Definitions
Canonical definitions for margin analytics, cost attribution, and unit economics terminology used across Bear Lumen.
Customer Margin
Core ConceptsCustomer Margin is revenue minus variable costs attributable to a specific customer. Shows profitability before fixed costs.
Formula
Customer Margin = Revenue - Variable CostsExample
If a customer pays $500/month and their AI infrastructure costs $150/month, their margin is $350 (70%).
Cost-to-Serve
Core ConceptsCost-to-Serve is the total variable cost of delivering your product or service to one customer, including API costs, compute, and per-customer overhead.
Formula
Cost-to-Serve = (API Costs + Compute + Per-Customer Overhead) / CustomerExample
A customer using 500K tokens/month at $0.03/1K tokens has API cost of $15. Add $5 compute overhead = $20 cost-to-serve.
Usage-Based Pricing
Core ConceptsUsage-Based Pricing is a pricing model where charges are based on actual consumption (tokens, API calls, compute time) rather than flat subscription fees.
Example
Charging $0.10 per 1,000 API calls instead of a flat $50/month subscription. Revenue scales with customer usage.
Profit per Customer
Core ConceptsProfit per Customer is the direct revenues and costs associated with a single customer, used to assess business viability.
Formula
Profit per Customer = LTV - CAC - Cost-to-ServeExample
Customer LTV of $2,000, CAC of $500, and lifetime cost-to-serve of $800 = $700 profit per customer.
Margin Health
Assessment TermsMargin Health is a qualitative assessment of customer profitability, typically categorized as Healthy (>40% margin), At Risk (20-40%), or Unhealthy (<20%).
Example
A customer with 15% margin is "Unhealthy" and should be repriced or upgraded to a higher tier.
Token Cost Attribution
AI-Specific TermsToken Cost Attribution is allocating the cost of LLM API tokens to specific customers based on their actual usage.
Formula
Token Cost = Tokens Used × Cost per TokenExample
Customer uses 1M input tokens at $3/1M and 500K output tokens at $15/1M = $3 + $7.50 = $10.50 total token cost.
Model Economics
AI-Specific TermsModel Economics is the revenue and cost breakdown for a specific AI model (e.g., GPT-4o vs Claude Sonnet), showing margin per model.
Formula
Model Margin = Model Revenue - Model CostsExample
GPT-4o generates $10K revenue but costs $4K = 60% margin. Claude Sonnet generates $8K revenue at $2K cost = 75% margin.
Power User Problem
Common ProblemsPower User Problem is when heavy users on flat-rate pricing consume disproportionate resources, creating negative margins despite appearing profitable.
Example
A $99/month customer using $300/month in API calls has -200% margin. They appear profitable in revenue reports, but the variable cost exceeds revenue.
Revenue Leakage
Common ProblemsRevenue Leakage is uncaptured or undercharged revenue due to billing gaps, reconciliation errors, or pricing model misalignment.
Example
Using a flat rate when usage varies substantially between customers means high-usage customers receive value not captured in pricing.
Pricing Scenario
Modeling & SimulationPricing Scenario is a simulated pricing model applied to historical usage data to project revenue and margin impact before deployment.
Example
Testing a tiered model against current flat-rate shows 15% revenue increase and 20% margin improvement before changing prices.
See These Concepts in Action
Use our calculators to apply these definitions to your own data.