Set one decision boundary before comparing scenarios
Records and assumptions to align
- Choose one business, customer cohort or delivery team and one finite horizon. (not complete)
- Use one currency, indirect-tax treatment, time basis and contribution boundary throughout. (not complete)
- Separate observed records, contractual commitments and user-entered scenarios. (not complete)
- State which delivery, support, acquisition and overhead costs are included or excluded. (not complete)
- Hold unrelated inputs constant when testing a sensitivity; do not improve every assumption at once. (not complete)
- Write the evidence trigger and stop condition before selecting a preferred scenario. (not complete)
| Input or boundary | Unit | Evidence class | Required check |
|---|---|---|---|
| Monthly list price | CU/account/month | Current offer record | State tax and discount basis |
| Annual billed price | CU/account/year | Current offer record | Separate price from cash date |
| Cost to serve | CU/account/month | Usage and support record | Test whether plan choice changes usage |
| Collection and refund dates | date and CU | Billing terms and record | Use current contract terms |
| Retention scenarios | active accounts/month | Cohort record or scenario | Do not attribute differences without evidence |
Build a reproducible economic view
plan contribution over horizon = collected or recognised plan revenue on the declared basis - included service cost - payment and refund cost; annual discount cost = 12 × monthly price - annual billed price
- plan revenue
- Revenue measured on the explicitly selected cash or recognition basis (CU/account/horizon) — billing record or scenario
- included service cost
- Usage, support, payment and delivery cost inside the boundary (CU/account/horizon) — cost record or scenario
- annual discount cost
- Difference from twelve monthly list-price payments before retention effects (CU/account/year) — current offer record
Run a cash view and an earned-contribution view separately. Apply the same horizon and customer-state rule to both plans.
- Freeze one customer segment, feature promise and twelve-month comparison horizon.
- Write monthly and annual prices on the same indirect-tax basis.
- Map collection, payment, cancellation, credit and refund dates.
- Calculate service cost by month rather than assuming it is paid upfront.
- Build separate retention scenarios without claiming plan choice caused them.
- Compare contribution, peak cash and remaining service obligation.
- Set an experiment or review trigger before changing discount or terms.
Worked example: one account over twelve months
Invented scenario: monthly price 100 CU, annual price 1,080 CU, and service cost 35 CU per active month. The base comparison assumes twelve active months under either plan.
| Step | Inputs and arithmetic | Result and interpretation |
|---|---|---|
| Monthly-plan revenue | 12 × 100 | 1,200 CU collected through the year |
| Annual-plan revenue | entered annual price | 1,080 CU collected upfront |
| Annual discount | 1,200 - 1,080 | 120 CU, or one monthly list-price equivalent |
| Twelve-month contribution | monthly: 1,200 - 420; annual: 1,080 - 420 | 780 CU monthly plan; 660 CU annual plan |
| Case | Changed input and arithmetic | Outcome | What to investigate |
|---|---|---|---|
| Monthly cancels after 8 months | 8 × (100 - 35) | 520 CU contribution | Compare evidence and timing, not a causal claim |
| Both active 12 months | Monthly 780 vs annual 660 | Monthly contributes 120 CU more | Annual still collects cash earlier |
| Annual service cost rises to 40/month | 1,080 - 12 × 40 | 600 CU contribution | Check usage and support burden by plan |
Choose the next test, not a guaranteed answer
| Observed signal | Possible interpretation | Bounded next action |
|---|---|---|
| Cash runway is the main constraint | Upfront collection may help liquidity | Model refund and service-obligation downside |
| Annual discount erodes contribution | Discount may exceed evidenced retention value | Test a narrower discount or non-price benefit |
| Plan cohorts behave differently | Selection effects may explain the difference | Compare matched entry cohorts and acquisition channels |
- Treating upfront cash as fully earned profit.
- Assuming annual customers retain better because they selected annual billing.
- Ignoring refund, credit and remaining-service obligations.
- Comparing annual accounts with a different customer segment or acquisition channel.
- Quoting provider billing fees without a current dated contract.
Questions to resolve before acting
- Is annual billing always better for cash flow?
- It can improve collection timing, but refunds, discounts, taxes, payment costs and the continuing service obligation can change the downside. Use dated scenarios.
- What annual discount should a business offer?
- Margin101 supplies no benchmark. Compare discount cost with contribution, cash need, service burden and observed cohort behaviour.
- Does an annual plan reduce churn?
- A contract can delay a cancellation event, but observed cohort differences do not prove causation. Keep logo churn, revenue churn, refunds and renewal separately visible.
Sources and calculation owners
- Subscription Pricing Tier methodology — Margin101: Aligned account, revenue and cost-to-serve comparison.
- Subscription Churn Impact methodology — Margin101: Finite cohort churn scenarios.
- Cash Runway methodology — Margin101: Dated cash-event and buffer boundary.
Run the next calculation
- Subscription Pricing Tier Planner
Compare two subscription tiers by revenue, usage-linked service cost, support burden and raw contribution rank
- Subscription Churn Impact Planner
Keep logo and revenue churn separate while estimating annual contribution and replacement acquisition impact
- Cash Runway Planner
Identify a dated cash-buffer breach and peak funding gap