Which example are we using?

Chapter 3 · Make the economics work for both sides

A software resale and an implementation

Scope and period: one annual subscription and its separate implementation project. Michane charges the customer $100,000 for software and $24,000 for implementation. It buys the subscription from Omnibase for $70,000.

Cost boundary: the $30,000 resale spread plus $8,000 after $16,000 implementation labour gives $38,000. Deduct $22,000 for sales effort, training and allocated program work: $16,000 contribution remains before excluded costs. Omnibase’s own $30,000 delivery cost belongs to the vendor calculation. Do not deduct it again from Michane.

Chapter 3 · Choose what the variable fee measures

A fee for accepted draft replies

Scope, period and billing: a separate monthly pricing experiment. Michane charges $1,000 plus $2 for each draft the customer’s staff accept without changes. With 600 accepted replies, the bill is $2,200; with 200, it is $1,400.

Cost boundary: assumed direct cost stays at $1,600 monthly. The quiet month loses $200 before other costs; 300 accepted replies cover that direct cost. Acceptance measures an output. It does not prove a business benefit. This fee does not replace Delta’s fixed offer.

Chapter 4 · Set targets that people can explain

Choose between five partners

Scope and period: Omnibase’s extra partner investment for January–March 2027. Develop Michane; recruit factory integrator PlantLink conditionally; give retail reseller CartLane light support; defer document integrator FileBridge’s extra development; begin licence reseller QuoteDesk’s exit review.

Payment and cost boundary: Omnibase funds partner work and its own specialist time at $100 an hour. The $30,000 allowance uses $12,000 in payments and 100 hours: $22,000 altogether. Hold $8,000; available time is also limited to 120 hours, with 40 per month. Existing discounts and support stay outside this extra allocation.

When a buyer moves its expansion decision to June, releasing 16 hours leaves 84 allocated hours and $20,400 used. The released allowance is not a salary saving or cash refund. Practise the portfolio decision.

Chapter 6 · Help the partner sell a useful outcome

Delta Parts compares AI with improved search

Scope: an industrial spare-parts wholesaler, four branches and eight service staff. One approved document collection and one read-only connection support draft replies. Staff check every outgoing reply.

Period and billing: installation followed by twelve full operating months. Omnibase bills $12,000 for software. Michane bills $6,000 setup and $2,000 monthly: $42,000 across both suppliers.

Cost boundary: Delta also pays $3,000 for its own preparation and training, plus $150 monthly for current information. Add this $4,800: the AI comparison costs $46,800. Improved search costs $18,000 plus the same $4,800, or $22,800.

The assumed paid-cover reductions give $7,200 after AI cost and $4,200 after search cost. These depend on tested quality, actual use and removable paid hours. Faster replies alone do not create cash savings. Work through the investment decision.

Chapter 19 · The sale continues after the order

Does serving more stores help Michane?

Scope, period and billing: Michane’s defined monthly management service, with a separate ten-to-twenty-store expansion calculation. Ten stores pay $3,000; twenty would pay $4,200.

Cost boundary: the starting $1,800 direct cost covers $1,200 technical work, $300 evaluation and monitoring tools, and $300 routine support. At twenty stores, direct cost is $2,700. Contribution rises from $1,200 to $1,500: $1,200 extra revenue brings $300 extra contribution. Check selling, setup, coordination, overhead and exceptional work before approving expansion.

Chapter 19 · Michane and the insurer

The pilot grows, but the fee stays fixed

Scope and period: an insurer’s knowledge assistant starts with twenty users, selected documents and two Michane engineers. Pilot costs inform a fixed monthly fee for a three-year service.

Billing and cost boundary: Michane’s dollar fee and total costs are not stated. Do not borrow the retail fee. In this teaching scenario, users reach 300 within six months and model and search costs roughly double. Rebuilding records, testing and renegotiating take three unpaid months; the contract loses money in year one. This is an invented result for discussion, not an observed failure rate.

Chapter 22 · Turn the plan into a working business

Price a maintenance knowledge service

Scope and billing: Michane charges $6,000 monthly for one site, one approved collection, one supported connection and up to 5,000 maintenance enquiries. Technicians review guidance with sources; the service does not diagnose faults or change machines.

Cost boundary: $3,500 includes model/search $900, labour $1,500, evaluation/change $600 and allocated learning, evidence and management $500. Contribution is $2,500 before other business costs. Four minor-change hours sit inside the $600 allowance.

Each enquiry above 5,000 costs $1, up to the agreed 7,000 limit. At 6,000 enquiries, fee/cost/contribution are $7,000/$4,400/$2,600; at 7,000, $8,000/$5,300/$2,700. Setup and separate changes are outside these monthly figures. A separate stress case raises cost to $5,000 at the unchanged $6,000 fee, leaving $1,000.

End-of-book worked case · Follow Michane through one year

A–G: follow the whole service practice

Scope, period and billing: Michane’s own January–December service agreements, starting at $2,000 monthly. A, B and F are manufacturers; C, D and G are professional-services firms. Delta is separate. F and G each add a $6,000 setup fee. Vendor software billings stay outside this ledger.

Revenue and cost boundary: $135,000 service revenue plus $12,000 setup gives $147,000. Recurring-service costs of $108,000 and deployment labour of $4,000 leave $35,000 contribution. Deduct separate business overhead of $20,000: $15,000 remains before interest and tax. Ending ARR of $156,000 is a rate at year-end, not extra revenue.

Cash timing: $15,000 opening cash + $134,000 receipts − $132,000 paid costs = $17,000 closing cash. December’s $13,000 invoice remains receivable. With the book’s monthly assumptions, cash falls to $3,000 in March. Moving a $10,000 receipt from February to April creates a $7,000 month-end funding gap, before charges or a reserve. Explore the cash decision.