Blog
21 March 2017
A common wage scheme is mixed, when the employee receives some fixed payment monthly, and additionally a stake from the revenue. For example, it looks like this: we organized supplementary education, 10,000 rubles per month a fixed rate for the teacher and 500 rubles from each student for the lesson. The question often arises, but how to calculate the values of these parts of wages, fixed and variable, so that the company earns. To solve this problem, we use the unit-economy.
For the calculation, we use the standard formulas
GP = UA x (ARPPU x C1 — CPA)
ARRPU = (AvPrice — COGS) x APC — 1sCOGS
Read more about the formulas in the article «Unit-Economics. Inception». According to these formulas, our fixed rate is 1sCOGS, and the variable COGS. Therefore, in order to calculate the value of the variable payment, we write the formula for calculating COGS through the remaining quantities.
COGS = AvP — ((1sCOGS x C1-CPA) x UA-GP) / APC x C1 x UA
Suppose that the earnings plan is 1,000,000 rubles. We are attracting to the site, which sells courses of 15 000 people a month. Conversion to the customer is 1%. In this case, each client pays an average of 10 lessons. The average check is 2600 rubles, and the cost of attracting the user is 10 rubles. Fixed rate teacher pay 10 000 rubles a month. Substituting the figures in the formula for COGS, we get 833.33 rubles. As a result, our teacher will pay 10 000 rubles + 833.33 per customer per lessons, which equals 10 000 + 15 000×1% x 833.33×10 = 1 349 990 rubles. It is important to remember that this is not monthly salary, it’s money for 10 lessons, since the average number of payments per client is exactly 10. Table GP depending on the value of COGS and 1sCOGS for the current model (APC = 10).
Similarly, we get a payroll calculation for sales managers and employees who receive money on a mixed model.
more...15 March 2017
Most businesses die in the first year of work, because they run out of money. At the same time, the death of business directly depends on the decisions made in this business. The ability to correctly choose the solutions that allow the business to develop and grow, become profitable, it is important. To make decisions, you need a tool that would allow you to choose from the list of solutions only those that you will do, and those that will have the greatest impact on business performance. Unit-economy, just such an instrument.
The unit-economy shows how business earns from the flow of users. Scheme of business: at the entrance we accept users who pass through the black box of business and bring money. At the same time, we remember that money can be either a plus sign or a minus sign.
If we know how much we spent on each visitor who got into our «black box» and calculate how much he brought money, then we can calculate the amount of money the business brings from the flow of users.
Gross Profit = UA x (ARPU-CPA)
Where, Gross Profit (GP) — the amount of money that we earn from the flow of users, taking into account our costs for the cost of the transaction. User acquisition (UA) — the number of users in the flow. Average Revenue Per User (ARPU) — the amount of money that each user brings in the flow. Cost Per Acquisition (CPA) — the cost of attracting one user to the flow.
Analyzing these parameters, we can only talk about the effectiveness of our business on the flow of users. If ARPU is larger than CPA, then we earn, if less — we are loss. However, these metrics do not say anything about why we are at loss or how to grow 10-times. In order to make decisions, we link these metrics with the product metrics that change when making decisions.
Let’s look at the ARPU metric. This is the income that every user of a product brings, whether he pays or not. Let’s also agree that we will talk about the Internet business, which means that we will mean the site, and the user will be called the visitor of the site. And so, ARPU is the visitor’s income for a while. In other words, ARPU is a function of time.
ARPU30 = ARPU (30 days)
LTV = ARPU (LT)
An easy way to calculate the value of this function is to take the money received for the selected period of time and divide by the number of visitors during this time.
ARPU = Revenue / UA
However, this approach does not say anything about the product, and how to grow 10-times. The second way to get ARPU value is through ARPPU — the income from the paying visitor, these values are connected as well as visitors with paying visitors, through the conversion of C1.
ARPU = ARPPU x C1
Where C1 is the conversion in the first purchase. It is important to understand that we are interested in the conversion in the first purchase, since it divides visitors into ordinary ones and those who at least once paid.
Now let’s look at what ARPPU is — income from one paying customer for a certain period of time, a function of time. However, unlike ARPU, this function is calculated through product metrics.
ARPPU = (Av.Price — COGS) x APC — 1sCOGS
This is a simplified view of the function that is suitable for most business models. Av.Price is the average check that our customers paid for the selected period of time. COGS — the cost of goods or services sold. APC — the average number of sales per customer, just this number includes repeat transactions that our customers are committing, the higher this number is, the better. This means that customers are willing to pay again and again. 1sCOGS — special costs for the first transaction, and those that are not included in COGS. For example, the cost of connecting the client to the service, test periods, etc.
As you can see, now our formula GP takes the following form
GP = UA x (ARPPU x C1 — CPA)
GP = UA x (((Av.Price-COGS) x APC — 1sCOGS) x C1 — CPA)
What links product metrics to growth metrics.
To grow, you need to know what product metrics affect growth. It can be seen that if ARPU is less than CPA there will be no growth, but there will be losses, moreover, scaling the audience will lead to scaling of losses.
The value of APRU is related to the conversion of the visitor to customer C1 and tells how our product sells. How understandable are the processes necessary for this, how do we communicate our value, etc. Av.Price — how much the price corresponds to how much our customers are willing to pay. This parameter, together with COGS, determines how correctly the monetization model of our product has been selected. 1sCOGS shows how we communicate the value of the product to our customer, for example, we bear the cost of integration with the client software.
So we got a simple function for GP, which depends on a set of simple metrics that depend on the processes and decisions made in the business, which allows you to focus on bottlenecks and multiply.
more...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) = 10550.06
more...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
Где
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.
Accordingly,
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
Creative Commons Attribution-ShareAlike 3.0 Unported
CREATIVE COMMONS CORPORATION IS NOT A LAW FIRM AND DOES NOT PROVIDE LEGAL SERVICES. DISTRIBUTION OF THIS LICENSE DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. CREATIVE COMMONS PROVIDES THIS INFORMATION ON AN «AS-IS» BASIS. CREATIVE COMMONS MAKES NO WARRANTIES REGARDING THE INFORMATION PROVIDED, AND DISCLAIMS LIABILITY FOR DAMAGES RESULTING FROM ITS USE.
License
THE WORK (AS DEFINED BELOW) IS PROVIDED UNDER THE TERMS OF THIS CREATIVE COMMONS PUBLIC LICENSE («CCPL» OR «LICENSE»). THE WORK IS PROTECTED BY COPYRIGHT AND/OR OTHER APPLICABLE LAW. ANY USE OF THE WORK OTHER THAN AS AUTHORIZED UNDER THIS LICENSE OR COPYRIGHT LAW IS PROHIBITED.
BY EXERCISING ANY RIGHTS TO THE WORK PROVIDED HERE, YOU ACCEPT AND AGREE TO BE BOUND BY THE TERMS OF THIS LICENSE. TO THE EXTENT THIS LICENSE MAY BE CONSIDERED TO BE A CONTRACT, THE LICENSOR GRANTS YOU THE RIGHTS CONTAINED HERE IN CONSIDERATION OF YOUR ACCEPTANCE OF SUCH TERMS AND CONDITIONS.
1. Definitions
«Adaptation» means a work based upon the Work, or upon the Work and other pre-existing works, such as a translation, adaptation, derivative work, arrangement of music or other alterations of a literary or artistic work, or phonogram or performance and includes cinematographic adaptations or any other form in which the Work may be recast, transformed, or adapted including in any form recognizably derived from the original, except that a work that constitutes a Collection will not be considered an Adaptation for the purpose of this License. For the avoidance of doubt, where the Work is a musical work, performance or phonogram, the synchronization of the Work in timed-relation with a moving image («synching») will be considered an Adaptation for the purpose of this License. «Collection» means a collection of literary or artistic works, such as encyclopedias and anthologies, or performances, phonograms or broadcasts, or other works or subject matter other than works listed in Section 1(f) below, which, by reason of the selection and arrangement of their contents, constitute intellectual creations, in which the Work is included in its entirety in unmodified form along with one or more other contributions, each constituting separate and independent works in themselves, which together are assembled into a collective whole. A work that constitutes a Collection will not be considered an Adaptation (as defined below) for the purposes of this License.
«Creative Commons Compatible License» means a license that is listed at https://creativecommons.org/compatiblelicenses that has been approved by Creative Commons as being essentially equivalent to this License, including, at a minimum, because that license: (i) contains terms that have the same purpose, meaning and effect as the License Elements of this License; and, (ii) explicitly permits the relicensing of adaptations of works made available under that license under this License or a Creative Commons jurisdiction license with the same License Elements as this License.
«Distribute» means to make available to the public the original and copies of the Work or Adaptation, as appropriate, through sale or other transfer of ownership.
«License Elements» means the following high-level license attributes as selected by Licensor and indicated in the title of this License: Attribution, ShareAlike.
«Licensor» means the individual, individuals, entity or entities that offer(s) the Work under the terms of this License.
«Original Author» means, in the case of a literary or artistic work, the individual, individuals, entity or entities who created the Work or if no individual or entity can be identified, the publisher; and in addition (i) in the case of a performance the actors, singers, musicians, dancers, and other persons who act, sing, deliver, declaim, play in, interpret or otherwise perform literary or artistic works or expressions of folklore; (ii) in the case of a phonogram the producer being the person or legal entity who first fixes the sounds of a performance or other sounds; and, (iii) in the case of broadcasts, the organization that transmits the broadcast.
«Work» means the literary and/or artistic work offered under the terms of this License including without limitation any production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression including digital form, such as a book, pamphlet and other writing; a lecture, address, sermon or other work of the same nature; a dramatic or dramatico-musical work; a choreographic work or entertainment in dumb show; a musical composition with or without words; a cinematographic work to which are assimilated works expressed by a process analogous to cinematography; a work of drawing, painting, architecture, sculpture, engraving or lithography; a photographic work to which are assimilated works expressed by a process analogous to photography; a work of applied art; an illustration, map, plan, sketch or three-dimensional work relative to geography, topography, architecture or science; a performance; a broadcast; a phonogram; a compilation of data to the extent it is protected as a copyrightable work; or a work performed by a variety or circus performer to the extent it is not otherwise considered a literary or artistic work.
«You» means an individual or entity exercising rights under this License who has not previously violated the terms of this License with respect to the Work, or who has received express permission from the Licensor to exercise rights under this License despite a previous violation.
«Publicly Perform» means to perform public recitations of the Work and to communicate to the public those public recitations, by any means or process, including by wire or wireless means or public digital performances; to make available to the public Works in such a way that members of the public may access these Works from a place and at a place individually chosen by them; to perform the Work to the public by any means or process and the communication to the public of the performances of the Work, including by public digital performance; to broadcast and rebroadcast the Work by any means including signs, sounds or images.
«Reproduce» means to make copies of the Work by any means including without limitation by sound or visual recordings and the right of fixation and reproducing fixations of the Work, including storage of a protected performance or phonogram in digital form or other electronic medium.
2. Fair Dealing Rights.
Nothing in this License is intended to reduce, limit, or restrict any uses free from copyright or rights arising from limitations or exceptions that are provided for in connection with the copyright protection under copyright law or other applicable laws.
3. License Grant.
Subject to the terms and conditions of this License, Licensor hereby grants You a worldwide, royalty-free, non-exclusive, perpetual (for the duration of the applicable copyright) license to exercise the rights in the Work as stated below:
- to Reproduce the Work, to incorporate the Work into one or more Collections, and to Reproduce the Work as incorporated in the Collections;
- to create and Reproduce Adaptations provided that any such Adaptation, including any translation in any medium, takes reasonable steps to clearly label, demarcate or otherwise identify that changes were made to the original Work. For example, a translation could be marked «The original work was translated from English to Spanish,» or a modification could indicate «The original work has been modified.»;
- to Distribute and Publicly Perform the Work including as incorporated in Collections; and,
- to Distribute and Publicly Perform Adaptations.
For the avoidance of doubt:
- Non-waivable Compulsory License Schemes. In those jurisdictions in which the right to collect royalties through any statutory or compulsory licensing scheme cannot be waived, the Licensor reserves the exclusive right to collect such royalties for any exercise by You of the rights granted under this License;
- Waivable Compulsory License Schemes. In those jurisdictions in which the right to collect royalties through any statutory or compulsory licensing scheme can be waived, the Licensor waives the exclusive right to collect such royalties for any exercise by You of the rights granted under this License; and,
- Voluntary License Schemes. The Licensor waives the right to collect royalties, whether individually or, in the event that the Licensor is a member of a collecting society that administers voluntary licensing schemes, via that society, from any exercise by You of the rights granted under this License.
The above rights may be exercised in all media and formats whether now known or hereafter devised. The above rights include the right to make such modifications as are technically necessary to exercise the rights in other media and formats. Subject to Section 8(f), all rights not expressly granted by Licensor are hereby reserved.
4. Restrictions.
The license granted in Section 3 above is expressly made subject to and limited by the following restrictions:
- You may Distribute or Publicly Perform the Work only under the terms of this License. You must include a copy of, or the Uniform Resource Identifier (URI) for, this License with every copy of the Work You Distribute or Publicly Perform. You may not offer or impose any terms on the Work that restrict the terms of this License or the ability of the recipient of the Work to exercise the rights granted to that recipient under the terms of the License. You may not sublicense the Work. You must keep intact all notices that refer to this License and to the disclaimer of warranties with every copy of the Work You Distribute or Publicly Perform. When You Distribute or Publicly Perform the Work, You may not impose any effective technological measures on the Work that restrict the ability of a recipient of the Work from You to exercise the rights granted to that recipient under the terms of the License. This Section 4(a) applies to the Work as incorporated in a Collection, but this does not require the Collection apart from the Work itself to be made subject to the terms of this License. If You create a Collection, upon notice from any Licensor You must, to the extent practicable, remove from the Collection any credit as required by Section 4©, as requested. If You create an Adaptation, upon notice from any Licensor You must, to the extent practicable, remove from the Adaptation any credit as required by Section 4©, as requested.
- You may Distribute or Publicly Perform an Adaptation only under the terms of: (i) this License; (ii) a later version of this License with the same License Elements as this License; (iii) a Creative Commons jurisdiction license (either this or a later license version) that contains the same License Elements as this License (e.g., Attribution-ShareAlike 3.0 US)); (iv) a Creative Commons Compatible License. If you license the Adaptation under one of the licenses mentioned in (iv), you must comply with the terms of that license. If you license the Adaptation under the terms of any of the licenses mentioned in (i), (ii) or (iii) (the «Applicable License»), you must comply with the terms of the Applicable License generally and the following provisions: (I) You must include a copy of, or the URI for, the Applicable License with every copy of each Adaptation You Distribute or Publicly Perform; (II) You may not offer or impose any terms on the Adaptation that restrict the terms of the Applicable License or the ability of the recipient of the Adaptation to exercise the rights granted to that recipient under the terms of the Applicable License; (III) You must keep intact all notices that refer to the Applicable License and to the disclaimer of warranties with every copy of the Work as included in the Adaptation You Distribute or Publicly Perform; (IV) when You Distribute or Publicly Perform the Adaptation, You may not impose any effective technological measures on the Adaptation that restrict the ability of a recipient of the Adaptation from You to exercise the rights granted to that recipient under the terms of the Applicable License. This Section 4(b) applies to the Adaptation as incorporated in a Collection, but this does not require the Collection apart from the Adaptation itself to be made subject to the terms of the Applicable License.
- If You Distribute, or Publicly Perform the Work or any Adaptations or Collections, You must, unless a request has been made pursuant to Section 4(a), keep intact all copyright notices for the Work and provide, reasonable to the medium or means You are utilizing: (i) the name of the Original Author (or pseudonym, if applicable) if supplied, and/or if the Original Author and/or Licensor designate another party or parties (e.g., a sponsor institute, publishing entity, journal) for attribution («Attribution Parties») in Licensor’s copyright notice, terms of service or by other reasonable means, the name of such party or parties; (ii) the title of the Work if supplied; (iii) to the extent reasonably practicable, the URI, if any, that Licensor specifies to be associated with the Work, unless such URI does not refer to the copyright notice or licensing information for the Work; and (iv) , consistent with Ssection 3(b), in the case of an Adaptation, a credit identifying the use of the Work in the Adaptation (e.g., «French translation of the Work by Original Author,» or «Screenplay based on original Work by Original Author»). The credit required by this Section 4© may be implemented in any reasonable manner; provided, however, that in the case of a Adaptation or Collection, at a minimum such credit will appear, if a credit for all contributing authors of the Adaptation or Collection appears, then as part of these credits and in a manner at least as prominent as the credits for the other contributing authors. For the avoidance of doubt, You may only use the credit required by this Section for the purpose of attribution in the manner set out above and, by exercising Your rights under this License, You may not implicitly or explicitly assert or imply any connection with, sponsorship or endorsement by the Original Author, Licensor and/or Attribution Parties, as appropriate, of You or Your use of the Work, without the separate, express prior written permission of the Original Author, Licensor and/or Attribution Parties.
- Except as otherwise agreed in writing by the Licensor or as may be otherwise permitted by applicable law, if You Reproduce, Distribute or Publicly Perform the Work either by itself or as part of any Adaptations or Collections, You must not distort, mutilate, modify or take other derogatory action in relation to the Work which would be prejudicial to the Original Author’s honor or reputation. Licensor agrees that in those jurisdictions (e.g. Japan), in which any exercise of the right granted in Section 3(b) of this License (the right to make Adaptations) would be deemed to be a distortion, mutilation, modification or other derogatory action prejudicial to the Original Author’s honor and reputation, the Licensor will waive or not assert, as appropriate, this Section, to the fullest extent permitted by the applicable national law, to enable You to reasonably exercise Your right under Section 3(b) of this License (right to make Adaptations) but not otherwise.
5. Representations, Warranties and Disclaimer
UNLESS OTHERWISE MUTUALLY AGREED TO BY THE PARTIES IN WRITING, LICENSOR OFFERS THE WORK AS-IS AND MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND CONCERNING THE WORK, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF TITLE, MERCHANTIBILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR THE ABSENCE OF LATENT OR OTHER DEFECTS, ACCURACY, OR THE PRESENCE OF ABSENCE OF ERRORS, WHETHER OR NOT DISCOVERABLE. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO SUCH EXCLUSION MAY NOT APPLY TO YOU.
6. Limitation on Liability.
EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE LAW, IN NO EVENT WILL LICENSOR BE LIABLE TO YOU ON ANY LEGAL THEORY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES ARISING OUT OF THIS LICENSE OR THE USE OF THE WORK, EVEN IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7. Termination
This License and the rights granted hereunder will terminate automatically upon any breach by You of the terms of this License. Individuals or entities who have received Adaptations or Collections from You under this License, however, will not have their licenses terminated provided such individuals or entities remain in full compliance with those licenses. Sections 1, 2, 5, 6, 7, and 8 will survive any termination of this License.
Subject to the above terms and conditions, the license granted here is perpetual (for the duration of the applicable copyright in the Work). Notwithstanding the above, Licensor reserves the right to release the Work under different license terms or to stop distributing the Work at any time; provided, however that any such election will not serve to withdraw this License (or any other license that has been, or is required to be, granted under the terms of this License), and this License will continue in full force and effect unless terminated as stated above.
8. Miscellaneous
Each time You Distribute or Publicly Perform the Work or a Collection, the Licensor offers to the recipient a license to the Work on the same terms and conditions as the license granted to You under this License.
Each time You Distribute or Publicly Perform an Adaptation, Licensor offers to the recipient a license to the original Work on the same terms and conditions as the license granted to You under this License.
If any provision of this License is invalid or unenforceable under applicable law, it shall not affect the validity or enforceability of the remainder of the terms of this License, and without further action by the parties to this agreement, such provision shall be reformed to the minimum extent necessary to make such provision valid and enforceable.
No term or provision of this License shall be deemed waived and no breach consented to unless such waiver or consent shall be in writing and signed by the party to be charged with such waiver or consent.
This License constitutes the entire agreement between the parties with respect to the Work licensed here. There are no understandings, agreements or representations with respect to the Work not specified here. Licensor shall not be bound by any additional provisions that may appear in any communication from You. This License may not be modified without the mutual written agreement of the Licensor and You.
The rights granted under, and the subject matter referenced, in this License were drafted utilizing the terminology of the Berne Convention for the Protection of Literary and Artistic Works (as amended on September 28, 1979), the Rome Convention of 1961, the WIPO Copyright Treaty of 1996, the WIPO Performances and Phonograms Treaty of 1996 and the Universal Copyright Convention (as revised on July 24, 1971). These rights and subject matter take effect in the relevant jurisdiction in which the License terms are sought to be enforced according to the corresponding provisions of the implementation of those treaty provisions in the applicable national law. If the standard suite of rights granted under applicable copyright law includes additional rights not granted under this License, such additional rights are deemed to be included in the License; this License is not intended to restrict the license of any rights under applicable law.
Creative Commons Notice
Creative Commons is not a party to this License, and makes no warranty whatsoever in connection with the Work. Creative Commons will not be liable to You or any party on any legal theory for any damages whatsoever, including without limitation any general, special, incidental or consequential damages arising in connection to this license. Notwithstanding the foregoing two (2) sentences, if Creative Commons has expressly identified itself as the Licensor hereunder, it shall have all rights and obligations of Licensor.
Except for the limited purpose of indicating to the public that the Work is licensed under the CCPL, Creative Commons does not authorize the use by either party of the trademark «Creative Commons» or any related trademark or logo of Creative Commons without the prior written consent of Creative Commons. Any permitted use will be in compliance with Creative Commons’ then-current trademark usage guidelines, as may be published on its website or otherwise made available upon request from time to time. For the avoidance of doubt, this trademark restriction does not form part of the License.
Creative Commons may be contacted at https://creativecommons.org/.more...