18 October 2016
Gross Profit calculation formula is quite simple:
GP = (ARPPU x C1 — CPA) x UA
This ARPPU value is calculated according to the formula proposed by Ilya Krasiński:
ARPPU = (Av.Price — COGS) x APC −1sCOGS
However, this formula has one drawback, it does not take into account the costs incurred by business to customer retention, and a repeat sales, and these costs are quite substantial. By this, I decided to improve the formula and add value responsible for these costs — Buyer Retention Cost or BRC. How do you calculate this value. BRC = RetCost / Nret, where RetCost your cost of customer retention in a cohort, and Nret — the number of repeat sales.
Nret = N — Buyers
Where, N — the total number of sales and Buyers — the number of clients in the cohort.
Our formula for ARPPU taking into account retention costs would be as follows:
ARPPU = (Av.Price — COGS) x APC — BRC x (APC-1) — 1sCOGS
Let’s look at an example, let us Av.Price = $5000, COGS = $300, N = 374, Buyers = 157, and customer retention costs in the cohort was $100 000. Thus Nret = 374-157 = 217. The BRC = 100000/217 = 460.83. The APC = 374/157 = 2.38. And hence
ARPPU = (5000 — 300) x 2.38 — 460.83 x (2.38 — 1) = 10550.06more...
04 October 2016
Recently, I faced with a lack of understanding of how to calculate Gross Profit. The fact that it can be calculated in different ways, and some startups teams are confused in values. Let’s look at this point. How can we find GP?
our profit is the profit from each customer in the cohort, multiplied by the number of customers
GP = (ARPPU — CAC) x Buyers
Our profit is profit from each lead in the cohort, multiplied by the number of leads
GP = (ARPL — CPL) x Leads
Our profit is profit from each user in the cohort, multiplied by the number of users
GP = (ARPU — CPA) x UA
In addition, our users, customers and leads are connected by sales funnel
UA -> Cact -> Leads -> C -> Buyers
UA -> C1 -> Buyers
Cact — the conversion to user activation, when we get users data and it becomes lead.
С — the conversion of the first purchase, which makes the lead and become our client, and С1 — the conversion of the first purchase.
ARPU = ARPPU x C1
ARPL = ARPPU x Cact
ARPU = ARPL x C
ARPU = ARPPU x Cact x C
Well, remember that
CAC — customer acquisition cost.
CPA — cost per acquisition.
CPL — cost per lead.more...
04 October 2016
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