Hi there! My name is Liza Collin, and I’m a Product Director at Visma. Today, I’ll be talking about the Rule of 78. More specifically, I’ll be talking about how to quantify the cost of delayed launches, as well as some other calculations that are incredibly valuable for product marketing managers.
So, let's get started!
The high cost of delayed launches
SaaS companies often launch dozens of new products, modules, and price models each year. Each of these launches is a major cross-functional effort. With so many moving parts and so many different departments to take into consideration, it's not uncommon for launches to end up being delayed
Besides potentially making or breaking the product launch, these delays also have a clear effect on the bottom line. Historically, it’s been difficult to quantify the costs and the impact of those delays, but since postponing launches is such a common occurrence, we need to know how serious the impact is.
With that in mind, my team and I decided to do some digging to find out what exactly the cost is and how we can speed up the go-to-market process.
That’s how we landed on the Rule of 78.
What is the Rule of 78?
The Rule of 78 originates in the world of banking. They use it to calculate interest rates, but we’ve repurposed it to look at SaaS business results. The key premise is that a customer acquired earlier in the year has more billing opportunities and is therefore worth more than one added later on.
To understand how it works, imagine onboarding one new customer every month, with each paying $200 per month. A customer added in January who stays the whole year provides $2,400 in revenue based on 12 monthly payments. February's customer only provides $2,200 over 11 payments, and so on down to December's who only gets one month's billing.
