“Winning every new customer” sounds like startup nirvana, but for many founders — including our team — it became the main keyword for a ruinous strategy: we were so focused on scale that we chased growth over margins, and that single-mindedness masked losses until the business quietly collapsed. This article explains how that happened, the systems that hid our erosion of value, and the three checks that would have saved us.
The quiet collapse: what it looked like from the inside
At first it felt like proof we’d built something people loved. New signups climbed, our funnel conversion rates improved, and marketing teams celebrated. Monthly revenue grew, headlines got written, and investors smiled. Behind the scenes, however, unit economics were deteriorating: acquisition costs spiked, retention slid, and discounts piled up. Because our dashboards emphasized top-line growth and acquisition volume, the warning signs were drowned out by vanity metrics.
Why it felt safe
- Revenue growth masked per-customer losses: more customers multiplied the illusion of health.
- Compensation and bonuses rewarded raw growth — not profitability or retention.
- Simple dashboards highlighted MRR and ARR but not gross margins or cohort performance.
How chasing growth over margins deceived us
Chasing growth over margins created three dangerous dynamics: we underpriced to win deals, we increased acquisition spend without improving lifetime value, and operational costs ballooned to support transient customers. Growth incentives turned short-term wins into long-term liabilities: onboarding costs, support load, and implementation discounts became recurring drains.
Concrete examples
- Discounting to close enterprise deals accelerated sales but reduced contract profitability below break-even.
- Paid acquisition campaigns with rising CAC were justified by optimistic LTV estimates that assumed ideal retention.
- Onboarding and success teams were scaled reactively, creating fixed costs that expected growth never amortized.
The systems that masked loss
We built systems that tracked what we wanted to celebrate and ignored what we needed to fix. Common culprits:
- Vanity dashboards: monthly recurring revenue and new customers without margin overlays.
- Mis-specified KPIs: rewarding sales by ARR booked rather than contribution margin or churn-adjusted revenue.
- Accounting lag: recognizing bookings as success signals even when revenue recognition and cost allocation told a different story.
These design choices produced plausible deniability: leaders could point to growth numbers while finance quietly tracked negative unit economics. The longer the pattern persisted, the harder recovery became.
The three checks that would have saved us
Hindsight gives clarity: three lightweight, repeatable checks — run weekly or monthly — would have flagged the decline early and forced corrective action.
1. True Unit Economics Check
Measure the real profitability of acquiring and serving one customer. This goes beyond CAC and LTV clichés — include onboarding and service costs, time to profitability, and margin per cohort.
- Formula: Contribution Margin per Customer = (Average Revenue per Customer — Direct Cost to Serve) / Average Revenue per Customer.
- Include one-time onboarding and amortize it across expected customer lifetime to get an accurate per-period view.
- Red flag: Contribution margin under 20% for SaaS or your industry’s minimum viable margin.
2. Cohort Margin & Retention Audit
Track cohorts by acquisition month and plot their gross margin, retention, and net revenue retention (NRR) over time. This exposes whether newer customers are less valuable than older ones — a classic sign of compromized acquisition quality.
- Run a cohort table showing M1, M3, M6 retention and gross margin trend lines.
- Calculate LTV by cohort using observed churn and margin, not optimistic projections.
- Red flag: newer cohorts showing falling NRR or negative margin within six months.
3. Cash Burn & Pricing Sensitivity Check
Simulate cash runway against scenarios where acquisition spends stay elevated and retention weakens. Pair this with a pricing sensitivity test to know how small price or packaging changes affect margin and churn.
- Create three scenarios (Base, Pessimistic, Optimistic) and run a 12-month cash model factoring in acquisition ramp and onboarding costs.
- Test price changes and packaging simplifications on a small sample to estimate real-world elasticity — do not assume no impact on churn.
- Red flag: runway under 12 months in the pessimistic scenario or pricing changes that cannot restore positive contribution margins.
How to operationalize these checks (quick wins)
Actions that take less than a week and produce immediate signal:
- Embed contribution margin and payback period on the sales dashboard so every deal shows expected break-even date.
- Automate weekly cohort exports and a simple dashboard that highlights the three worst-performing cohorts.
- Run a two-week pricing A/B test with a statistically significant sample to measure real elasticity before company-wide changes.
Governance and incentives
Align compensation and board reporting with the checks: tie part of sales compensation to contribution margin and retention, and require the CFO to present cohort margin trends at monthly leadership meetings. Small governance tweaks make data-driven behavior the default.
Recovering from a similar situation
If you find your company chasing growth at the expense of margins, prioritize three parallel moves: (1) stop any acquisition channels with CAC materially above target, (2) renegotiate or phase out deals with negative contribution, and (3) implement the checks above immediately. Recovery is possible but requires disciplined, often unpopular, choices: raising prices where justified, trimming acquisition spend, and reallocating resources to retention and product quality.
Lessons for founders and leaders
Winning customers is not the same as winning sustainably. Growth without disciplined measurement of margins and cohort health creates fragile businesses that can collapse quietly. The antidote is simple: measure cheaply, act quickly, and align incentives to durable value rather than volume.
Conclusion: Our quiet collapse taught a harsh but useful lesson — scale without margin is a mirage. Implement the three checks, bake contribution margin into every dashboard, and treat cohorts as the primary unit of truth to avoid the same fate.
Ready to stop celebrating short-term wins and start building a business that lasts? Re-run your unit economics today and show your leadership the true score.
