🧠 Pricing a SaaS biz based on the MAKE book
Hey peeps,
I'm currently getting into prizing SaaS and doing research and running into issues doing the right calculations.
Has anyone read the book MAKE from Pieter Levels … I'm trying to desperately understand how Pieter got these numbers that he is referencing in his book on subscription-based memberships. If you (@levelsio) are reading this than maybe you could explain further ✌🏻… would be amazing!
Here are my calculations based on the numbers in the book, maybe someone can help or has done this before
https://docs.google.com/spreadsheets/d/17Hm96kpGGrpsQMsMWQBr-gBl7q3BkmHcQa983y0_WiY/edit?usp=sharing
Hi Stefan, it's unclear to me what calculations exactly are wrong. Which table you mean? There's three different ones.
"We assume we have 1,000 customers per year and they pay a single payment of $75, or in the second model, a subscription of $75/year."
"What if you have a growing business and sales grow by 25% each year?"
"Let's be pedantic and add churn of 7% per year. That means 7% of users cancel their subscription yearly."
Hi Pieter,
wicked that you got back … thanks!
So let's talk about the third table. 1000 users with a growth rate of 25% and 7% churn.
Based on your calculations you'll end up with a total revenue of $1,693,898 … in my calculations I use your numbers with the same growth and churn rate and get a total revenue of $536,566 …
1000 Users / 100 * (25 - 7) = 1180 Users
1180 * $75 = $88,500
…
1643 Users / 100 * (25 - 7) = 1939 Users
1939 * $75 = $145,408
…
if I add all years together I get a total revenue of $536,566 and not $1,693,898. It would be amazing if you could tell me what I'm doing wrong, I don't get it. Again I'm not trying to point out mistakes or error I really just want to understand what I'm doing wrong, since there is a huge difference between .5 mio and 1.5 mio.
@levelsio yo sorry for hitting you up but I really would love to understand what your math is behind these numbers?
@levelsio any ideas?
If you ask me, you are wasting too much time on this. Instead, build the product and adjust the pricing after making your first experiences.
100% agreed! I didn‘t spent much time on it. I‘m just curious on how pricing and projections work. Maybe there are premade templates that can do a job like this.
Thanks for your thoughts!
Debugging tip for your spreadsheet: add the number of users you calculate. Add also the number of users Pieter needs by dividing his revenue by 75. This allows you to see if Pieters calculations are ok.
Hi, I did this … but this leads to a very different growth rate then what the book says. No matter from which side I do the calculations I end up with the same numbers but different to the book. I reckon @levelsio has a mistake in his calculations.
However … my actual goal is to creat a spreadsheet where I can forecast numbers, based on real live examples. I know this is depend on how good the product performs, but is there a good reference for typical growth and churn rates over the period of 5 years.
Thanks you so much for your input however 🙏🏻
Why is it important to you?
Because finance is a the most crucial part of a business and there is a major difference between almost 1 million $ and 100K in revenue. No?
I'm just keen to know, maybe I'm doing something wrong here? I'm not talking about how he made these numbers up … I'm interested in the math that lead to these yearly revenues.