Section 05: Business Model & Economics
Unit Economics Dashboard
$250
75%
$6,250
$600
10.4:1 ✅
3 months ✅
3%
100
1. Revenue Model Overview
Primary: Business Subscriptions (60% of revenue)
SaaS tiers for platform access. Predictable MRR aligns with B2B SMB preferences. Fits local businesses needing low-friction loyalty tools without upfront costs. Benchmarks like Fivestars show 70%+ retention on subs.
Secondary: Transaction Fees on Redemptions (30% of revenue)
Usage-based 5% fee on redemption value (charged to business). Scales with adoption/network effects; no fee on earns encourages participation. Captures value as coalitions grow (cross-redemptions drive 40%+ volume).
Tertiary: Coalition Fees (10% of revenue)
Licensing model ($199/mo per coalition up to 50 businesses). Leverages associations for density; high margin, low churn via community lock-in.
Evolution: Year 1: Sub-dominant (build base). Year 2-3: Fees 40%+ (volume ramps). Maturity: 40/40/20 mix for resilience.
2. Pricing Strategy & Tier Structure
Pricing Psychology: Pro tier anchored as best value (2x features for 2x price). $29/$59 points from competitor benchmarks (Fivestars $59+, Square free+fees). 17% ann. discount drives commitment. Good-Better-Best upsells via limits/marketing.
Market Benchmark Comparison
| Competitor | Entry | Mid | Enterprise | Your Position |
|---|---|---|---|---|
| Fivestars | $0+fees | $59/mo | Custom | Parity + coalition |
| Square Loyalty | $0 | 1.75% fee | N/A | Lower sub, network moat |
| Toast | $50/mo | $165/mo | Custom | 20% cheaper mid |
| LocalPerks | $29 | $59 | Custom | Network value justifies |
Justification (Value vs. Price): Businesses pay $29-59/mo for access to shared customer base (29+ neighbors), driving 20-30% new traffic via cross-redemptions. ROI: $5k/mo new revenue potential vs. $50 cost (10x). Elasticity high—price hikes post-density proven. Add-ons: $20/mo extra marketing slots.
3. Customer Acquisition Economics
| Channel | Monthly Spend | Conversions | CAC | Notes |
|---|---|---|---|---|
| Coalition Partnerships | $3,000 | 25 | $120 | Assoc. intros, pilots |
| Content/SEO (Biz blogs) | $1,500 | 15 | $100 | Local loyalty guides |
| LinkedIn Ads/Events | $4,000 | 20 | $200 | Target owners |
| Referrals | $1,000 | 20 | $50 | 1 mo free per refer |
| Total | $9,500 | 80 | $600 | Blended (Y1) |
CAC Improvement: M1-3: $800 (ramp). M4-6: $650 (opt). M7+: $450 (organic 30%). Viral K=1.2 via coalitions. Net effective CAC $400 incl. 25% WOM/SEO by Y1 end.
4. Lifetime Value Analysis
ARPU Breakdown: Subs $50 (70% Basic@29, 20% Pro@59, 10% Ent@300) + Fees $150 (tx/coalition prorated) + Coalition adj $50 = $250/mo.
Retention: Mo1:100%, Mo3:92%, Mo6:85%, Mo12:72%, Mo24:60%. Churn 3% (B2B SMB benchmark 2-4%).
LTV:CAC 10.4:1 ✅ (Target >3x). Payback: CAC/$187.5 contrib margin/mo = 3.2 mo.
Sensitivity: 2x CAC ($1,200): 5.2:1 still healthy. 50% churn (6%): LTV $3,125, ratio 5.2:1. Strategies: Upsell tiers (+20% ARPU), CS playbooks (-1% churn).
5. Cost Structure & Margins
| Fixed (Monthly) | Amount |
|---|---|
| Salaries (3 FTE) | $15k |
| Tools/Hosting | $2k |
| Marketing | $5k |
| Legal/Compliance | $1.5k |
| Total | $23.5k |
| Variable (/Biz/Mo) | Cost |
|---|---|
| Payment Proc/Interchange | $25 |
| Hosting/DB | $5 |
| Support | $5 |
| AI/Misc | $5 |
| Total | $40 |
Gross Margin: ($250 - $40)/$250 = 84%. Op Margin @200 biz: 62% ($50k rev - $23.5k fixed - $8k var). Scale to 75%+ Y2. Roadmap: Negotiate proc fees (→80%+).
6. Break-Even Analysis
| Month | Biz | MRR | Costs | P/L | Cumulative |
|---|---|---|---|---|---|
| 4 | 40 | $10k | $26k | -$16k | -$50k |
| 7 | 100 | $25k | $31k | -$6k | -$80k |
| 10 | 150 | $37.5k | $33k | +$4.5k | -$60k |
| 14 | 300 | $75k | $45k | +$30k | +$50k |
Timeline: Base: Month 8 (25 new/mo). Funding: $500k seed = 14-mo runway.
7. 3-Year Revenue Projections
| Metric | Y1 | Y2 | Y3 |
|---|---|---|---|
| Paying Businesses | 300 | 800 | 2,000 |
| Coalitions | 15 | 40 | 100 |
| ARR | $900k | $3M | $7.5M |
| Growth | - | 233% | 150% |
| Total Costs | $500k | $1.2M | $2.5M |
| CAC | $600 | $450 | $350 |
| Net Profit | $250k | $1.5M | $4.5M |
| Net Margin | 28% | 50% | 60% |
Assumptions: Acq 25→75→150/mo; churn 3%; ARPU $250→$300→$350 (fees ramp); CAC falls w/organic. Sensitivity: Worst (50% slower): $3.5M Y3 ARR; Best: $12M.
9. Funding Strategy & Use of Funds
Bootstrap vs Raise: Raise $500k seed (10-15% dil): Accelerates pilots (14-mo runway). Bootstrap risks slow density.
| Category | Amount | % | Purpose |
|---|---|---|---|
| Engineering | $300k | 60% | MVP + app |
| Community/Sales | $100k | 20% | Assoc partnerships |
| Marketing | $60k | 12% | Launches |
| Legal/Compliance | $40k | 8% | Money tx licenses |
Seed → A Milestones: $900k ARR, 15% MoM growth, <3% churn.
10. Regulatory, Compliance & Legal
Entity: Delaware C-Corp (VC-friendly, IP protection, 50+ states). Key Regs: Money transmitter licenses (20+ states, $50k+ setup via agents); Stored value/gift card laws (points as liability). GDPR/CCPA privacy ($5k/yr tools). Costs: Y1 $40k (setup/licenses), ongoing $10k/yr. IP: Trademark name/logo ($1k). Contracts: TOS, DPA essential pre-launch.
11. Business Model Risks & Mitigations
Low density = no consumer value. Impact: 50% slower growth.
Mitigation: Pilot dense neighborhoods (20+ biz), incentives (free mo1). Track cross-redemptions >30%.
Contingency: Subsidize early consumers.
MTL delays launch. Impact: $100k+ costs, 3-6 mo delay.
Mitigation: Pre-file in pilot states (CA/TX), use MTL agents. Legal $40k budget.
Contingency: Pure sub model, defer fees.
Biz balk at 5% redemptions. Impact: 20% churn.
Mitigation: Value prop demos (new cust ROI), tiered fees start 3%.
Contingency: Fee cap/volume discounts.
Sales scale issues. Impact: LTV:CAC <3x.
Mitigation: Partnership focus (60% acq), playbook post-pilot.
Contingency: Cut paid, extend runway.
Stripe/Open changes or 5%+ churn. Impact: Margin drop 10%.
Mitigation: Multi-proc, CS onboarding (90d retention).
Contingency: Raise subs 10%.
12. Alternative Business Models
Alt #1: Pure Transaction (10% all tx)
Pros: Scales w/volume, no sub barrier. Cons: Chicken-egg worse (no upfront commitment), attribution hard, low early MRR. Rejected: Predictability key for SMBs.
Alt #2: Consumer Freemium (ads/sub)
Pros: Viral potential. Cons: Low willingness pay, commoditizes network. Rejected: Businesses are value payers; consumer free drives density.
Alt #3: One-Time Coalition License
Pros: Upfront cash. Cons: No recurring, churn risk. Rejected: SaaS MRR proven for loyalty (90% market).
Why Current Best: Hybrid sub+usage balances predictability (60% MRR stability) w/ upside (fees scale network effects). Matches Fivestars/Toast success; pilots validate ROI >5x. Resilient to churn via multi-streams.