Methodology & Sources

Review the main calculation methods, references, and assumptions used in the toolkit.

Last updated: September 2026

Our Approach to Calculations

This page lists calculation methods and references used by PM Toolkit. Use the sources to check the formulas and understand the assumptions behind each metric.

The LTV calculator uses monthly revenue, gross margin, and customer churn. Check the assumptions behind each method and the source, date, and definition of a benchmark before comparing results.

SaaS Economics

Customer Lifetime Value (LTV)

Formula

LTV = (ARPU x Gross Margin) / Monthly Churn Rate

Source: Bessemer Venture Partners

Gross-margin LTV estimate based on average revenue and a constant monthly customer churn rate.

Customer Acquisition Cost (CAC)

Formula

CAC = Total Sales & Marketing Spend / New Customers Acquired

Source: David Skok, For Entrepreneurs

Acquisition cost formula discussed in David Skok's SaaS Metrics 2.0.

Monthly Recurring Revenue (MRR)

Formula

MRR = Sum of all recurring subscription revenue per month

Source: KeyBanc SaaS Survey

Normalize active recurring subscriptions to monthly amounts. One-time fees are excluded; ARR is MRR multiplied by 12.

Churn Rate

Formula

Customer Churn (%) = Customers Lost / Customers at Start of Period x 100%

Source: ProfitWell / Paddle

The displayed formula measures customer churn. Revenue churn measures lost recurring revenue instead.

Prioritization Frameworks

RICE Scoring

Formula

RICE = (Reach x Impact x Confidence) / Effort

Source: Intercom

Created by Sean McBride at Intercom. Published in "Intercom on Product Management" (2016).

ICE Scoring

Formula

ICE = Impact x Confidence x Ease

Source: Sean Ellis

Attributed to Sean Ellis and used to prioritize growth experiments. PM Toolkit multiplies the three scores.

Weighted Scoring

Formula

Score = Sum of (Criterion Score x Criterion Weight) for all criteria

Source: Decision Analysis Theory

A weighted sum of criterion scores, based on multi-criteria decision analysis (MCDA).

Kano Model

Formula

Paired survey answers map to Kano categories

Source: Noriaki Kano

The Kano survey uses paired questions about a feature being present and absent. The MCP tool classifies these answers; the web calculator illustrates categories using implementation and satisfaction ratings.

Impact/Effort Matrix

Formula

2x2 matrix plotting estimated impact against implementation effort

Source: Lean/Agile Methodology

Standard prioritization tool from lean product development and agile methodology.

Statistical Testing

A/B Test Calculator

Formula

Z-test: Z = (p1 - p2) / sqrt(p(1-p)(1/n1 + 1/n2))

Source: Two-proportion z-test

The calculator uses a pooled two-proportion z-test with a normal approximation.

Sample Size Calculator

Formula

n₀ = Z² x p(1-p) / E²; n = n₀ / (1 + (n₀ − 1) / N)

Source: Survey proportion planning

Normal approximation for a survey proportion: Z is the confidence critical value, p the expected proportion, E the margin of error, and N the population size. The second formula corrects for a finite population. Use the separate A/B planner for a comparison between variants.

NPS Calculator

Formula

NPS = % Promoters (9-10) - % Detractors (0-6)

Source: Fred Reichheld / Bain & Company

Created by Fred Reichheld at Bain & Company. Published in Harvard Business Review, "The One Number You Need to Grow" (2003).

Market & Growth Metrics

TAM/SAM/SOM (Market Sizing)

Formula

TAM >= SAM >= SOM: Top-down and bottom-up estimates

Source: TAM/SAM/SOM framework

Defines the total market, the portion the product can serve, and the portion it can realistically target.

ROI & Payback Period

Formula

ROI = (Total Benefit - Investment) / Investment x 100%

Source: Financial Analysis Standards

Simple payback divides investment by monthly net benefit and adds implementation time. Discounted payback is a separate result when a discount rate is supplied.

Conversion Rate

Formula

CR = Conversions / Total Visitors x 100%

Source: Digital Analytics Association

Industry-standard metric definition aligned with Google Analytics and digital marketing best practices.

DAU/MAU Ratio

Formula

DAU/MAU (%) = Daily Active Users / Monthly Active Users x 100

Source: Facebook / Meta

Define active use and the reporting windows. A single-day ratio does not show that the same users return every day.

Retention Analytics

Formula

Cohort retention (%) = Returning cohort users / Starting cohort users x 100

Source: Cohort Analysis Methodology

Define the starting cohort, qualifying activity, and return window. Revenue retention uses revenue from the starting customer group instead of user counts.

PMF Score

Formula

Ellis survey % = Very disappointed responses / Total responses x 100

Source: Sean Ellis

The Sean Ellis survey uses 40% very disappointed as a heuristic. PM Toolkit also offers a composite score using additional signals; neither proves product-market fit.

Execution & Delivery

Sprint Velocity

Formula

Velocity = Total Story Points Completed / Number of Sprints

Source: Scrum Framework

Average completed story points per sprint over the selected history. Velocity is a team planning measure, not a metric prescribed by the Scrum Guide.

Cycle Time & Lead Time

Formula

Cycle Time = End Date - Start Date for each work item

Source: Kanban / Lean Manufacturing

Kanban cycle time measures elapsed time from starting a work item to finishing it.