---
title: Operating Leverage
summary: Each strategic path has a different leverage equation, and the math turns a thesis into an executable model.
est_minutes: 19
sort: 2
---

Welcome to Module 4.2.

Each strategic path has a different leverage equation. Module 4.1 picked the path. This module runs the math, unit economics, contribution margin, the specific levers that move outcomes, so you know whether the path actually works.

By the end you'll have a Unit Economics Model, a Path-Specific Leverage Model, a 3-Year Financial Model, and a Sensitivity Analysis. Numbers, not intuition.

**The 5 Leverage Equations**

**Lifestyle leverage: Margin x CLV x Retention.**

You're optimizing for profit per customer over a long relationship. Levers: pricing, scope discipline, retention. Not headcount. Not capital. Margin compounds.

**Aggressive Scale leverage: Headcount Output x Sales Velocity x Capital.**

You're optimizing for output per person, deals closed per quarter, and dollars deployed effectively. Levers: hiring quality, sales playbook execution, capital efficiency.

**Sell leverage: Revenue Quality x Margin x Multiple.**

You're optimizing for the multiple of revenue (or EBITDA) at exit. Levers: recurring revenue %, customer concentration, growth rate, margin level, documentation depth (everything Pillar 3 built).

**License leverage: Partner Output x Royalty x Brand Strength.**

You're optimizing for the number of partners successfully operating your system x the royalty per partner x the brand that attracts new partners. Levers: system documentation, partner support, brand authority.

**Expansion leverage: Unit Replicability x Local Margin x Speed.**

You're optimizing for opening units (locations / verticals) at scale. Levers: replicable unit economics, fast time-to-profitability per unit, capital to fund parallel openings.

Pick your equation. Build the model around it.

**Unit Economics**

Three core numbers every operator must know:

**CAC (Customer Acquisition Cost):**

CAC = Total sales + marketing spend (12 months) / Net new customers (12 months)

Includes:
- Ad spend
- Marketing tool costs
- Sales team comp (fully loaded)
- Content production
- Conference / travel costs

Most operators dramatically under-estimate CAC because they only count ad spend.

**CLV (Customer Lifetime Value):**

CLV = Average revenue per customer per month x Average customer lifetime in months x Gross margin %

OR

CLV = (Average revenue per customer per month / Monthly churn rate) x Gross margin %

**CAC Payback Period:**

CAC Payback Period = CAC / (Monthly customer revenue x Gross margin %)

Months until the customer's contribution covers what it cost to acquire them.

**The CLV/CAC ratio that matters:**

- < 1.0: losing money on every customer
- 1.0 - 3.0: marginal, paths likely require external capital
- 3.0 - 5.0: healthy operator business
- 5.0 - 8.0: very healthy, capital efficiency is strong
- > 8.0: unusually good, either you're under-priced or this is a category outlier

**The CAC Payback that matters:**

- < 6 months: very healthy
- 6 - 12 months: healthy
- 12 - 18 months: requires careful cash management
- > 18 months: requires external capital

**The Path-Specific Leverage Model**

For your chosen path, build the model that shows where leverage actually lives. For each lever, capture the current value, your Year 3 target, and the dollar or multiple impact.

The Lifestyle leverage model tracks these five levers:
- Average revenue per customer
- Gross margin %
- Monthly churn %
- Customer LTV
- Profit distribution to owner

The Lifestyle business gets 20-40% better economically by tightening these 5 levers without growing.

The Aggressive Scale leverage model tracks these five levers as output multiples:
- Revenue per FTE
- Deals closed per quarter
- Sales velocity (days from lead to close)
- CAC
- Capital available for hire

Scale moves through multiples of these levers, not additive increases.

The Sell leverage model tracks these five levers against their multiple impact at exit (Year 3-5):
- Recurring revenue % (multiple impact +/- 0.5-1.5x)
- Customer concentration, top customer % (multiple impact +/- 0.3-0.8x)
- Growth rate, YoY (multiple impact +/- 1.0-2.0x)
- EBITDA margin (multiple impact +/- 0.5-1.5x)
- Documentation depth, Pillar 3 score (multiple impact +/- 0.5-1.0x)

Each lever shifts the exit multiple. The cumulative effect is significant.

**The 3-Year Financial Model**

Build a 36-month projection. Monthly granularity for Year 1, quarterly for Years 2-3.

The model requires these rows, each projected across Year 1, Year 2, and Year 3:
- Revenue
- Cost of delivery
- Gross margin
- Sales + marketing
- G&A
- Payroll (non-delivery)
- EBITDA
- Net income
- Cash position end of period

**For Lifestyle:** the model should show stable revenue with improving margin and growing owner distribution.

**For Scale:** the model should show revenue growing 50-150% YoY with EBITDA possibly negative in Year 1 (reinvestment), positive Year 2+.

**For Sell:** the model should show revenue growth 20-40% YoY with EBITDA margin improving and recurring revenue %s rising.

The model is not a prediction. It's a plan. The variance between plan and actual at the end of Year 1 is the test of the model, within 10-15% is healthy; >25% off means the model needs rebuilding.

**Sensitivity Analysis**

What changes if a number moves?

For your model, run sensitivity across a -10%, -5%, base, +5%, and +10% range on these four variables:
- Customer churn
- Gross margin
- CAC
- Average revenue per customer

Each variable changes the 3-year cash flow, EBITDA, and CLV.

**The variable to focus on:** the one with the biggest swing per unit of change. For most operator businesses it's churn, a 2-point change in monthly churn changes EBITDA by 20-35% over 3 years.

Use the sensitivity to identify:
- Which lever to protect most carefully (the one with highest impact)
- Which lever has the most upside if pushed (the one where today's value is below market)
- The "break-even" scenario, what has to be true for the model to barely work

**What To Do Right Now**

Four things:

1. **Build the Unit Economics Model** (Section A). CAC. CLV. Payback. Ratio.
2. **Build the Path-Specific Leverage Model** (Section B). Your 5 levers for your chosen path.
3. **Build the 3-Year Financial Model** (Section C). 36 months. Plan, not prediction.
4. **Run the Sensitivity Analysis** (Section D). Which variable owns the model.

Take the quiz.

I'll see you in Module 4.3, Capital Strategy, where we decide how to fund the path you've now mathematically validated.
