Module 1 · Evaluate a change
Should a subscription price change?
The model runs in eight steps. Fields with a teal underline are inputs you can change. Each label has a definition behind its i button, and each result is calculated from the fields to its left.
example Prefilled with a $5 monthly plan moving to $7. Every field can be changed, and changes are saved in this browser.
01 / 08
Decision
The question, the success measure, and the period are written down before any number is entered, which keeps the model on the question being asked.
02 / 08
Baseline
The baseline is what one month of new subscribers is worth at today's price, cost, and churn. Every later result is compared with it.
One subscriber, then one month of new subscribers
Price todayPriceWhat one customer pays per period, or what one unit costs.$
Cost to serve per monthCost to serveWhat it costs to deliver the product to one customer for one period, or one unit.Watch forIt is usually fixed in dollars, so raising price widens the margin percentage. Costs that scale with price, like processing fees, are entered separately.$
Variable cost rateVariable cost rateCost that rises with price, as a share of price.ExampleA 3% payment fee on a $7 plan is $0.21.%
Price todayPriceWhat one customer pays per period, or what one unit costs.$5.00
Contribution marginContribution marginWhat is left from one customer's price after the cost to serve them, per period.FormulaPrice − Cost to serve − ( Variable cost rate × Price ) = Contribution marginExample$7 price − $1 cost = $6.Watch forIt counts only the cost to serve. Sales commissions, support, and fixed costs such as salaries are left out, so it is not profit.
Contribution marginContribution marginWhat is left from one customer's price after the cost to serve them, per period.FormulaPrice − Cost to serve − ( Variable cost rate × Price ) = Contribution marginExample$7 price − $1 cost = $6.Watch forIt counts only the cost to serve. Sales commissions, support, and fixed costs such as salaries are left out, so it is not profit.$4.00
Monthly churn todayChurn rateThe share of paying customers lost in one period.Example5% monthly churn means an average customer life of 1 ÷ 5% = 20 months.Watch forMonthly and annual churn are not interchangeable. Keep the period the same as the price.%
Lifetime valueLifetime valueThe contribution margin one customer brings in over their whole time as a customer.FormulaContribution margin ÷ Churn rate = Lifetime valueExample$6 margin ÷ 5.5% monthly churn = $109.09.Watch forAssumes churn stays constant and the price holds for the customer's life. It leaves out expansion revenue and does not discount future dollars.Also calledLTV, CLV
New customers per month todayNew customersCustomers who start paying in one period.
Lifetime valueLifetime valueThe contribution margin one customer brings in over their whole time as a customer.FormulaContribution margin ÷ Churn rate = Lifetime valueExample$6 margin ÷ 5.5% monthly churn = $109.09.Watch forAssumes churn stays constant and the price holds for the customer's life. It leaves out expansion revenue and does not discount future dollars.Also calledLTV, CLV$80.00
Cohort valueCohort valueThe lifetime value of everyone who joins in one period.FormulaNew customers × Lifetime value = Cohort valueExample9,200 new customers × $109.09 = $1,003,636.
The two cost methods give different answers after a price change. A cost fixed in dollars leaves the whole increase as margin. A cost that is a share of price takes its share of the increase.
03 / 08
Drivers
Four inputs produce cohort value: price, cost to serve, churn, and the number of new customers. The price is the decision. The other three are where the response to it shows up.
Proposed pricePriceWhat one customer pays per period, or what one unit costs.$
Price todayPriceWhat one customer pays per period, or what one unit costs.$5.00
Price todayPriceWhat one customer pays per period, or what one unit costs.$5.00
Price increasePrice increaseThe rise in price as a share of the old price.Formula( Price − Price ) ÷ Price = Price increaseExample$5 to $7 is a 40% increase.
Contribution margin todayContribution marginWhat is left from one customer's price after the cost to serve them, per period.FormulaPrice − Cost to serve − ( Variable cost rate × Price ) = Contribution marginExample$7 price − $1 cost = $6.Watch forIt counts only the cost to serve. Sales commissions, support, and fixed costs such as salaries are left out, so it is not profit.$4.00
Price todayPriceWhat one customer pays per period, or what one unit costs.$5.00
Margin share of priceMargin share of priceContribution margin as a share of the old price.FormulaContribution margin ÷ Price = Margin share of priceExample$4 margin on a $5 price is 80%.
04 / 08
Assumptions
These inputs describe how customers respond to the new price, and neither can be looked up. Each one shows its source.
Response to the new price
estimateNew customers per month after the changeNew customersCustomers who start paying in one period.10,000 today
Monthly churn after the changeChurn rateThe share of paying customers lost in one period.Example5% monthly churn means an average customer life of 1 ÷ 5% = 20 months.Watch forMonthly and annual churn are not interchangeable. Keep the period the same as the price.%5.0% today
A price test on a share of new traffic is the usual way to replace both estimates. Step 7 shows how far each can move before the answer changes.
05 / 08
Calculations
Breakeven comes first because it needs no assumption about customers. It gives the loss of new customers the price change can absorb, which the assumed loss is then compared with.
Breakeven on the increase
Price increasePrice increaseThe rise in price as a share of the old price.Formula( Price − Price ) ÷ Price = Price increaseExample$5 to $7 is a 40% increase.40.0%
Price increasePrice increaseThe rise in price as a share of the old price.Formula( Price − Price ) ÷ Price = Price increaseExample$5 to $7 is a 40% increase.40.0%
Revenue breakevenRevenue breakevenThe share of volume you can lose after a price increase before revenue falls.FormulaPrice increase ÷ ( 1 + Price increase ) = Revenue breakevenExampleA 40% increase breaks even at a 28.6% loss of volume.Watch forIt tests revenue only. Use margin breakeven when cost to serve matters.
Price increasePrice increaseThe rise in price as a share of the old price.Formula( Price − Price ) ÷ Price = Price increaseExample$5 to $7 is a 40% increase.40.0%
Margin share of priceMargin share of priceContribution margin as a share of the old price.FormulaContribution margin ÷ Price = Margin share of priceExample$4 margin on a $5 price is 80%.80.0%
Price increasePrice increaseThe rise in price as a share of the old price.Formula( Price − Price ) ÷ Price = Price increaseExample$5 to $7 is a 40% increase.40.0%
Margin breakevenMargin breakevenThe share of volume you can lose after a price increase before contribution falls.FormulaPrice increase ÷ ( Margin share of price + Price increase ) = Margin breakevenExampleA 30% increase at an 80% margin breaks even at a 27.3% loss.Watch forAssumes cost to serve stays fixed in dollars.
New customers afterNew customersCustomers who start paying in one period.9,200
New customers todayNew customersCustomers who start paying in one period.10,000
Assumed loss of new customersAssumed loss of new customersThe share of new customers the model assumes the higher price turns away.Formula1 − New customers ÷ New customers = Assumed loss of new customersExample9,200 new customers against 10,000 is an 8% loss.Watch forThe change is safe on this measure only while the assumed loss stays under the breakeven loss.
PASS
The assumed loss of new customers is 8.0%. First-month contribution breaks even at a loss of 33.3% and revenue at 28.6%. The assumption is inside both limits. Breakeven ignores churn, which the lifetime value rows below add.
The proposed case
Proposed pricePriceWhat one customer pays per period, or what one unit costs.$7.00
Cost to serve per monthCost to serveWhat it costs to deliver the product to one customer for one period, or one unit.Watch forIt is usually fixed in dollars, so raising price widens the margin percentage. Costs that scale with price, like processing fees, are entered separately.$1.00
Variable cost rateVariable cost rateCost that rises with price, as a share of price.ExampleA 3% payment fee on a $7 plan is $0.21.0.0%
Proposed pricePriceWhat one customer pays per period, or what one unit costs.$7.00
Contribution marginContribution marginWhat is left from one customer's price after the cost to serve them, per period.FormulaPrice − Cost to serve − ( Variable cost rate × Price ) = Contribution marginExample$7 price − $1 cost = $6.Watch forIt counts only the cost to serve. Sales commissions, support, and fixed costs such as salaries are left out, so it is not profit.
Contribution marginContribution marginWhat is left from one customer's price after the cost to serve them, per period.FormulaPrice − Cost to serve − ( Variable cost rate × Price ) = Contribution marginExample$7 price − $1 cost = $6.Watch forIt counts only the cost to serve. Sales commissions, support, and fixed costs such as salaries are left out, so it is not profit.$6.00
Monthly churn after the changeChurn rateThe share of paying customers lost in one period.Example5% monthly churn means an average customer life of 1 ÷ 5% = 20 months.Watch forMonthly and annual churn are not interchangeable. Keep the period the same as the price.5.5%
Lifetime valueLifetime valueThe contribution margin one customer brings in over their whole time as a customer.FormulaContribution margin ÷ Churn rate = Lifetime valueExample$6 margin ÷ 5.5% monthly churn = $109.09.Watch forAssumes churn stays constant and the price holds for the customer's life. It leaves out expansion revenue and does not discount future dollars.Also calledLTV, CLV
New customers after the changeNew customersCustomers who start paying in one period.9,200
Lifetime valueLifetime valueThe contribution margin one customer brings in over their whole time as a customer.FormulaContribution margin ÷ Churn rate = Lifetime valueExample$6 margin ÷ 5.5% monthly churn = $109.09.Watch forAssumes churn stays constant and the price holds for the customer's life. It leaves out expansion revenue and does not discount future dollars.Also calledLTV, CLV$109.09
Cohort valueCohort valueThe lifetime value of everyone who joins in one period.FormulaNew customers × Lifetime value = Cohort valueExample9,200 new customers × $109.09 = $1,003,636.
06 / 08
Outputs
The baseline and the proposed case side by side. Cohort value is the deciding number because it combines the higher price, the customers lost at signup, and the customers lost sooner to churn.
| Measure | BaselineBaselineWhat happens over the period if nothing changes. Every result is measured against it.Watch forA baseline that quietly assumes growth or decline moves every result with it. | Proposed | Change |
|---|---|---|---|
| PricePriceWhat one customer pays per period, or what one unit costs. | $5.00 | $7.00 | +40.0% |
| Contribution marginContribution marginWhat is left from one customer's price after the cost to serve them, per period.FormulaPrice − Cost to serve − ( Variable cost rate × Price ) = Contribution marginExample$7 price − $1 cost = $6.Watch forIt counts only the cost to serve. Sales commissions, support, and fixed costs such as salaries are left out, so it is not profit. | $4.00 | $6.00 | +50.0% |
| New customersNew customersCustomers who start paying in one period. | 10,000 | 9,200 | −8.0% |
| Churn rateChurn rateThe share of paying customers lost in one period.Example5% monthly churn means an average customer life of 1 ÷ 5% = 20 months.Watch forMonthly and annual churn are not interchangeable. Keep the period the same as the price. | 5.0% | 5.5% | +10.0% |
| First-month revenue | $50,000 | $64,400 | +28.8% |
| Lifetime valueLifetime valueThe contribution margin one customer brings in over their whole time as a customer.FormulaContribution margin ÷ Churn rate = Lifetime valueExample$6 margin ÷ 5.5% monthly churn = $109.09.Watch forAssumes churn stays constant and the price holds for the customer's life. It leaves out expansion revenue and does not discount future dollars.Also calledLTV, CLV | $80.00 | $109.09 | +36.4% |
| Cohort valueCohort valueThe lifetime value of everyone who joins in one period.FormulaNew customers × Lifetime value = Cohort valueExample9,200 new customers × $109.09 = $1,003,636. | $800,000 | $1,003,636 | +25.5% |
Contribution earned by one monthly cohort, month by month
The lines do not cross in the first 36 months. Cohort value is the level each line approaches over the cohort's full life.
| Month 12: $367,712 today, $494,589 proposed | Month 24: $566,409 today, $745,446 proposed | Month 36: $673,777 today, $872,682 proposed |
07 / 08
Sensitivity
Churn and new customers each run from no effect at all to twice the assumed effect, and cost to serve runs from half to one and a half times the entry, while the others stay fixed. The table ranks them by how far the change in cohort value moves.
| Assumption | Tested range | Change in cohort value | SwingSensitivityHow much the result moves when one assumption moves and the rest stay put.Watch forMoving one input at a time hides cases where two inputs move together. |
|---|---|---|---|
| Churn after the change | 5.0% to 6.0% | $304,000 to $120,000 | $184,000 |
| New customers after the change | 10,000 to 8,400 | $290,909 to $116,364 | $174,545 |
| Cost to serve, today and proposed | $0.50 to $1.50 | $187,273 to $220,000 | $32,727 |
Cost to serve applies to today's price and the proposed price alike, so a change in it moves both cohort values and mostly cancels out. A higher cost lowers today's cohort value by more than the proposed one, because today has more subscribers and a thinner margin, which is why the gain from the price change grows as cost rises.
Breakeven assumption valueBreakeven assumption valueThe value of an assumption at which the change exactly matches the baseline.ExampleAt $7 the cohort is worth the same as today if monthly churn reaches 6.9%.Watch forIt measures the room for error. It does not say how likely that value is.
Churn, cohort value
6.9%
Cohort value matches today at this monthly churn. Assumed: 5.5%.
Churn, lifetime value
7.5%
Value per subscriber matches today at this monthly churn.
New customers
7,333
Cohort value matches today at this many new customers per month. Assumed: 9,200.
08 / 08
Validation
The checks to run before committing to the price, the comparisons to make after launch, and the questions this model leaves open.
Before committing
- Run the new price on a share of new traffic and measure conversion against the current price.
- Hold the test long enough to see the first renewals, since early churn is where a higher price shows up.
- Confirm how cost to serve behaves. A payment fee scales with price, and infrastructure cost usually does not.
After launch
- Compare new customers and realized price with this forecast each month.
- Track churn by signup cohort and compare it with the breakeven churn in step 7.
Send one month of this forecast to Module 2
What this model cannot prove
- How customers will respond. The new customer count and the churn rate after the change are estimates with no data behind them yet.
- What happens to existing subscribers. The model prices new subscribers only.
- Churn that changes over a subscriber's life. Lifetime value assumes one constant rate and does not discount future dollars.