Below are some of the terms I normally used when working on Product Monetisation,
Revenue
Revenue is the income from the sale of goods and services to customers.
Recurring Revenue
Recurring revenue is the part of a company’s income that they expect to earn on a regular basis into the future.
Cost of Goods Sold (CoGS)
Expenses incurred in the sale of a single unit of the product or service
Gross Profit
Gross profit is the revenue from sales less CoGS.
Gross Profit = Revenue - CoGS
Gross Margin
Gross margin is the gross profit expressed as a percentage of revenue
Gross Margin % = Gross Profit / Revenue
Cost per Acquisition (CpA)
CpA is the cost of acquiring a user or a lead. It includes all costs associated with all stages of the journey right up to becoming a paying customer.
Customer Acquisition Cost (CAC)
Cost of acquiring a paying customer
Operating Profit
Operating profit is the profit remaining after subtracting operating expenses from gross profit.
Operating Expense = CpA + Cost of Supporting Leads + Cost of Supporting Paid Customers
Operating Profit = Gross Profit - CAC
Operating Margin
Operating margin is operating profit expressed as a percentage of top line revenue.
Operating Margin % = Operating Profit / Revenue
Payback Period
The amount of time it takes for the profits to pay back the cost of acquiring customers.
Payback period = Customer Acquisition Cost / Gross Profit
Lifetime Value (LTV)
Cumulative profits generated by a customer over their lifetime, net of expenses such as CoGS, CAC, and other operating expenses.
LTV : CAC ratio
The ratio of LTV to CAC informs the ease with which a company can acquire customers while remaining profitable.
Customer Churn
Customer churn, or more commonly churn, is the rate at which paying customers cancel their subscriptions.
Customer Churn (T) = Number of paying customers in period T-1 that cancel their subscription in period T / Number of paying customers at the end of period T-1
Active User Churn
The rate at which active users stop performing the key activity.
Active User Churn (T) = Number of active users in period T-1 that are not active in period T / Number of active users at the end of period T-1
Contraction Revenue
Revenue lost due to existing paying customers reducing their spend e.g downgrade plan, downgrade term, removing recurring add-ons.
Contraction Revenue (T) = Amount of revenue lost due to paying customers in period T-1 reducing their spend in period T
Expansion Revenue
Revenue gained due to existing paying customers increasing their spend e.g upgrade plan, upgrade term, purchase recurring add-ons.
Expansion Revenue (T) = Amount of revenue gained due to paying customers in period T-1 increasing their spend in period T
Net Dollar Retention
The percentage of revenue retained from existing customers after accounting for customer churn, contraction and expansion.
NDR (T) = (Revenue (T-1) + Expansion Revenue (T) - Contraction Revenue (T) - Revenue lost due to Customer Churn (T)) / Revenue (T-1)
That is it for this article. I hope you found this article useful, if you need any help please email me at info@nabeelansar.com
👋 Thanks for reading, See you next time
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