5 ms·

Calculus in SaaS

56 points by Lukas1994 6y ago

adav 6y ago
It seems that a simple analogy with cars can make any topic completely intuitive.
svrma 6y ago
isn't the 'recognized' revenue in the example 60M not 720M?
- psalminen 6y ago
  How do you get that? 5 * 122 =720
  - svrma 6y ago
    y is annual RR and x is in months.
codezero 6y ago
can someone help me - they went from 10M ARR (annual) to 10M integrated month over month for a year, why?
- codezero 6y ago
  I guess answering myself - they point out that this equation isn't applicable, but darn I had a hard time getting past that. ARR growth comes from sales, but that's a huge broad word and it's quite fun to watch a startup grow and see how they start to make money from a number of areas that aren't just direct inbound/outbound sales.
tempsy 6y ago
How are people not up to their eyeballs in monthly subscriptions at this point? I've always been wary of adding subscriptions, but it feels like there's got to be some breaking point when there's one too many Netflix/Disney/Hulu/Apple One/Peloton subscriptions to handle for your average consumer.
- gjsman-1000 6y ago
  For some people I know, everything as a subscription is a lifestyle. House as a Service (renting), movies galore, MacBook with 0% interest 24 month financing (basically a subscription), phones with 2-year payments (also a subscription), cars with loans (subscription)... Basically, if you view everything as no ownership, all subscription... it's a very weird dystopian way of "owning" things.
  - rootusrootus 6y ago
    All of those can potentially be the best financial choice. Especially the 0% loans.
    - corytheboyd 6y ago
      Many of them are also deferred payment on something that is eventually owned, which is different than SaaS
- dastbe 6y ago
  I also wonder how many people aren't realizing just how much they're devoting to subscriptions, especially those with dark patterns where they sign you up for a 1-3 month introductory rate and then jack up the price significantly after that. I review my monthly charges every few months and cut anything that isn't giving me enough joy, but I also imagine I'm a rarity.
  - hansvm 6y ago
    I tend to cancel the subscription as soon as I've purchased it so that I can't possibly forget in the future. You'll still have the 1-3 months you initially paid for, and if it winds up being a service that's worth continuing then you can subscribe for longer (I'll usually pay for a year and immediately cancel at that point).
  - phillc73 6y ago
    > dark patterns I was pleasantly surprised by Netflix recently. After avoiding using the service until recently, I was motivated enough to subscribe by one particular film I wanted to watch. Initially, they automatically upgraded me to the Premium subscription level on a trial basis. When that trial time period ended I received an email saying, "do nothing and we'll downgrade you to the Standard subscription level." That was truly a pleasant surprise. I did nothing.
ZephyrBlu 6y ago
> If y = 10x where y = ARR and x = time in months, then after two months ARR = $20. After 12 months, ARR = $120 (assuming we start from $0 of ARR) I don't think this makes sense, because the time is in months yet you're calculating a yearly value. Time should be in years, because otherwise you're calculating forecasted values. > So at the end of a year, the business has grown from $0 to $120 in ARR. But what is the recognized revenue? The complex answer is that it's the integral of 10x from 0 to 12 months (Recognized revenue = $720 in this example) Again, this doesn't make sense due to the fact that your calculated ARR values are forecasted. If your projected ARR has grown throughout the year, it's intuitive that your recognized revenue must be lower than your ARR. It's not possible to recognize $720 in revenue when your ARR is only $120, it should be $60. I think the issue here is using ARR, since ARR grows quadratically given a linear increase in MRR. This math would make sense if you used MRR instead, or modelled actual ARR instead of forecasted ARR.
deleted 6y ago
[deleted]
molsongolden 6y ago
As noted in other comments, the $720 of recognized revenue is off and should instead be $60. Assuming $10 of ARR is added each month: > y = 10x where y = ARR and x = time in months needs to instead be > y = (10/12)x where y = MRR and x = time in months ARR is increasing 10 per month but MRR is increasing 10/12 per month. The height of the triangle is 10 at the end of the year since the height is MRR.
cafed00d 6y ago
LOL @ myself: I thought "Calculus in SaaS" meant that they had an app like Wolfram Alpha or something. But, idk, with more features ¯\_(ツ)_/¯

Calculus in SaaS

56 points by Lukas1994 6y ago

adav 6y ago

It seems that a simple analogy with cars can make any topic completely intuitive.

svrma 6y ago

isn't the 'recognized' revenue in the example 60M not 720M?

psalminen 6y ago
How do you get that? 5 * 122 =720
- svrma 6y ago
  y is annual RR and x is in months.

codezero 6y ago

can someone help me - they went from 10M ARR (annual) to 10M integrated month over month for a year, why?

codezero 6y ago
I guess answering myself - they point out that this equation isn't applicable, but darn I had a hard time getting past that. ARR growth comes from sales, but that's a huge broad word and it's quite fun to watch a startup grow and see how they start to make money from a number of areas that aren't just direct inbound/outbound sales.

tempsy 6y ago

How are people not up to their eyeballs in monthly subscriptions at this point? I've always been wary of adding subscriptions, but it feels like there's got to be some breaking point when there's one too many Netflix/Disney/Hulu/Apple One/Peloton subscriptions to handle for your average consumer.

gjsman-1000 6y ago
For some people I know, everything as a subscription is a lifestyle. House as a Service (renting), movies galore, MacBook with 0% interest 24 month financing (basically a subscription), phones with 2-year payments (also a subscription), cars with loans (subscription)... Basically, if you view everything as no ownership, all subscription... it's a very weird dystopian way of "owning" things.
- rootusrootus 6y ago
  All of those can potentially be the best financial choice. Especially the 0% loans.
  - corytheboyd 6y ago
    Many of them are also deferred payment on something that is eventually owned, which is different than SaaS
dastbe 6y ago
I also wonder how many people aren't realizing just how much they're devoting to subscriptions, especially those with dark patterns where they sign you up for a 1-3 month introductory rate and then jack up the price significantly after that. I review my monthly charges every few months and cut anything that isn't giving me enough joy, but I also imagine I'm a rarity.
- hansvm 6y ago
  I tend to cancel the subscription as soon as I've purchased it so that I can't possibly forget in the future. You'll still have the 1-3 months you initially paid for, and if it winds up being a service that's worth continuing then you can subscribe for longer (I'll usually pay for a year and immediately cancel at that point).
- phillc73 6y ago
  > dark patterns I was pleasantly surprised by Netflix recently. After avoiding using the service until recently, I was motivated enough to subscribe by one particular film I wanted to watch. Initially, they automatically upgraded me to the Premium subscription level on a trial basis. When that trial time period ended I received an email saying, "do nothing and we'll downgrade you to the Standard subscription level." That was truly a pleasant surprise. I did nothing.

ZephyrBlu 6y ago

> If y = 10x where y = ARR and x = time in months, then after two months ARR = $20. After 12 months, ARR = $120 (assuming we start from $0 of ARR) I don't think this makes sense, because the time is in months yet you're calculating a yearly value. Time should be in years, because otherwise you're calculating forecasted values. > So at the end of a year, the business has grown from $0 to $120 in ARR. But what is the recognized revenue? The complex answer is that it's the integral of 10x from 0 to 12 months (Recognized revenue = $720 in this example) Again, this doesn't make sense due to the fact that your calculated ARR values are forecasted. If your projected ARR has grown throughout the year, it's intuitive that your recognized revenue must be lower than your ARR. It's not possible to recognize $720 in revenue when your ARR is only $120, it should be $60. I think the issue here is using ARR, since ARR grows quadratically given a linear increase in MRR. This math would make sense if you used MRR instead, or modelled actual ARR instead of forecasted ARR.

deleted 6y ago

[deleted]

molsongolden 6y ago

As noted in other comments, the $720 of recognized revenue is off and should instead be $60. Assuming $10 of ARR is added each month: > y = 10x where y = ARR and x = time in months needs to instead be > y = (10/12)x where y = MRR and x = time in months ARR is increasing 10 per month but MRR is increasing 10/12 per month. The height of the triangle is 10 at the end of the year since the height is MRR.

cafed00d 6y ago

LOL @ myself: I thought "Calculus in SaaS" meant that they had an app like Wolfram Alpha or something. But, idk, with more features ¯\_(ツ)_/¯