PaaS (Product-as-a-Service) 10 Year Financial Model

 This business model has been in academic literature since the early 90s, but more recently some businesses are experimenting or fully switching over to Product-as-a-Service or 'PaaS' instead of direct sales of their products. This is a financial model to plan out the economics of such a business for up to 10 years.

$75.00 USD

After purchase, the template will be immediately available to download. It is also included in the SaaS / Recurring Revenue / Subscription Business Spreadsheets bundle.


paas

In this case, PaaS is referring to the idea of selling a subscription service for access to products or access to the benefits those products offer rather than just selling the product outright. That type of activity means the products stay on the balance sheet as fixed assets rather than inventory and the cost of goods sold hits a bit different (depreciation rather than cost of goods sold).

In this spreadsheet, you can plan out the effect of just doing direct sales or just doing product-as-a-service or some combination of both. Everything is fully integrated into the financial statements and all you have to do is play with the assumptions.

I love this financial model and everything about it.

Here are the main drivers on the Excel template:

Buildout of Product Offering

  • Up to 176 deployment tranches and in each tranche the user defines the tranche name, month of deployment, count of units deployed, cost per unit, useful life, and max minutes a product can be used for per month.
  • Right next to the above schedule, a sanity check is done on the assumptions. The model will show the available capacity per month for 120 months against the demanded capacity per month (based on customer growth and those assumptions (more on that below). Anything over 100% means there is too much demand by customers compared to available products to have access to.
Subscription Revenue
  • Define start month customers begin on-boarding
  • Two acquisition channels (ad spend/CPA (cost per acquisition) and organic growth per a CAGR)
  • Up to three subscription tiers
  • Define monthly fee per tier, percentage of customers signing up to each tier, and retention rate
  • Define the average minutes a given customer in each tier will use a product for per month
The model does a very good job at connecting customer product usage and product availability. This is really flexible and could apply to everything from boat parking spots to washing machines and everything in-between.

In order to make the financial model more professionally, you will have a global control tab that controls timing assumptions, exit month / valuation multiple per 12 month trailing sales, and any debt funding. 

The model solves for the minimum equity required to keep cash above $0 for the forecasted period based on startup costs, capex / products, and any operational burn.

Direct Sales
  • To see the feasibility of direct product sales, there is a section that is integrated into all the financial statements and cash flow that is solely dedicated to a sales / cogs model.
  • Define up to 176 purchase tranches with the following:
    • Month # units are available to sell
    • # of units in each tranche
    • Cost per unit per tranche
    • Sales price per unit per tranche
    • The % of units sold in each month (for example, you may sell a given tranche out in 4 months at 25% per month or maybe you sell 50% in month 1 and 50% in month 2 or however long it takes to sell inventory once it is 'produced' you can account for.
  • Dynamic matrix calculations are used to show the resulting activity by tranche over time and that is aggregated into the monthly detail. This allows for a more accurate way to show cost of goods sold and sales where those inputs may very in each tranche.
Running Costs / CapEx
  • The user can define general operating expenses / fixed expenses in three cost categories that have plenty of slots. Define the month the cost starts, the monthly cost in each of the 10 years, and the cost description.
  • There are also cost of goods sold defined here for the number of existing subscription customers and a defined cost per month per customer for each of the pricing tiers.
  • A CapEx schedule allows for other general fixed assets to be shown if needed and their useful life / purchase month and resulting depreciation. The rest of the capex schedule will be populated based on the buildout of the product offering that is available for subscribing customers.
  • There is also a separate schedule to enter any one-time startup costs if you were not able to enter them anywhere else. This is also where you can enter a reserve or contingency value.

Output Reports

  • Monthly and Annual Income Statement, Balance Sheet, and Cash Flow Statement
  • Monthly and Annual detail (showing all detailed results of the assumptions, customer tiers, sales, costs, EBITDA, and cash flow as well as key metrics
  • KPI visualizations (including CaC, LTV, months to pay back CaC, and LTV to CaC ratio) and these are all related directly to the PaaS part of the model where you have recurring customers with some related acquisition cost.
  • 12 Visualizations
  • Annual Executive Summary showing main financial line items and cash flow items
  • DCF Analysis for the project as a whole, the investor pool if applicable, and owner pool
  • General Cap Table and IRR of each investment
The primary use of this model will be to see what kind of IRR and cash requirements there will be by deploying products and selling access to those products at various monthly subscription pricing levels. The user can also directly compare the results of PaaS vs. Direct Product Sales or some combination.

Product Deployment vs. Access

If you wanted to set the model so that a single product is available for each customer and they solely use the product, then you simply set the minute capacity per product and the minute usage per customer per tier as the same number. In that way, you create a 1 to 1 dynamic and then you need to make sure you have enough products for each existing customer. The capacity table will show you if you do or not.

This made to order manufacturing financial model may also be of interest.

More Subscription / Membership Recurring Revenue Financial Models: