Model network-service unit economics and breakeven

Q: Model network-service unit economics and breakeven

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Question

A network service charges $40/month with the first 3 months free. Costs: variable service cost $25 per active month; one-time install cost $35 at activation; one-time onboarding overhead $20 per new customer. Fixed annual cost = $1,000,000. a) For an average tenure of 12 months, compute per-customer contribution (revenue − variable − one-time costs) and state if unit economics are positive or negative; show the formula. b) If negative, propose two quantitative levers (e.g., price, free-month reduction, cost cuts) and estimate the change needed to reach non-negative contribution. c) Revised policy: customers sign a 21-month contract (free months still apply); 10% terminate immediately and pay a $100 penalty; the remaining 90% complete 21 months. Compute expected average contribution per customer and the number of customers required in a year to break even on the fixed cost. Provide a general formula before plugging numbers. d) Identify the single sensitivity (price, churn timing, or cost) that most changes breakeven and justify why.

Model network-service unit economics and breakeven

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