What gross margin can you actually promise?
The margin on your metrics page is a promise someone will read back to you in twelve months. It usually assumes cloud cost per account holds still while usage grows, when in practice the accounts that expand usage are the accounts driving the bill. Tie those two together and you get a band you chose instead of a target you are exposed on.
SaaS Intermediate Monte Carlo Pro engine
After you install, this is the model to open.
What Gross Margin Can We Actually Promise?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
At the middle of every range the sheet lands on 78.3% at month 12, which is exactly the number in the deck. Across 20,000 trials it is a band:
- P10 margin
- 68% at month 12
- Median
- 76% at month 12
- Chance of holding 78%
- 33% for the full year
- P10 at month 24
- 55% compression compounds
The 78% in the deck is not a forecast, it is close to a best case: the model holds it about one year in three. The figure that belongs next to the target on the slide is the P10, 68%. Turning the correlation off is the instructive part. The median does not move, but P10 climbs back to 70% and P90 comes in from 81% to 80%, so the link between usage growth and cloud spend does not push the whole band down. It stretches it, and the end that matters is the bottom.
The model
A 24-month COGS build worked per account, at a pinned $310 of revenue per account per month, so the answer does not depend on how fast you add accounts. Infrastructure cost per account compounds at the usage growth rate.
| Revenue per account per month | $310 |
| Gross margin target in the deck | 78% |
| Infrastructure cost per account | $26 - $38 - $62 per month (uncertain) |
| Support and success cost per account | $14 - $19 - $28 per month (uncertain) |
| Usage growth per account | 0% - 2% - 5% per month (uncertain) |
| Usage growth and infrastructure cost | correlated at +0.6 |
| Gross margin at month 12 | simulated |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
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Every model like this one, and the method behind them: Monte Carlo simulation.