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.

1. Building Business Case for a
Cloud Service
Amit Sarkar
Product Camp, 2016

2. Building Blocks of a Business Case
Market Opportunity and
Target Customers
Value Proposition
Development Plan Go-To Market Strategy
Financial Analysis

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. 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. 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. 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. 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. Thank You