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SaaS Economics - Ramping a SaaS salesforce
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http://www.forentrepreneurs.com/
by David Skok, General Partner at Matrix Partners
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Cells formated like this:
are input variables
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Part 1: Model the ecomomics of a single sales person
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Sales compensation and overhead
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Base Compensation $ 50,000
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Variable Compensation $ 55,000
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Draw on Variable Comp0%0%0%0%0%0%0%0%0%
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Productivity Ramp100%100%100%100%100%100%100%100%100%
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Additional overhead $ 30,000
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Sales attrition factor15%
a factor to discount bookings to account for failed sales hires and attrition
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On target annual bookings
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Annual Bookings Quota500,000
Annual quota for a sales rep defined as total ACV (Annual Contract Value) they are expected to bring in each year
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Monthly Bookings (ACV) Quota $ 41,667
Monthly quota for a sales rep defined as total ACV (Annual Contract Value) they are expected to bring in each month. (i.e. the above number divided by 12)
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Monthly Bookings (MRR) Quota $ 3,472
The above number, expressed as MRR bookings, instead of ACV (i.e. ACV / 12)
Quick Marketing Calculation
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50%
amount of traffic that is organic versus paid
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Churn Rate and Margin$1.50
cost per paid visitor (Google AdWords, etc.)
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Churn Rate (monthly)2.50% $ 0.75
Cost per visitor (both paid and unpaid)
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Gross Margin80.00%3%
visitors convert to raw leads
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20%
number of raw leads that turn into qualified leads
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Cost of Leads required to feed sales
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Average Deal Size$6,000
(ACV) Annual Contract Value
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Deals to meet target 6.9 per month1qualified lead
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Leads to closed deal 10 5
raw leads required
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Cost per Qualified Lead$125 167
visitors required
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Cost of Leads required $ 8,698
per month, for 1 fully productive sales person
$125
Cost of visitors (also = Cost per qualified lead)
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Other interesting Calculations
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Lead Gen costs per deal $ 1,253
Excludes people costs
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Selling costs per deal $ 1,620
Excludes cost of sales management
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Total CAC $ 2,873
Excludes people costs in marketing, and sales management. (CAC= Cost to Acquire a Customer)
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Total LTV $ 16,000
Calculated by dividing average monthly gross profit per customer (ARPU x Gross Margin ) by the churn rate
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IncomeMonth 1Month 2Month 3Month 4Month 5Month 6Month 7Month 8Month 9Month 10Month 11Month 12Month 13Month 14Month 15Month 16Month 17Month 18Month 19Month 20Month 21Month 22Month 23Month 24Month 25Month 26Month 27Month 28Month 29Month 30Month 31Month 32Month 33Month 34Month 35Month 36
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Productivity Ramp100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%
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Bookings (ACV) $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417 $ 35,417
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New MRR added this month $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951 $ 2,951
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MRR from prior months bookings $ 2,951 $ 5,829 $ 8,635 $ 11,370 $ 14,037 $ 16,638 $ 19,173 $ 21,645 $ 24,056 $ 26,406 $ 28,697 $ 30,931 $ 33,109 $ 35,233 $ 37,303 $ 39,322 $ 41,290 $ 43,209 $ 45,081 $ 46,905 $ 48,684 $ 50,418 $ 52,109 $ 53,758 $ 55,365 $ 56,932 $ 58,460 $ 59,950 $ 61,403 $ 62,819 $ 64,200 $ 65,547 $ 66,859 $ 68,139 $ 69,387
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Churn $ (73.78) $ (145.72) $ (215.87) $ (284.25) $ (350.93) $ (415.94) $ (479.33) $ (541.13) $ (601.39) $ (660.14) $ (717.42) $ (773.27) $ (827.72) $ (880.81) $ (932.58) $ (983.05) $ (1,032.26) $ (1,080.23) $ (1,127.01) $ (1,172.62) $ (1,217.09) $ (1,260.45) $ (1,302.72) $ (1,343.94) $ (1,384.13) $ (1,423.31) $ (1,461.51) $ (1,498.76) $ (1,535.07) $ (1,570.48) $ (1,605.00) $ (1,638.66) $ (1,671.48) $ (1,703.48) $ (1,734.68)
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Total MRR (Billings) $ 2,951 $ 5,829 $ 8,635 $ 11,370 $ 14,037 $ 16,638 $ 19,173 $ 21,645 $ 24,056 $ 26,406 $ 28,697 $ 30,931 $ 33,109 $ 35,233 $ 37,303 $ 39,322 $ 41,290 $ 43,209 $ 45,081 $ 46,905 $ 48,684 $ 50,418 $ 52,109 $ 53,758 $ 55,365 $ 56,932 $ 58,460 $ 59,950 $ 61,403 $ 62,819 $ 64,200 $ 65,547 $ 66,859 $ 68,139 $ 69,387 $ 70,604
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Cumulative Billings $ 2,951 $ 8,780 $ 17,415 $ 28,785 $ 42,823 $ 59,460 $ 78,634 $ 100,279 $ 124,334 $ 150,740 $ 179,437 $ 210,367 $ 243,476 $ 278,709 $ 316,012 $ 355,334 $ 396,624 $ 439,833 $ 484,914 $ 531,819 $ 580,503 $ 630,921 $ 683,030 $ 736,787 $ 792,152 $ 849,085 $ 907,545 $ 967,495 $ 1,028,898 $ 1,091,717 $ 1,155,917 $ 1,221,464 $ 1,288,323 $ 1,356,462 $ 1,425,849 $ 1,496,453
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Cumulative Gross Profit $ 2,361 $ 7,024 $ 13,932 $ 23,028 $ 34,258 $ 47,568 $ 62,907 $ 80,223 $ 99,467 $ 120,592 $ 143,549 $ 168,294 $ 194,781 $ 222,967 $ 252,810 $ 284,267 $ 317,299 $ 351,867 $ 387,931 $ 425,455 $ 464,402 $ 504,737 $ 546,424 $ 589,430 $ 633,722 $ 679,268 $ 726,036 $ 773,996 $ 823,118 $ 873,374 $ 924,734 $ 977,171 $ 1,030,659 $ 1,085,170 $ 1,140,679 $ 1,197,162
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Expenses
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Base Salary $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167 $ 4,167
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Variable Compensation $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583 $ 4,583
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Overhead $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 2,500
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Cost of leads required $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502 $ 8,502
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Total Expenses $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752 $ 19,752
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Cumulative expenses $ 19,752 $ 39,504 $ 59,257 $ 79,009 $ 98,761 $ 118,513 $ 138,265 $ 158,018 $ 177,770 $ 197,522 $ 217,274 $ 237,027 $ 256,779 $ 276,531 $ 296,283 $ 316,035 $ 335,788 $ 355,540 $ 375,292 $ 395,044 $ 414,796 $ 434,549 $ 454,301 $ 474,053 $ 493,805 $ 513,558 $ 533,310 $ 553,062 $ 572,814 $ 592,566 $ 612,319 $ 632,071 $ 651,823 $ 671,575 $ 691,327 $ 711,080
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Breakeven AnalysisMonth 1Month 2Month 3Month 4Month 5Month 6Month 7Month 8Month 9Month 10Month 11Month 12Month 13Month 14Month 15Month 16Month 17Month 18Month 19Month 20Month 21Month 22Month 23Month 24Month 25Month 26Month 27Month 28Month 29Month 30Month 31Month 32Month 33Month 34Month 35Month 36
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Net profit $ (17,391) $ (15,089) $ (12,844) $ (10,656) $ (8,522) $ (6,442) $ (4,414) $ (2,436) $ (508) $ 1,372 $ 3,205 $ 4,992 $ 6,735 $ 8,434 $ 10,090 $ 11,705 $ 13,280 $ 14,815 $ 16,312 $ 17,772 $ 19,195 $ 20,582 $ 21,935 $ 23,254 $ 24,540 $ 25,794 $ 27,016 $ 28,208 $ 29,370 $ 30,503 $ 31,608 $ 32,685 $ 33,735 $ 34,759 $ 35,757 $ 36,731
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Cumulative Net Profit $ (17,391) $ (32,480) $ (45,325) $ (55,981) $ (64,503) $ (70,945) $ (75,359) $ (77,795) $ (78,302) $ (76,930) $ (73,725) $ (68,733) $ (61,998) $ (53,564) $ (43,474) $ (31,768) $ (18,488) $ (3,673) $ 12,639 $ 30,411 $ 49,606 $ 70,188 $ 92,123 $ 115,377 $ 139,916 $ 165,710 $ 192,726 $ 220,934 $ 250,304 $ 280,807 $ 312,415 $ 345,100 $ 378,835 $ 413,595 $ 449,352 $ 486,083
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Part 2: Look at the Overall Economics when Ramping Sales Hires
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Month 1Month 2Month 3Month 4Month 5Month 6Month 7Month 8Month 9Month 10Month 11Month 12Month 13Month 14Month 15Month 16Month 17Month 18Month 19Month 20Month 21Month 22Month 23Month 24Month 25Month 26Month 27Month 28Month 29Month 30Month 31Month 32Month 33Month 34Month 35Month 36
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New Sales Hires222222222222222222222222222222222222
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Total Sales Headcount24681012141618202224262830323436384042444648505254565860626466687072
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Total Leads Required 136 272 407 543 679 815 950 1,086 1,222 1,358 1,493 1,629 1,765 1,901 2,036 2,172 2,308 2,444 2,580 2,715 2,851 2,987 3,123 3,258 3,394 3,530 3,666 3,801 3,937 4,073 4,209 4,344 4,480 4,616 4,752 4,888
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IncomeMonth 1Month 2Month 3Month 4Month 5Month 6Month 7Month 8Month 9Month 10Month 11Month 12Month 13Month 14Month 15Month 16Month 17Month 18Month 19Month 20Month 21Month 22Month 23Month 24Month 25Month 26Month 27Month 28Month 29Month 30Month 31Month 32Month 33Month 34Month 35Month 36
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Bookings (ACV) $ 70,833 $ 141,667 $ 212,500 $ 283,333 $ 354,167 $ 425,000 $ 495,833 $ 566,667 $ 637,500 $ 708,333 $ 779,167 $ 850,000 $ 920,833 $ 991,667 $ 1,062,500 $ 1,133,333 $ 1,204,167 $ 1,275,000 $ 1,345,833 $ 1,416,667 $ 1,487,500 $ 1,558,333 $ 1,629,167 $ 1,700,000 $ 1,770,833 $ 1,841,667 $ 1,912,500 $ 1,983,333 $ 2,054,167 $ 2,125,000 $ 2,195,833 $ 2,266,667 $ 2,337,500 $ 2,408,333 $ 2,479,167 $ 2,550,000
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Total MRR (Billings) $ 5,903 $ 17,561 $ 34,830 $ 57,570 $ 85,645 $ 118,921 $ 157,267 $ 200,558 $ 248,669 $ 301,480 $ 358,873 $ 420,735 $ 486,953 $ 557,418 $ 632,024 $ 710,668 $ 793,248 $ 879,667 $ 969,828 $ 1,063,638 $ 1,161,005 $ 1,261,841 $ 1,366,059 $ 1,473,574 $ 1,584,304 $ 1,698,169 $ 1,815,090 $ 1,934,990 $ 2,057,796 $ 2,183,435 $ 2,311,835 $ 2,442,928 $ 2,576,646 $ 2,712,925 $ 2,851,699 $ 2,992,906
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Cumulative Billings $ 5,903 $ 23,464 $ 58,294 $ 115,864 $ 201,509 $ 320,430 $ 477,697 $ 678,254 $ 926,923 $ 1,228,403 $ 1,587,276 $ 2,008,011 $ 2,494,963 $ 3,052,381 $ 3,684,405 $ 4,395,072 $ 5,188,320 $ 6,067,987 $ 7,037,816 $ 8,101,454 $ 9,262,459 $ 10,524,300 $ 11,890,359 $ 13,363,934 $ 14,948,238 $ 16,646,407 $ 18,461,497 $ 20,396,487 $ 22,454,283 $ 24,637,718 $ 26,949,553 $ 29,392,481 $ 31,969,127 $ 34,682,052 $ 37,533,750 $ 40,526,657
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Cumulative Gross Profit $ 4,722 $ 18,771 $ 46,635 $ 92,691 $ 161,207 $ 256,344 $ 382,157 $ 542,603 $ 741,538 $ 982,722 $ 1,269,821 $ 1,606,409 $ 1,995,971 $ 2,441,905 $ 2,947,524 $ 3,516,058 $ 4,150,656 $ 4,854,390 $ 5,630,252 $ 6,481,163 $ 7,409,967 $ 8,419,440 $ 9,512,287 $ 10,691,147 $ 11,958,590 $ 13,317,126 $ 14,769,198 $ 16,317,190 $ 17,963,427 $ 19,710,174 $ 21,559,642 $ 23,513,985 $ 25,575,302 $ 27,745,641 $ 30,027,000 $ 32,421,325
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Growth in MRR $ 5,903 $ 11,658 $ 17,269 $ 22,740 $ 28,075 $ 33,276 $ 38,346 $ 43,291 $ 48,111 $ 52,811 $ 57,394 $ 61,862 $ 66,218 $ 70,465 $ 74,606 $ 78,644 $ 82,581 $ 86,419 $ 90,161 $ 93,810 $ 97,367 $ 100,836 $ 104,218 $ 107,515 $ 110,730 $ 113,865 $ 116,921 $ 119,901 $ 122,806 $ 125,638 $ 128,400 $ 131,093 $ 133,718 $ 136,278 $ 138,774 $ 141,208
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Expenses
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Base Salary $ 8,333 $ 16,667 $ 25,000 $ 33,333 $ 41,667 $ 50,000 $ 58,333 $ 66,667 $ 75,000 $ 83,333 $ 91,667 $ 100,000 $ 108,333 $ 116,667 $ 125,000 $ 133,333 $ 141,667 $ 150,000 $ 158,333 $ 166,667 $ 175,000 $ 183,333 $ 191,667 $ 200,000 $ 208,333 $ 216,667 $ 225,000 $ 233,333 $ 241,667 $ 250,000 $ 258,333 $ 266,667 $ 275,000 $ 283,333 $ 291,667 $ 300,000
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Variable Compensation $ 9,167 $ 18,333 $ 27,500 $ 36,667 $ 45,833 $ 55,000 $ 64,167 $ 73,333 $ 82,500 $ 91,667 $ 100,833 $ 110,000 $ 119,167 $ 128,333 $ 137,500 $ 146,667 $ 155,833 $ 165,000 $ 174,167 $ 183,333 $ 192,500 $ 201,667 $ 210,833 $ 220,000 $ 229,167 $ 238,333 $ 247,500 $ 256,667 $ 265,833 $ 275,000 $ 284,167 $ 293,333 $ 302,500 $ 311,667 $ 320,833 $ 330,000
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Overhead $ 5,000 $ 10,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $ 35,000 $ 40,000 $ 45,000 $ 50,000 $ 55,000 $ 60,000 $ 65,000 $ 70,000 $ 75,000 $ 80,000 $ 85,000 $ 90,000 $ 95,000 $ 100,000 $ 105,000 $ 110,000 $ 115,000 $ 120,000 $ 125,000 $ 130,000 $ 135,000 $ 140,000 $ 145,000 $ 150,000 $ 155,000 $ 160,000 $ 165,000 $ 170,000 $ 175,000 $ 180,000
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Cost of leads required $ 17,004 $ 34,009 $ 51,013 $ 68,018 $ 85,022 $ 102,027 $ 119,031 $ 136,035 $ 153,040 $ 170,044 $ 187,049 $ 204,053 $ 221,058 $ 238,062 $ 255,066 $ 272,071 $ 289,075 $ 306,080 $ 323,084 $ 340,089 $ 357,093 $ 374,097 $ 391,102 $ 408,106 $ 425,111 $ 442,115 $ 459,120 $ 476,124 $ 493,128 $ 510,133 $ 527,137 $ 544,142 $ 561,146 $ 578,151 $ 595,155 $ 612,159
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Total Expenses $ 39,504 $ 79,009 $ 118,513 $ 158,018 $ 197,522 $ 237,027 $ 276,531 $ 316,035 $ 355,540 $ 395,044 $ 434,549 $ 474,053 $ 513,558 $ 553,062 $ 592,566 $ 632,071 $ 671,575 $ 711,080 $ 750,584 $ 790,089 $ 829,593 $ 869,097 $ 908,602 $ 948,106 $ 987,611 $ 1,027,115 $ 1,066,620 $ 1,106,124 $ 1,145,628 $ 1,185,133 $ 1,224,637 $ 1,264,142 $ 1,303,646 $ 1,343,151 $ 1,382,655 $ 1,422,159
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Cumulative expenses $ 39,504 $ 118,513 $ 237,027 $ 395,044 $ 592,566 $ 829,593 $ 1,106,124 $ 1,422,159 $ 1,777,699 $ 2,172,743 $ 2,607,292 $ 3,081,345 $ 3,594,903 $ 4,147,965 $ 4,740,531 $ 5,372,602 $ 6,044,177 $ 6,755,257 $ 7,505,841 $ 8,295,930 $ 9,125,523 $ 9,994,620 $ 10,903,222 $ 11,851,328 $ 12,838,939 $ 13,866,054 $ 14,932,673 $ 16,038,797 $ 17,184,426 $ 18,369,559 $ 19,594,196 $ 20,858,338 $ 22,161,984 $ 23,505,134 $ 24,887,789 $ 26,309,948
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