Until you fully understand the impact of cost per user, IT cost reduction or investment decisions are like playing roulette
When technology teams are asked to think about costs the first thing they think of is how to get them to come down. As important as this is It’s only half the story.
The other half is understanding what technical resources need to be targeted. How to deliver the greatest return without negatively impacting growth. How to manage the cost per user.
This example might help explain more…
Let’s Imagine you have a Portco that is a SaaS company
You have 1000 customers, annual revenue of $1m and EBITDA of 50% and sell 3 different SaaS products with an average revenue per customer of $1000.
It’s reasonable to assume that the bulk of the cost is in supporting the customer with technology. The technology cost that is reported to the board is $300k p.a.
To service an average customer from a technology perspective it costs $300. Each customer either uses one or all of the different products and has between 1 and 10 users licenses per system.
Product A is sold for $200 p.a
Product B is sold for $700 p.a
Product C is sold for $100 p.a
With an average cost per customer of $300 then a customer who uses only Product A or C becomes unprofitable. Or do they? Using the cost and revenue per customer you can’t really tell.
But If you knew how much each user cost…
If you knew that …
Product A, a single user cost $20 p.a
Product B a single user cost $600 p.a
Product C a single user cost $100 p.a
You might change your licensing model for product B or you might look to make product C more efficient. You might look at Product A and look at further increasing the margin.
What if your planned digital transformation could increase the revenue per user by $100 p.a without increasing the cost per user?
Or that cloud migration you’ve been hearing about would reduce product C’s churn by 5%.
Or users thought that product A was too expensive compared to competitors.
Those are valuable insights you’d probably want to know…the cost per user can help you…