Prerequisites:
- You know how to split your bill between Production and R&D costs.
- You choose a metric to follow your product usage: daily active users, total number of customers, total revenue…
- You choose a metric to follow your R&D costs: total number of engineers, time spend on the CI per repository…
Output:
- A clear report or dashboard to share with your exec team.
Steps:
Step 1: Split your bill
Split your bill between Production and R&D / marketplace purchases costs:a. If you have a correct cost labeling strategy in place, directly rely on your labelsb. Create a virtual dimension to correctly split the cost: Prod / Non Prod.
Ask yourself the question: If tomorrow I delete this cost line, does the
product still works?: If the answer is no, then it’s a Prod cost, else
it’s likely a Non Prod cost.
Step 2: Choose the metrics
| Your business | Potential Metric to follow | What source to ingest it into Costory ? |
|---|---|---|
| B2C business varying on usage | Daily active users | Datadog, Amplitude, BigQuery etc. |
| B2C business varying on usage | Number of email sent | Datadog, BigQuery etc. |
| B2B / B2C | Total revenue | GoogleSheet using Zapier for automation, BigQuery |
| B2B / B2C | Number of customers | GoogleSheet using Zapier for automation / S3 export / BigQuery |
| R&D costs | Total number of engineers | GoogleSheets / BigQuery |
| R&D costs | Time spend on the CI per repository | Datadog CI Visibility |
Step 3: Set targets
Numbers alone are often meaningless, is 0.1€ / active user per month good or are we killing the business? You need to share with your exec team the targets you want to achieve and the reasoning behind it or even best, they probably know what is acceptable / sustainable / desirable and should tell you.
By how much can you reduce the marginal cost given N days of R&D work?
- Using advanced explorer, explore the variation of the marginal cost: does it make sense? Is it aligned with the business objectives you want to follow?
- Set targets, min boundaries and max boundaries: At what marginal costs should we prioritize cost reduction efforts? At what marginal costs should we prioritize cost growth efforts?
Step 3: Create a report
The report MUST contains:
- The total cost of the production environment this month and YTD.
- The marginal cost of the production environment this month and YTD based on the metric above.
The marginal cost value itself does not always mean much. What is important is the trend and the evolution of this marginal cost.
- The total cost of the non production environment this month and YTD.
- The marginal cost of the non production environment this month and YTD based on the metric above.
- The total of credits received from the CSP for the current Year.
- The savings achieved thanks to your work using reservations / savings plans.
- If part of the cost is not attributed to a team / feature: show how much it is and its variation.
- The decomposition of the cost per team / feature if available.
- If a cost reduction is achieved / a spike happened: the why behind it.
- If you’re using Costory: you can choose a set of events to include in the report: this will help you understand the why behind the cost changes.