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Lantern Economics: Cost, Revenue & Pricing ​

Purpose: Detailed cost structure, revenue models, and pricing strategy for Lantern. This document provides the financial foundation referenced in PILOT_STRATEGY.md.

See Also: FUND_ALLOCATION.md — Comprehensive fund allocation framework including Four Pillars, safe space partnerships, and profit sharing.

1. Platform Infrastructure Costs ​

Annual Hosting & Domain (~$13/year) ​

ComponentMonthlyAnnualNotes
Hosting
Cloudflare (Workers + Pages)00Free tier covers unlimited traffic during pilot
Firebase backend (Firestore, Storage, Functions)00Free tier: 50K reads, 20K writes, 20K deletes/day; 1GB storage
Domain
NameCheap domain registration1.0812.99.app domain, auto-renews annually
Subtotal (Fixed)1.0812.99~0 variable cost until scale demands paid tier

Scaling Beyond Free Tier ​

Firebase paid pricing (if needed):

  • Firestore reads: $0.06 per 100K reads
  • Firestore writes: $0.18 per 100K writes
  • Cloud Storage: $0.020 per GB
  • Cloud Functions: $0.40 per 1M requests

When to upgrade from free tier:

  • 50 merchants × ~200 daily transactions = 10K daily reads → still free
  • 500 merchants × ~200 daily transactions = 100K daily reads → ~$36/month
  • 5000 merchants × ~200 daily transactions = 1M daily reads → ~$360/month

Recommendation: Keep free tier during pilot (0–100 merchants). Upgrade to Blaze pricing at 100+ merchants.

2. Revenue Models ​

Merchant Pricing (ARPU = $165/month) ​

Lantern offers three pricing tiers to accommodate different merchant types:

TierModelMonthly CostUse Case
Flat CampaignFixed monthly + flat campaign allocation150Budget-aware merchants (bars, coffee shops)
PPC (Pay-Per-Click)Per-redemption fees1–2 per redemptionHigh-volume merchants (venues, restaurants)
HybridFixed + per-redemption blend50 + 0.50/redemptionGrowth merchants testing model

Blended Average Revenue Per User (ARPU): $165/month

  • 50% at $150/month (flat)
  • 30% at $0–2/redemption (PPC)
  • 20% at hybrid $50 + $0.50/redemption

Merchant Retention & Churn ​

MetricValueImpact
Monthly retention rate95%5% monthly churn = 60% retained over 12 months
Effective lifetime value (12 months)~$1,980165 × 12 × 0.60 (with churn)
Payback period (platform cost)<1 monthSingle merchant ROI occurs in week 1

User-Side Revenue (Optional) ​

Lantern is 100% merchant-funded during pilot. No user subscription fees.

3. Cost Structure by Phase ​

Phase 1: Pilot (Months 0–3, San Diego) ​

Cost CategoryAmountNotes
Fixed (Platform)~13Domain + minimal cloud spend
Variable0Bootstrap (founder time only)
Merchant acquisition0Organic/founder outreach
Total 3-month cost~39Purely infrastructure

Profitability threshold: 2 merchants (330/month revenue > 13/month cost)

Phase 2: Expansion (Months 4–12, Multi-city) ​

Cost CategoryAmount/monthTrigger
Fixed (Platform)13–50Firebase upgrade at 100+ merchants
Merchant acquisition3000–5000Contractor ($40/month stipend Month 4)
Total monthly~3050–5050Scaling ops

Key decision: Hire contractor (Month 4) only if merchant pipeline is >5/month (validates demand).

Phase 3: Scale (Year 2, National) ​

Cost CategoryAssumption
Platform~500–2000 (Firebase, CDN, monitoring)
Merchant acquisition~50000 (multiple contractors, paid ads)
Total monthly~50500–52000

Revenue needed: 50K+ merchants × $165/month = $8.25M/month → ~0.6% taken by ops

4. Unit Economics ​

Infrastructure Cost vs. User Volume (All Platforms) ​

How does total platform cost scale with users across all services?

ScaleUsersCloudflareFirebaseGoogle MapsDomainPayment Processor*Total/MonthCost/User
Minimal10001.0801.081.08
Small100001.082–53–60.30–0.60
Pilot1000001.0820–5021–510.21–0.51
Early Growth1,000005–101.08150–300156–3110.16–0.31
Scaling10,000050–10050–1001.081500–30001601–32010.16–0.32
Enterprise100,0000500–1000500–10001.0815000–3000016001–320010.16–0.32

Platform Breakdown:

  1. Cloudflare (Hosting): $0 (free tier covers unlimited requests during pilot and early growth)
  2. Firebase (Backend + Storage):
    • Free: <1000 concurrent users, ~5K daily transactions
    • Paid (Blaze): $50–100/month for 10K users, $500–1K/month for 100K users
  3. Google Maps Places API (Venue search & discovery):
    • Free: 10K requests/month
    • $7 per 1K requests thereafter
    • At 1K users: ~5–10K requests/month (still free)
    • At 10K users: ~50–100K requests/month (~$350–700/month)
    • At 100K users: ~500K–1M requests/month (~$3500–7000/month)
  4. Domain + SSL (NameCheap): $1.08/month (fixed, regardless of scale)
  5. Payment Processor (Stripe/Square/PayPal, TBD):
    • 2.9% + $0.30 per transaction
    • Scales with merchant transaction volume (not user count directly)
    • At 1K users: ~$150–300/month (assuming 2–4 merchants, 5–10 redemptions/day each)
    • At 10K users: ~$1,500–3,000/month
    • At 100K users: ~$15K–30K/month

Key Insight:

  • Pilot to early growth (100–1K users): Total cost is ~$20–300/month. Cost per user drops as you grow.
  • Scaling phase (10K users): Total cost ~$1,600/month (~$0.16/user). Cost per user stabilizes.
  • Enterprise (100K+ users): Total cost ~$16K–32K/month (~$0.16–0.32/user). Payment processor dominates; other platforms are negligible.

Cost Optimization Strategy:

  • 0–1K users: Maximize free tiers (Cloudflare, Firebase, Google Maps). Keep payment processor fees low by requiring merchants to batch transactions (e.g., daily settlements vs. per-transaction).
  • 1K–10K users: Upgrade Firebase to Blaze when free tier limits hit (~$50–100/month). Google Maps still manageable (~$5–10/month).
  • 10K+ users: Payment processor fees dominate (~90% of costs). Negotiate rates or switch to revenue-share model.

Cost per Active Merchant (Monthly) ​

ScalePlatform Cost per MerchantTotal Margin
1 merchant13.0092.1%
10 merchants1.3099.2%
100 merchants0.1399.92%
1000 merchants0.01399.992%
10000+ merchants<0.00199.999%

Insight: Unit economics improve dramatically with scale. Once you hit 10 merchants, platform cost is negligible.

Customer Acquisition Cost (CAC) & Payback ​

ScenarioCACARPUPayback Period12-Month LTVROI
Organic (founder outreach)0165<1 month1980∞
Partner referral ($500 bounty)5001653 months19803.96x
Paid ads ($2000/merchant)200016512 months19800.99x (breakeven)

Recommendation: Start with organic + partnerships. Paid ads only viable if CAC < $500.

5. Break-Even Analysis ​

Pilot Phase (Months 1–3) ​

MerchantsMonthly RevenueMonthly CostMonthly ProfitCumulative Profit
116513152152
233013317798
3495134821757
5825138124258

Break-even: 0.08 merchants (literally 1 merchant breaks even on platform cost in week 1)

12-Month Projection (Expansion Phase) ​

Assuming 2–4 new merchants/month (average 3/month) with 5% churn:

MonthActive MerchantsRevenueCostProfitCumulative
1233013317317
25825138121,129
3813201313072,436
41016505315974,033
616264053258711,187
926429053423723,756
1235577553572236,890

Outcome: 36,890 cumulative profit by month 12 with 99.1% blended margin.

6. Pricing Strategy Rationale ​

Why $165/month Blended ARPU? ​

  1. Market positioning: Mid-market venues (10–100 capacity) can sustain 150–200/month spend
  2. Payback alignment: With $0 CAC (organic), payback is instant; with $500 CAC, payback is 3 months
  3. Churn resilience: $165/month × 60% retention = ~$1980 LTV; sustainable with low acquisition costs
  4. Flexibility: Three tiers (flat/PPC/hybrid) accommodate budget-conscious vs. high-volume venues

Pricing Optimization Levers (Post-Pilot) ​

If churn is too high (>10%/month):

  • Reduce price: Drop to $129/month to lock in retention
  • Add value: Integrate loyalty program, analytics dashboard, staff tools

If acquisition is too hard (CAC > $500):

  • Raise price: Go to $199/month to reduce customer dependency
  • Improve product: Focus on redemption rates, merchant upsell

If infrastructure costs spike (Firebase > 500/month):

  • Revenue-share model: Switch 10% merchants to 20% of redemption value (higher volume, lower fixed risk)

7. Payment Processing & Transaction Costs ​

Payment Processor Assumptions ​

Status: TBD (not yet locked into Stripe)

ProcessorFee StructureEstimated Cost/Month (50 merchants)
Stripe2.9% + 0.30 per transaction~50–75
Square2.9% + 0.30 per transaction~50–75
PayPal2.2% + 0.30 per transaction~40–60
ACH (to venue)Negotiated rate~20–40

Recommendation: Start with Stripe (easiest integration). Negotiate ACH rates at 50+ merchants.

Impact: If we add payment processor fees:

  • 50 merchants × ~50/month in fees = 2500/month ops cost
  • Profit margin drops from 99.1% → 95.7%
  • Still highly profitable; but justifies payment processor negotiation at scale

8. Stress Tests & Sensitivity Analysis ​

Sensitivity: What if ARPU drops 20%? ​

MetricBaselineAt 132/month ARPUDelta
Monthly revenue (35 merchants)57754620-20%
Monthly profit (month 12)57224567-20%
Cumulative profit (12 months)36,89029,512-20%

Verdict: ✅ Still highly profitable. 20% price drop is absorbable.

Sensitivity: What if churn doubles to 10%/month? ​

Expected merchants retained after 12 months: 35 → 18 (instead of 60% retention)

MonthActive MerchantsRevenueProfitCumulative
612198019278,754
12182970291714,247

Verdict: ⚠️ Cumulative profit drops to 14,247 (61% lower). Requires aggressive merchant retention strategy.

Action: Monitor churn closely. If >7%/month, pause hiring and focus on retention (e.g., success coaching, feature delivery).

Sensitivity: What if we can't acquire 3 merchants/month? ​

Assume 1 merchant/month instead:

MonthActive MerchantsRevenueProfitCumulative
658257723,233
1210165015978,647

Verdict: ❌ Only 8,647 profit (76% lower). Pilot fails to fund phase 2 operations.

Action: Validate merchant acquisition by Month 2. If <2/month, pivot product or market.

9. Financial Dashboards & Tools ​

Track weekly:

  • New merchants acquired (target: 1–3/month during pilot)
  • Merchant churn rate (target: <5%/month)
  • Average revenue per merchant (target: 165+)
  • Platform costs (track Firebase usage; should stay <15/month during pilot)
  • Cumulative profit (target: >0 by month 2)

Tools ​

  1. Spreadsheet tracker: Google Sheets with weekly snapshots

    • Tabs: Merchants (name, signup date, monthly ARPU, status), Costs (platform, acquisition, operations)
    • Dashboard: Plot cumulative profit vs. merchant count

  2. Firestore analytics: Track merchant events (redemptions, campaigns)

    • Enable Firebase Analytics dashboard
    • Query: Avg redemptions/merchant/month

  3. Stripe/payment processor dashboard:

    • Track transaction volume, fees paid
    • Identify merchants by revenue tier

References ​

Last Updated: January 9, 2026 Owner: Founder/Finance Lead

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