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R0ML's Ratio

Is your volume discount a good deal? Who nose!

basic-arithmeticsoftwaresaas Friday August 08, 2025

My father, also known as "R0ML" once described a methodology for
evaluating volume purchases that I think needs to be more popular.

If you are a hardcore fan, you might know that he has already
described this concept publicly in a talk at OSCON in 2005, among
other places, but it has never found its way to the public Internet,
so I'm giving it a home here, and in the process, appropriating some
of his words.^1

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Let's say you're running a circus. The circus has many clowns. Ten
thousand clowns, to be precise. They require bright red clown noses.
Therefore, you must acquire a significant volume of clown noses. An
enterprise licensing agreement for clown noses, if you will.

If the nose plays, it can really make the act. In order to make sure
you're getting quality noses, you go with a quality vendor. You
select a vendor who can supply noses for $100 each, at retail.

Do you want to buy retail? Ten thousand clowns, ten thousand noses,
one hundred dollars: that's a million bucks worth of noses, so it's
worth your while to get a good deal.

As a conscientious executive, you go to the golf course with your
favorite clown accessories vendor and negotiate yourself a 50%
discount, with a commitment to buy all ten thousand noses.

Is this a good deal? Should you take it?

To determine this, we will use an analytical tool called R0ML's Ratio
(RR).

The ratio has 2 terms:

 1. the Full Undiscounted Retail List Price of Units Used (FURLPoUU),
    which can of course be computed by the individual retail list
    price of a single unit (in our case, $100) multiplied by the
    number of units used
 2. the Total Price of the Entire Enterprise Volume Licensing
    Agreement (TPotEEVLA), which in our case is $500,000.

It is expressed as:

1 RR = TPotEEVLA / FURLPoUU

Crucially, you must be able to compute the number of units used in
order to complete this ratio. If, as expected, every single clown
wears their nose at least once during the period of the license
agreement, then our Units Used is 10,000, our FURLPoUU is $1,000,000
and our TPotEEVLA is $500,000, which makes our RR 0.5.

Congratulations. If R0ML's Ratio is less than 1, it's a good deal.
Proceed.

But... maybe the nose doesn't play. Not every clown's costume is an
exact clone of the traditional, stereotypical image of a clown. Many
are avant-garde. Perhaps this plentiful proboscis pledge was
premature. Here, I must quote the originator of this theoretical
framework directly:

    What if the wheeze doesn't please?

    What if the schnozz gives some pause?

In other words: what if some clowns don't wear their noses?

If we were to do this deal, and then ask around afterwards to find
out that only 200 of our 10,000 clowns were to use their noses, then
FURLPoUU comes out to 200 * $100, for a total of $20,000. In that
scenario, RR is 25, which you may observe is substantially greater
than 1.

If you do a deal where R0ML's ratio is greater than 1, then you are
the bozo.

---------------------------------------------------------------------

I apologize if I have belabored this point. As R0ML expressed in the
email we exchanged about this many years ago,

    I do not mind if you blog about it -- and I don't mind getting the
    credit -- although one would think it would be obvious.

And yeah, one would think this would be obvious? But I have belabored
it because many discounted enterprise volume purchasing agreements
still fail the R0ML's Ratio Bozo Test.^2

In the case of clown noses, if you pay the discounted price, at least
you get to keep the nose; maybe lightly-used clown noses have some
resale value. But in software licensing or SaaS deals, once you've
purchased the "discounted" software or service, once you have
provisioned the "seats", the money is gone, and if your employees
don't use it, then no value for your organization will ever result.

Measuring number of units used is very important. Without this
number, you have no idea if you are a bozo or not.

It is often better to give your individual employees a corporate card
and allow them to make arbitrary individual purchases of software
licenses and SaaS tools, with minimal expense-reporting overhead;
this will always keep R0ML's Ratio at 1.0, and thus, you will never
be a bozo.

It is always better to do that the first time you are purchasing a
new software tool, because the first time making such a purchase you
(almost by definition) have no information about "units used" yet.
You have no idea -- you cannot have any idea -- if you are a bozo or
not.

If you don't know who the bozo is, it's probably you.

Acknowledgments

Thank you for reading, and especially thank you to my patrons who are
supporting my writing on this blog. Of course, extra thanks to dad
for, like, having this idea and doing most of the work here beyond my
transcription. If you like my dad's ideas and you'd like to post more
of them, or you'd like to support my various open-source endeavors,
you can support my work as a sponsor!

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 1. One of my other favorite posts on this blog was just stealing
    another one of his ideas, so hopefully this one will be good
    too. -

 2. This concept was first developed in 2001, but it has some
    implications for extremely recent developments in the software
    industry; but that's a post for another day. -

  (c) Glyph 2025; All Rights Reserved Excepting Those Which Are Not.
    See my disclosure statements for information on my interests,
                      financial and otherwise.
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