation needs some tweaks: 1. The first operator on the blackboard is a plus when it should be multiplication, 2. the decomposition of impressions / user has a surplus "sessions" in it (it should just be "sessions / user times impressions / session), 3. for the CPM-based calculation you'd have to divide the whole thing by 1000 (and for CPC you'd need to add a CTR).
Hi Lenny! For Bottom-up B2B SaaS with usage-based pricing, I assume when you talk about reactivated customers that means those that churned and then came back after a while, is that so?
Also, what about those customers that every month pay the same amount and are happy with our tool? They are not churning nor upgrading their package.
I have added them to our equation and called 'Recurring', split into Account Amount * Average Subscription value
Hey Lenny- as a startup founder building a B2B SaaS company, this is a crash course on how to think about revenue. Two things that would make it better:
1. Writing an article about “how” early-stage startups track these metrics. GSheets is the most popular tool I’ve seen (and works great for us!). Seeing someone’s revenue metrics weekly/monthly workbook would compliment this article well. Only need to show it for one of the revenue models shown above, too.
2. Including open source as a way to market! It’s amazing how much inbound it generates for a company like ours (<10 people).
Hey Lenny - this is awesome, thanks for sharing. While this mental framework is helpful for me personally because this is how I think, how do you suggest practically using this framework across the company? What teams should be aware of this? How should it be communicated and used, specifically?
Bookmarked this post so fast! I'd love to see every salesperson know their individual businesses in this way too.
Separately -- would you be open to swapping "white glove" with "premium"?
"White glove" has racist roots -- most folks don't know, and once you do know, you can't unsee it. https://contentdesign.intuit.com/word-list/#white-glove
Hey Lenny, check the second blackboard image out, the new arr is defined incorrectly in there.
Fantastic post other than that, thanks for sharing! 💯
Brillant stuff, thx guys!
one of my favorite concepts Lenny, thanks for sharing man...i just finished a spreadsheet that models out b2c subs growth in a way that might be more helpful to founders focusing on the inputs per cohort or experiment group if you're interested just lmk (dms open on twitter)
ARR in this context can be a great output metric but it is vulnerable to being misleading if you're iterating on the model whatsoever (changing pricing, etc)
Love this post!!!! It takes a lot to work to simplify, simplify, simplify!
Keep the great work coming and great a question for some podcast interviews.
I can hear. Ok its time for my new section which I am calling "Equation Element" how do you describe your business as an equation etc...
Wow. Instant bookmark!
Shouldn't Impressions per user = impressions per session * sessions per user? Why multiply with sessions again?
This is a fantastic piece, thank you for sharing. I'm sure that I'll find myself rereading this for a while, at least.
I'm really curious to find out if top-down B2B businesses can also become product-led instead of being sales-led, and are there businesses that have already transitioned. Also are sales led organizations as scalable as product led.
can you do your equation on your newsletter and podcast??? Would be super helpful
Fantastic and super useful post. Thank you very much! Just a quick question — shouldn't we subtract the churned users/subscriptions in the section 'B2C with subscription-based pricing (trial or freemium)'?
Very solid post. Thank you for sharing it. We also write about DevOps, you can check out one of our articles here https://www.metridev.com/metrics/cto-dashboard-a-game-changer-for-tech-leaders/
Great post; establishing a shared understanding of the revenue equation and underlying driver tree is the foundation for a lot of valuable follow-on analysis.
Small nitpick: The B2C (free) equation needs some tweaks: 1. The first operator on the blackboard is a plus when it should be multiplication, 2. the decomposition of impressions / user has a surplus "sessions" in it (it should just be "sessions / user times impressions / session), 3. for the CPM-based calculation you'd have to divide the whole thing by 1000 (and for CPC you'd need to add a CTR).
Hi Lenny! For Bottom-up B2B SaaS with usage-based pricing, I assume when you talk about reactivated customers that means those that churned and then came back after a while, is that so?
Also, what about those customers that every month pay the same amount and are happy with our tool? They are not churning nor upgrading their package.
I have added them to our equation and called 'Recurring', split into Account Amount * Average Subscription value
Hey Lenny- as a startup founder building a B2B SaaS company, this is a crash course on how to think about revenue. Two things that would make it better:
1. Writing an article about “how” early-stage startups track these metrics. GSheets is the most popular tool I’ve seen (and works great for us!). Seeing someone’s revenue metrics weekly/monthly workbook would compliment this article well. Only need to show it for one of the revenue models shown above, too.
2. Including open source as a way to market! It’s amazing how much inbound it generates for a company like ours (<10 people).