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 |
|---|---|---|---|
| Starting customer cohort | accounts at date | Billing record | Define new, active, paused and cancelled states |
| Recurring revenue | CU/account/period | Billing record | State discounts, credits and tax basis |
| Cost to serve | CU/account/period | Usage, support and delivery record | Declare fixed and variable boundary |
| Acquisition cost | CU/acquired account | Channel cost and attribution record | Use an aligned acquired-customer denominator |
| Retention scenarios | accounts/period | Cohort record or scenario | Do not treat churn as constant certainty |
Build a reproducible economic view
cohort contribution over horizon = ฮฃ(active accounts in period ร contribution per active account) - cohort acquisition cost; contribution per active account = recurring revenue - included cost to serve
- active accounts in period
- Accounts meeting the declared active-state rule in each period (accounts/period) โ billing cohort or scenario
- contribution per active account
- Recurring revenue less included usage, delivery, support and payment costs (CU/account/period) โ billing and cost record
- cohort acquisition cost
- Included acquisition spend assigned to the same acquired cohort (CU/cohort) โ channel and attribution record
Use a finite month-by-month horizon. Do not divide by churn to imply an unlimited lifetime or omit cash collection and payment dates.
- Define the cohort entry date, active-state rule and observation horizon.
- Reconcile billed revenue, discounts, credits and failed collections.
- Assign usage-linked, support, payment and other included service costs.
- Calculate per-period contribution before acquisition cost.
- Reconcile acquisition spend to acquired accounts under one attribution rule.
- Run lower, base and higher retention paths across the finite horizon.
- Add dated cash collection and payment rows before making a runway decision.
Worked example: a six-month acquisition cohort
Invented simplified scenario: 40 acquired accounts, 50 CU monthly revenue, 18 CU monthly cost to serve and 8,000 CU cohort acquisition cost. The base scenario averages 35 active accounts across six months.
| Step | Inputs and arithmetic | Result and interpretation |
|---|---|---|
| Contribution per active account-month | 50 - 18 | 32 CU |
| Active account-months | 35 average ร 6 months | 210 account-months |
| Contribution before acquisition | 210 ร 32 | 6,720 CU |
| Contribution after acquisition | 6,720 - 8,000 | (1,280) CU over the six-month horizon |
| Case | Changed input and arithmetic | Outcome | What to investigate |
|---|---|---|---|
| Lower retention | 180 account-months ร 32 - 8,000 | (2,240) CU | Inspect cohort churn reasons and service fit |
| Base | 210 account-months ร 32 - 8,000 | (1,280) CU | Measure whether later months close the gap |
| Higher retention | 240 account-months ร 32 - 8,000 | (320) CU | Still not recovered within six months |
Choose the next test, not a guaranteed answer
| Observed signal | Possible interpretation | Bounded next action |
|---|---|---|
| Strong revenue but weak contribution | Cost-to-serve boundary may be heavy | Inspect tier, usage and support cohorts |
| Good contribution but slow cash recovery | Collection timing or acquisition spend timing may dominate | Build a dated payback and runway view |
| Churn concentrated in one cohort | Average churn may hide a segment or onboarding issue | Compare matched cohorts before intervening |
- Using revenue as contribution.
- Combining new and mature cohorts in one unexplained average.
- Using unlimited LTV derived from a single churn observation.
- Comparing acquisition cost and contribution from different horizons.
- Treating recognised revenue and cash collection as the same event.
Follow a finite-horizon cohort waterfall
| Period | Active accounts | Contribution at 32 CU per active account | Cumulative contribution less 8,000 CU acquisition cost |
|---|---|---|---|
| Month 1 | 40 acquired and active | 1,280 CU | (6,720) CU |
| Month 2 | 38 retained under the user scenario | 1,216 CU | (5,504) CU |
| Month 3 | 36 retained under the user scenario | 1,152 CU | (4,352) CU |
| Month 4 | 34 retained under the user scenario | 1,088 CU | (3,264) CU |
| Month 5 | 32 retained under the user scenario | 1,024 CU | (2,240) CU |
| Month 6 | 30 retained under the user scenario | 960 CU | (1,280) CU |
Route to the calculation owner
- Subscription Churn Impact Planner
Keep logo and revenue churn separate while estimating annual contribution and replacement acquisition impact
- Customer Acquisition Cost Planner
Measure loaded and marginal customer acquisition cost across aligned channels
- CAC Payback Planner
Find when retained customer contribution recovers acquisition cost
Interpret each SaaS result on its own boundary
Use the pillar to reconcile the originating tool result with the same cohort, period and cost boundary. The linked tool and methodology retain formula ownership; this table explains what the result means, what must stay aligned and when interpretation must stop.
| Decision journey | Interpret the result as | Units and boundary to retain | Stop when | Exact calculation owner |
|---|---|---|---|---|
| Reconcile recurring revenue state movement | A bridge from opening recurring revenue through new, expansion, contraction and churn movements to closing recurring revenue; ARR is the annualised run-rate view of the same stated snapshot, not earned annual revenue. | CU per month for MRR and CU per year for ARR; one currency, tax treatment, customer-state rule and snapshot date. | One-off fees enter recurring revenue, movement rows do not reconcile, or MRR and ARR use different snapshots or currencies. | Recurring Revenue MRR/ARR and its methodology |
| Interpret SaaS gross margin | Recurring revenue less the explicitly included service-delivery cost for the same period; it is not contribution after acquisition, operating profit or cash. | CU per period and percentage of the same recurring-revenue denominator; hosting, support, payment and other cost-to-serve inclusions must be named. | Revenue and service cost use different periods, support or hosting is unallocated, or acquisition and fixed operating costs are mixed into the result without disclosure. | SaaS Gross Margin and its methodology |
| Test freemium conversion economics | A finite free-user cohort scenario that compares converted accounts and their contribution with the incremental free-tier, conversion and onboarding cost assigned to that cohort. | Accounts per cohort, CU per cohort and one finite conversion/contribution window; observed conversion and user-entered scenarios stay separate. | Free and converted cohorts or windows differ, shared cost lacks an allocation boundary, or conversion is described as caused by the tested change. | Freemium Conversion Economics and its methodology |
| Compare seat and usage pricing | Two pricing-model scenarios for the same customer cohort and service promise, with seats, included usage, overage and cost-to-serve kept visible rather than reduced to headline revenue. | Seats per account, usage units per account per period and CU per account per period; entitlements, metering and support scope must match. | The service scopes differ, usage is an unsupported forecast, metering units are incompatible, or customer acceptance is assumed. | Seat vs Usage Pricing and its methodology |
| Reconcile expansion revenue | Expansion and contraction within an existing-customer recurring-revenue bridge, kept separate from new-logo acquisition, churn, invoice timing and collected cash. | CU of recurring revenue per month for one opening customer cohort and movement period; price, quantity and plan changes require labels. | New customers are counted as expansion, contraction or churn is omitted, price changes are unexplained, or recurring revenue is treated as cash received. | Expansion Revenue Plan and its methodology |
| Interpret support cost per account | The included support resource for a declared active-account denominator and period, with ticket, time, labour and shared-support allocations reconciled before comparison. | Support hours per account per period and CU per active account per period; active-state, support tier and included cost boundary must be explicit. | Tickets are substituted for accounts, active states differ, shared support cost does not reconcile, or the result is presented as a service-quality benchmark. | Support Cost per Account and its methodology |
| Interpret customer onboarding payback | The finite point at which cumulative post-onboarding contribution recovers the included customer-specific onboarding cost; it is distinct from general acquisition payback. | CU per onboarded customer and months from the declared onboarding start; implementation, training, support and post-onboarding contribution boundaries must be stated. | Acquisition cost is counted again, onboarding and contribution cohorts differ, the horizon becomes indefinite, or recovery is treated as proof of retention or cash availability. | Customer Onboarding Payback and its methodology |
Open the exact SaaS decision owner
- Recurring Revenue MRR and ARR Planner
Reconcile recurring-revenue movements and inspect closing MRR, ARR, GRR and NRR on one cohort basis
- SaaS Gross Margin Planner
Reconcile recurring revenue with an explicitly classified service-cost stack and inspect gross contribution and margin
- Freemium Conversion Economics Planner
Test whether user-entered conversion and paid-account contribution can cover free-account service and programme costs
- Seat-based vs Usage-based Pricing Planner
Compare seat-based and usage-based contribution on one service-cost basis
- Expansion Revenue Planner
Test adoption-driven expansion MRR against contraction and programme cost
- Support Cost per Account Planner
Allocate support labour and vendor cost across active accounts and handled tickets
- Customer Onboarding Payback Planner
Find when retained monthly contribution recovers customer onboarding and acquisition cost
Questions to resolve before acting
- Should a SaaS business calculate LTV?
- A finite-horizon cohort contribution view is safer when retention evidence is limited. If an LTV model is used, disclose its cohort, horizon, cost boundary and sensitivity.
- Is logo churn the same as revenue churn?
- No. Account counts and recurring revenue can move differently because customer sizes, expansions and contractions differ. Keep the measures separate.
- Why can positive contribution still create a cash problem?
- Acquisition and delivery costs may be paid before subscription cash is collected. A dated cash view can show a funding gap that an accrual contribution total hides.
Sources and calculation owners
- Subscription Churn Impact methodology โ Margin101: Logo and revenue churn boundaries.
- Customer Acquisition Cost methodology โ Margin101: Aligned channel-cost and acquired-customer denominator.
- CAC Payback methodology โ Margin101: Finite contribution and recovery timing.
Run the next calculation
- Subscription Churn Impact Planner
Keep logo and revenue churn separate while estimating annual contribution and replacement acquisition impact
- Customer Acquisition Cost Planner
Measure loaded and marginal customer acquisition cost across aligned channels
- CAC Payback Planner
Find when retained customer contribution recovers acquisition cost