4 Revenue Models and Unit Economics Free Online FlashCards

What does a revenue model describe?

A revenue model describes how a business earns money.

What is the central trade-off of a subscription model?

Customers pay regularly for continuing access or service. Recurring payments can make revenue more predictable, but the business must keep delivering value and retaining customers.

How does a transaction or commission model earn revenue?

The business earns a fee or percentage when it helps complete a transaction. Revenue depends on transaction volume and value.

What is a benefit and a drawback of usage-based revenue?

Customers pay according to consumption, such as data stored or API calls. Charges can align with usage and costs, but variable bills may be harder for customers to predict.

What challenge must a freemium business address?

Freemium offers a basic version for free and charges for advanced features or capacity. The business needs a viable way to convert some free users into paying customers, while accounting for free users’ support and service costs.

What guides value-based pricing?

Value-based pricing sets a price in relation to the benefit customers expect. It requires understanding their alternatives and how important the problem is to them.

How is contribution margin per unit calculated?

Contribution margin per unit is the price per unit minus the variable cost per unit: $\text{Contribution margin} = \text{price per unit} - \text{variable cost per unit}$.

How do variable costs differ from fixed costs?

Variable costs change with each additional sale or customer, such as materials, shipping, or payment fees. Fixed costs, such as rent or core salaries, generally do not change with each unit sold.

How do you estimate break-even units?

For a single product with constant price and variable cost, break-even units are fixed costs divided by contribution margin per unit: $\text{Break-even units} = \frac{\text{fixed costs}}{\text{contribution margin per unit}}$.

How is customer acquisition cost (CAC) estimated?

Customer acquisition cost estimates the cost of gaining a new paying customer: $\text{CAC} = \frac{\text{sales and marketing acquisition costs}}{\text{new customers acquired}}$. Define the included costs and time period consistently.

What is an introductory estimate of subscription customer LTV?

For a subscription business, an introductory estimate is $\text{LTV} \approx \text{monthly revenue per customer} \times \text{gross margin percentage} \times \text{average customer lifetime in months}$. The estimate depends on its assumptions.

How is CAC payback period simply estimated?

A simple subscription estimate is $\text{CAC payback period} = \frac{\text{CAC}}{\text{monthly gross profit per customer}}$. It estimates how long contribution takes to repay acquisition cost, but does not by itself prove overall profitability.