LedgerLoop: Growth Targets Versus Churn and Discounting
LedgerLoop is a B2B accounts-payable SaaS vendor with €18m ARR across 640 customers, an average contract value of €28k, and 78% gross margin. New logos grew 26% last year, but gross revenue churn rose to 14% and net revenue retention is 104%. CAC is €14k per new customer. Renewal representatives may discount up to 25%; the average renewal discount is 22%, up from 14% two years ago. Sales compensation pays three times more for new logos than for renewals, and there is no expansion quota. Product data shows customers using the approval-workflow module churn at 6%, versus 19% for those who do not, but only 31% of customers have adopted it. The CEO wants to push new-logo growth to 40% and raise a Series D on that story. The CRO wants to hire six more account executives.
1. Assess the health of the unit economics and whether a 40% new-logo growth target is the right priority.
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The headline unit economics look acceptable. Gross profit per customer is €28k × 78% = €21.8k; against €14k CAC, payback is about 0.64 years, or 7.7 months. At 14% churn, average life is about 7.1 years, so LTV/CAC is above 10x. That is not the problem.
The problem is the quality and durability of growth. At 14% churn, 640 customers lose about 90 a year. New logos grew 26%, so net customer growth is roughly 15%, not 26%. Pushing new logos to 40% adds sales capacity to a bucket with an enlarging hole, and the new cohorts are likely to churn faster if they are bought with discounts and onboarded without the workflow module.
The 40% target also confuses logos with ARR. With 104% NRR, ARR growth is approximately new-logo contribution minus churn plus expansion. Hitting 40% new logos will not deliver 40% ARR if churn stays at 14%. My call: hold new-logo growth at 25–30%, fix adoption and discounting for two quarters, then revisit. Hiring six AEs before that simply raises CAC and the cost of a leaky funnel.
2. Diagnose the discounting and churn problem and recommend changes to pricing, compensation, and onboarding.
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Discounting has drifted from 14% to 22%. Eight points on €18m ARR is about €1.44m of revenue and €1.12m of gross profit - roughly the CAC of 80 new customers, spent to close business that then churns. The cause is structural: representatives can give away 25% without approval and are paid three times more for new logos than renewals, so discounting is the cheapest way to hit quota and nobody owns expansion.
The adoption data is the better lever. Workflow users churn at 6% versus 19% for non-users. Moving adoption from 31% to 60% would cut blended churn by roughly 6 points, protecting about €1.1m of ARR a year before any new sale.
Recommend: (1) reduce unapproved renewal discounting to 12%, with deal-desk approval above that and commission calculated on margin, not bookings; (2) add an NRR/expansion component worth 30–40% of variable pay; (3) fund a focused onboarding team targeting the 69% of non-adopters, starting with the highest-ACV accounts; (4) price expansion on value metrics rather than list-price uplift. Do not abolish discounts - multi-year and strategic accounts may justify them - but make each one a documented trade with a reason and an expiry.