Business Model & Economics
Unit Economics Dashboard
1. Revenue Model Overview
Primary: B2B Subscription (60%)
Model Type: SaaS (Tiered Subscription)
Provides predictable recurring revenue essential for platform stability. The "Basic" and "Pro" tiers lower the barrier to entry for individual merchants, while the predictable cash flow funds infrastructure development.
Secondary: Transaction Fees (30%)
Model Type: Usage-based (Redemption Fee)
A 5% fee charged to the business on redemptions aligns our incentives with our merchants: we only make significant money when they are driving repeat business and successful loyalty redemptions.
Tertiary: Coalition Licensing (10%)
Model Type: B2B2C Licensing
High-margin revenue from Business Associations and Chambers of Commerce. This acts as an enterprise anchor, providing bulk customer acquisition and validating the coalition model in new territories.
2. Pricing Strategy & Tier Structure
| Tier | Target | Price | Key Features |
|---|---|---|---|
| Basic | Individual Merchants | $29/mo | Loyalty ledger, QR code, consumer app visibility. |
| Pro | Growth Businesses | $59/mo | Advanced analytics, email marketing, featured placement. |
| Coalition | Associations | $199/mo | Up to 50 businesses, shared marketing tools, reporting. |
| Enterprise | Multi-Location Chains | Custom | API access, custom branding, dedicated success. |
Pricing Justification & Psychology
Why Merchants Will Pay: The average cost to acquire a new customer in retail is $25-$50. LocalPerks replaces fragmented paper cards with a digital network that drives foot traffic from neighboring businesses. At $59/month, the "Pro" tier pays for itself if it brings just two new customers per month.
Transaction Fee Rationale: While 5% on redemptions is higher than standard payment processing (2.9%), it is significantly lower than daily deal sites (50%+) and is only charged when a loyalty reward is successfully redeemed. This ensures the merchant only pays when loyalty is proven.
3. Customer Acquisition Economics (CAC)
CAC Breakdown (Blended)
| Channel | Est. CAC |
|---|---|
| Coalition Partnerships | $35 |
| Referrals (Merchants) | $25 |
| Direct Sales/Events | $150 |
| Blended CAC | $85 |
*Coalition CAC assumes $1,000 sales effort to land a 30-business association.
CAC Improvement Plan
4. Lifetime Value (LTV) Analysis
Revenue Components
- Base Subscription (Avg): $48.00
- Transaction Fees (Avg): $68.00
- Total Monthly ARPU: $116.00
*Transaction fees based on 50 redemptions/mo at $25 avg ticket (5% fee).
Retention Assumptions
- Monthly Churn: 5% (Conservative for retail)
- Customer Lifetime: 20 Months
- LTV:CAC Ratio: 22.3:1 (Excellent)
5. Cost Structure & Margins
Fixed Costs (Monthly)
| Personnel (2 Founders + 1 Comm Mgr) | $12,000 |
| Tech Stack (AWS, SendGrid, Stripe) | $800 |
| Legal & Compliance | $1,500 |
| Total Fixed | $14,300 |
Variable Costs (Per Customer/Mo)
| Payment Processing (Stripe) | $3.48 |
| Cloud Infrastructure | $5.00 |
| Customer Support | $2.00 |
| Total Variable | $10.48 |
6. Break-Even Analysis
Break-Even Formula:
Fixed Costs / (ARPU - Variable Costs)
$14,300 / ($116 - $10.48) = 136 Paying Customers
| Month | Customers | MRR | Burn |
|---|---|---|---|
| Month 4 | 40 | $4,640 | -$9,660 |
| Month 7 | 100 | $11,600 | -$2,700 |
| Month 8 | 136 | $15,776 | +$1,476 |
| Month 14 | 650 | $75,400 | +$61,100 |
7. 3-Year Revenue Projections
| Metric | Year 1 (Seed) | Year 2 (Growth) | Year 3 (Scale) |
|---|---|---|---|
| Active Businesses | 650 | 2,500 | 7,500 |
| Total AR (Annual Recurring) | $374K | $1.5M | $4.5M |
| Transaction Fee Revenue | $186K | $750K | $2.25M |
| Total Revenue | $560K | $2.25M | $6.75M |
| Growth Rate | - | 300% | 200% |
*Projections assume successful rollout in 10 major metros by Year 3.
8. Funding Strategy & Use of Funds
9. Regulatory & Legal Considerations
⚠️ Critical Compliance Risks
- Stored Value/Gift Card Laws: Since points represent value, state laws (like EScheatment) apply. Points must have clear expiration and non-cash status.
- Money Transmitter Licenses (MTL): If points are transferable between users or cashable, we may need MTLs in every state. Mitigation: Restrict redemptions to goods/services only, no peer-to-peer transfer of points.
- Data Privacy (CCPA/GDPR): Handling consumer purchase history requires strict privacy policies and data processing agreements with merchants.
10. Business Model Risks
State regulators may classify loyalty points as "stored value" requiring banking-level reserves.
Consumers resist downloading another app just for coffee.
Small businesses fail at high rates (20% in first year), leading to revenue loss.
11. Alternative Business Models Considered
| Alternative Model | Why Rejected |
|---|---|
| Pure Hardware (POS Terminals) | High CapEx and logistics complexity. Competing with Toast/Square on hardware is a "race to the bottom". Our software layer is the moat, not the plastic. |
| Consumer-Facing Subscription (e.g. $5/mo for users) | High friction. Consumers expect loyalty programs to be free. Monetizing the merchant side is standard B2B practice in this space. |
| Ad-Supported "Free" Model for Merchants | Dilutes the user experience with irrelevant ads. Small businesses don't want their competitors' ads in their loyalty ecosystem. |