Why margin is a growth lever
Higher gross margin increases gross profit per customer. That directly increases LTV (when modeled on gross profit) and reduces payback, which improves your ability to scale acquisition without running out of cash.
Key relationships
- Gross profit/month = ARPA * gross margin.
- Payback ~ CAC / gross profit/month.
- Gross profit LTV ~ (ARPA*gross margin) / churn (shortcut).
How to improve margin (practical)
- Reduce infrastructure and delivery costs (optimize usage, contracts, architecture).
- Reduce support and success costs per customer (self-serve, product improvements).
- Fix refunds/returns and payment fees (where applicable).
- Improve pricing and packaging (capture value delivered).
Common mistakes
- Using revenue LTV and forgetting costs.
- Assuming churn stays constant after pricing changes.
- Ignoring segment differences (margin and churn can vary by plan).