Who asked: the CEO of Northbeam, a software company that sells a scheduling tool by monthly subscription (made up for practice). The board meets in January and wants to know whether to keep spending on sales and marketing at this pace.
The data: 420 customers paying 50,400 a month at the start of the year, a plan for new customers and sales and marketing spend each month, and churn, pricing, expansion and margin assumptions.
What done looks like: customers and MRR month by month, ARR and its growth, CAC and payback, a January cohort, lifetime value and LTV / CAC, net revenue retention, and one cell with the verdict.
Subscription businesses are run on a handful of metrics, and every one of them comes out of a monthly model like this one. You build it in ten steps, in one workbook:
- customers: start, new, churned and end;
- the MRR bridge: new, expansion and churned revenue;
- ARR and its growth;
- customer acquisition cost (CAC);
- CAC payback in months;
- a cohort of January's new customers;
- lifetime value and LTV / CAC;
- net revenue retention;
- the board summary;
- the verdict.
Two conventions matter. Churn applies to the customers and revenue you started the month with. And payback and lifetime value are measured in gross profit, not revenue: a customer paying 130 a month at a 78% margin pays back 101.40 a month.