A Subscription Analytics Firm: Campaign Unit Economics Under Activation and Churn Risk
A subscription analytics company has 12,000 paying subscribers, average revenue per user of $42 per month, gross margin of 78%, and monthly churn of 4%. Fixed operating costs are $60,000 per month. The company is considering a $300,000 acquisition campaign expected to add 2,500 gross new subscribers; current customer acquisition cost is $180. The CFO argues the campaign is attractive because lifetime value to acquisition cost exceeds 3. The CMO warns that new subscribers from this channel may churn at 6% per month rather than 4%, and only 70% may activate within 30 days. The CEO wants a decision this week, but the board has asked for a downside case before approving spend. The company has $450,000 cash, and a payroll shortfall would occur if cash falls below $100,000.
1. Compute the base-case lifetime value, campaign acquisition cost, lifetime-value-to-acquisition-cost ratio, and payback period. What do these metrics imply?
Read the worked answer
Monthly gross profit per subscriber is $42 × 0.78 = $32.76. At 4% monthly churn, expected paid lifetime is 1/0.04 = 25 months. Base-case LTV is therefore $32.76 × 25 = $819.
Campaign CAC is $300,000 / 2,500 = $120. LTV/CAC is $819 / $120 = 6.8. Payback is $120 / $32.76 = 3.7 months. For comparison, current CAC of $180 gives LTV/CAC of 4.6 and payback of 5.5 months.
The campaign clears a 3× hurdle on base-case assumptions and improves both payback and LTV/CAC versus the current CAC. That supports spending, but the metrics assume every gross new subscriber activates and retains at the existing rate. The CFO's conclusion is therefore only as good as those two assumptions.
2. Build the downside case using 70% activation and 6% monthly churn. Does the campaign still clear a 3× hurdle, and what happens to cash?
Read the worked answer
At 70% activation, paying subscribers are 2,500 × 0.70 = 1,750. Effective CAC rises to $300,000 / 1,750 = $171.43. At 6% monthly churn, expected lifetime is 1/0.06 = 16.67 months, so LTV is $32.76 × 16.67 = $546.
LTV/CAC is $546 / $171.43 = 3.19, still above 3 but only barely. Payback is $171.43 / $32.76 = 5.2 months. If churn instead reaches 8%, LTV falls to $409.50 and LTV/CAC falls to 2.39, below the hurdle.
Cash: after the $300,000 spend, cash is $150,000, above the $100,000 floor. Existing subscribers generate 12,000 × $32.76 = $393,120 of monthly gross profit against $60,000 fixed costs, so the company is not dependent on the campaign for near-term payroll. The cash constraint is therefore not the binding issue; the binding issue is whether activation and early churn stay near the downside case.
3. What decision should the CEO make, and what conditions or metrics would you attach before releasing the full budget?
Read the worked answer
Approve the campaign, but stage the spend rather than releasing $300,000 at once. The downside case still clears 3× at 70% activation and 6% churn, so the expected value is positive, but the margin for error is thin and the CMO's warning is credible. Release $120,000 first, enough to acquire roughly 1,000 gross subscribers at the planned CAC, and hold the remainder.
Gate the second tranche on two leading indicators measured within 60 days: activation within 30 days of at least 75%, and 60-day monthly churn no worse than 6%. If activation falls below 65% or churn exceeds 7%, stop and renegotiate the channel. Also track cohort payback and contribution after variable service costs; a 3.19× LTV/CAC can disappear if support costs rise with low-quality signups.
The CEO should tell the board the decision is a staged option, not a full commitment. That preserves the upside while capping the downside at the first tranche.