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Building Business Case for a Cloud Service


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Are you starting a new cloud service or transitioning your on-premise product to a cloud platform? Is that a profitable business? Prove it to your VC or executive management it is a business worth investing. In this workshop we will focus on the Financial Analysis aspect of a Business Case from the scratch. You will build Cost Model, Pricing, Revenue Model and run some Margin Analysis for your Business Case.

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Building Business Case for a Cloud Service

  1. 1. Building Business Case for a Cloud Service Amit Sarkar Product Camp, 2016
  2. 2. Building Blocks of a Business Case Market Opportunity and Target Customers Value Proposition Development Plan Go-To Market Strategy Financial Analysis
  3. 3. 4 Steps Process • Service Description • Draft Deployment Architecture • Environments Service Design • Service Cost • Royalty Cost • Other Costs Cost Model • Pricing • Sales Forecast • Pricing Sensitivity Analysis Revenue Model • Expenses • Multi Year ROI • Margin Analysis Biz Case
  4. 4. Service Design Service Description Preliminary Design Deployment Architecture Environment Sizing Define the Product/Service including, features, availability, service metric, usage limitations, 3rd party components, hosting, migration etc. Components, interactions, dependencies, backup, runtime management and patching requirements, regulatory requirements, customer lifecycle HA architecture and DR plan, scale plan, networking requirements Types of environments, infrastructure sizing, capacity planning
  5. 5. Cost Model Service Cost* • Hosting cost - VMs, networking, bandwidth, common services • Royalty and certification cost • CAPEX Vs Opex Royalty Cost Support Cost • One time, Recurring • Revenue Sharing • Internal or external • Support Category– call center, tiers Other Cost • Certifications • Other services – email/notification, shared cost, shipping etc. * Note: Sales, Marketing, R&D, General Admin etc. are expenses
  6. 6. Revenue Model Pricing Top Down/Side by Side • Customer TCO Based Bottom Up • Service Cost Based Competitive • Primary Competitor Pricing Based Forecast Best Case • Optimistic view with additional Sales/Marketing Likely Case • Practical projection with no planned Sales investment Worst Case • Conservative view
  7. 7. Business Case KPIs • 5 Year NPV (Discount rate: 20%): $M • 5 Year Gross Margin* (avg): XY% • 5 Year Cumulative Revenue: $M • Year-5 Market Share: X% • Break Even Point: X Year • Avg growth Rate: X% • Avg service cost of customer •Standard Customer: $K •Premium Customer: $K • Initial Capital Investment: $M * Consider expenses to determine Operating Margin
  8. 8. Thank You