pricing-unit-economics

Pricing & Unit Economics

Reference

• ID: S-RISK-05
• Category: Ops & Risk
• Inputs: revenue data, cost structure, acquisition spend, churn rates, customer segmentation
• Outputs: unit economics report + financial forecast → artifacts/finance/
• Used by: Ops & Risk Agent
• Tool scripts: ./tools/artifact/validate.sh

Purpose

Analyzes customer acquisition cost (CAC), lifetime value (LTV), and related unit economics to validate that the pricing model is sustainable and identify levers for improving profitability.

Procedure

Step 0: Revenue Stage Check

Read company.stage from company.config.yaml.

Pre-Revenue Mode (idea/mvp, 0-10 customers):

1. Value metric selection — what unit of value does the customer pay for?
2. Willingness-to-pay hypothesis via customer conversations
3. Competitive pricing teardown — 3-5 comparable products
4. Initial price range (floor = cost x 3, ceiling = competitor median)
5. Price sensitivity test script for first 10 sales conversations

Skip CAC/LTV/NRR calculations until sufficient data exists. Proceed to full unit economics when monthly revenue exceeds $1K or customer count exceeds 20.

1. Calculate CAC: total acquisition spend / number of new customers acquired, by channel.
2. Calculate LTV: average revenue per user (ARPU) * gross margin % * average customer lifetime.
3. Compute the LTV:CAC ratio and assess health (target: 3:1 or higher).
4. Calculate CAC payback period: CAC / (ARPU * gross margin %).
5. Segment the analysis by customer tier, plan, or cohort to find variation.
6. Review the current pricing model: per-seat, usage-based, flat-rate, freemium.
7. Stress-test pricing assumptions: what happens if churn increases 20%? If ARPU drops 15%?
8. Identify pricing optimization opportunities: upsell paths, plan restructuring, value metric alignment.
9. Produce recommendations with projected financial impact.
10. MRR/ARR Tracking Framework:
    • Define MRR components: new MRR, expansion MRR, contraction MRR, churned MRR, reactivation MRR.
    • Produce cohort table template: signup month x months-since-signup, tracking retained revenue %.
    • Calculate Net Revenue Retention (NRR): (Starting MRR + Expansion - Contraction - Churn) / Starting MRR.
    • Benchmark: NRR > 100% = healthy growth (expansion > churn), > 120% = excellent.
11. Financial Forecasting:
    • Build 3/6/12 month revenue projections using current MRR growth rate.
    • Model three scenarios: Optimistic (1.5x current growth), Base (current growth), Pessimistic (0.5x current growth).
    • Include key assumptions and sensitivity ranges.
    • For each scenario: projected MRR, ARR, customer count, ARPU.
12. Runway Monitoring:
    • Calculate monthly burn rate: total monthly expenses (engineering, marketing, infrastructure, operations).
    • Calculate months of runway: current cash / monthly burn rate.
    • Define trigger thresholds:
      • Green: > 18 months runway.
      • Yellow: 12-18 months (start exploring funding).
      • Orange: 6-12 months (actively fundraise).
      • Red: < 6 months (emergency mode: cut costs or close round).
    • Cash-out date projection based on current burn and revenue growth.
13. Budget Allocation Framework:
    • Define spending ratios by company stage:
      • idea/mvp: 70% engineering, 15% marketing, 10% infra, 5% ops.
      • growth: 50% engineering, 25% marketing, 15% infra, 10% ops.
      • scale: 40% engineering, 30% marketing, 15% infra, 15% ops.
    • Compare current allocation vs recommended ratios.
    • Flag significant deviations with recommendations.
14. Investor Reporting Template:
    • Produce monthly investor update outline:
      1. Key metrics (MRR, growth %, NRR, CAC, LTV:CAC, runway).
      2. Product highlights (shipped features, user feedback themes).
      3. Growth highlights (acquisition channels, activation rate).
      4. Challenges & risks (what's not working, market shifts).
      5. Asks (specific help needed from investors: intros, hiring, advice).
    • Reference the template at standards/ops/investor-reporting-template.md.
15. Save the unit economics report to artifacts/finance/.
16. Validate the artifact using ./tools/artifact/validate.sh.

Quality Checklist

• [ ] CAC is calculated by channel, not just blended
• [ ] LTV calculation uses gross margin, not revenue
• [ ] LTV:CAC ratio is computed and benchmarked
• [ ] CAC payback period is calculated
• [ ] Analysis is segmented by meaningful cohorts
• [ ] Sensitivity analysis covers key risk scenarios
• [ ] Pricing recommendations are tied to data
• [ ] MRR decomposition (new, expansion, contraction, churn) is present
• [ ] NRR is calculated and benchmarked
• [ ] Financial forecast covers at least 3 scenarios
• [ ] Runway is calculated with traffic-light classification
• [ ] Budget allocation compared to stage-appropriate ratios
• [ ] Investor update template is referenced
• [ ] Artifact passes validation