Definition
Sensitivity analysis shows how outputs change when key inputs vary within a reasonable range. In valuation, it's used to test how fragile a DCF is to discount rate and terminal assumptions.
How to use it
- Use sensitivity grids to avoid false precision from single-point estimates.
- Pick ranges that reflect uncertainty (not just tiny deltas).
Common mistakes
- Picking ranges that are too narrow and concluding the result is certain.
- Changing many inputs at once without tracking what drove the change.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Sensitivity Analysis" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., DCF Sensitivity Calculator) to sanity-check assumptions.
- Read the related guide (e.g., DCF sensitivity: discount rate vs terminal growth (how to read it)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- DCF Sensitivity Calculator: Estimate how enterprise value changes with discount rate and terminal growth assumptions (simple 3x3 sensitivity).
- LTV Sensitivity Calculator: See how gross profit LTV changes as churn and gross margin vary (simple 3x3 sensitivity).
- CAC Payback Sensitivity Calculator: See how CAC payback months change as ARPA and gross margin vary (simple 3x3 sensitivity).
- ARR Valuation Sensitivity Calculator: Estimate valuation sensitivity to ARR and revenue multiple assumptions (simple 3x3 grid).
Guides
- DCF sensitivity: discount rate vs terminal growth (how to read it): A practical guide to DCF sensitivity analysis: why valuations swing, how to pick ranges, and how to avoid terminal value traps.
- LTV sensitivity: how churn and margin change LTV: A practical guide to LTV sensitivity: vary churn and gross margin to see how gross profit LTV changes under realistic scenarios.
- CAC payback sensitivity: ARPA * margin scenarios (months to recover CAC): A practical guide to CAC payback sensitivity: vary ARPA and gross margin to see how months to recover CAC changes under realistic scenarios.
- ARR valuation sensitivity: a simple multiple grid for scenarios: Use a 3*3 grid to see how valuation changes when ARR and the market multiple move, and avoid false precision from a single multiple.
- Valuation modeling hub: WACC, DCF, multiples, and equity value: A practical hub for valuation modeling: estimate a discount rate (WACC), run a simple DCF with sensitivity analysis, and translate enterprise value to equity value.