Why You Need a Model (Not Just a Spreadsheet)
A revenue model isn't about guessing. It's about understanding levers. If you can tell me that a 10% improvement in churn improves ARR by ₦2.4M, you understand your business.
Two reasons: cash survival and investor credibility.
The Simple Revenue Model
Revenue = Customers times ARPU. Track starting customers, new customers/month, ARPU, and monthly churn rate.
| Component | What It Means | Example |
|---|---|---|
| Starting customers | Current active paying users | 2,000 |
| New customers/month | Net new additions | 50 |
| ARPU | Average monthly revenue per customer | ₦15,000 |
| Monthly churn rate | % of customers leaving each month | 3% |
Scenario Planning
Model three futures: pessimistic, base case, and optimistic.
| Scenario | New Customers | Churn | 12-Month ARR |
|---|---|---|---|
| Pessimistic | 30/mo | 4.5% | ₦330M |
| Base case | 50/mo | 3.0% | ₦397M |
| Optimistic | 75/mo | 2.5% | ₦527M |
Unit Economics
| Metric | Current | Target | Impact on ARR |
|---|---|---|---|
| New customers/month | 50 | 65 | +₦39M |
| ARPU | ₦15,000 | ₦18,000 | +₦36M |
| Churn | 3.0% | 2.0% | +₦48M |
Reducing churn has the biggest impact. Retention always beats acquisition.
Core Unit Economics
CAC < 12x ARPU. LTV > 3x CAC. Payback < 12 months. Gross margin > 70%. LTV:CAC ratio > 3:1.
The Model Is a Living Document
Update monthly. If reality diverges from base case, revise the model — not the other way around.
A financial model isn't about being right. It's about understanding which levers move revenue.
