Calculus in SaaS
causal.app
causal.app
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.
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.
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.
For example: suppose we're considering a recurring expense of $10 / month = $120 / year. How much capital K would we need to generate income to pay for this expense? Assuming a 4% real annual return on invested capital [+], we'd need K = $120/0.04 = $3k.
How many years of work does it take to accumulate savings of $K capital to invest?
Assume a median US individual annual income of around $30k and an optimistic savings rate of 5%.
Savings per year = $30k * 0.05 = $1.5k / year. Years of work required to accumulate enough capital to cover a $10 / month recurring expense: $3k / ($1.5k / year) = 2 years [#].
In this scenario, avoiding the $10 / month recurring expense is roughly equivalent to retiring 2 years earlier than otherwise.
[+] i.e. the long-run annual real return from investing 100% into the stock market given current market conditions
[#] this over-estimates the amount of work required by a few percent as it neglects that we can start investing our savings while we are accumulating it
The rich just subscribe to everything, others who are at their limit have to prioritize and draw the line somewhere.
I’m pretty rich and I pirate things rather than having a million separate streaming accounts - out of moral concern as much as convenience.
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.
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.
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.