Profit Model
Establishing a Unified SAC KPI to Enable Accurate Profit Analysis and Strategic Decision Making
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The Business Need for a Unified Profit Model
To make informed strategic decisions about customer acquisition, channel investments, and contract profitability, iD Mobile requires a comprehensive profit model that accurately captures the true cost and return of each customer relationship.
Strategic Imperative: Without a unified profit model, we cannot accurately assess which channels, contract types, or customer segments deliver the best return on investment. This impacts pricing strategies, channel partner negotiations, and resource allocation decisions.
Why We Need This Model
1
Channel Performance Analysis
Compare true profitability across Direct, Affiliate, and Retail channels to optimise channel mix and investment allocation.
2
Contract Type Profitability
Understand which contract types (Handset, SIMO, PAYG) deliver the best lifetime value and focus marketing efforts accordingly.
3
Pricing Strategy Validation
Ensure pricing strategies cover true acquisition costs while maintaining competitive positioning in the market.
4
Financial Performance Monitoring
Enable accurate financial reporting and performance tracking against business targets.
SAC: The Foundation of Profit Modelling
The Sales Acquisition Cost (SAC) is the cornerstone of our profit model. It represents the total investment required to acquire each new customer or upgrade existing ones and must be accurately calculated before meaningful profit analysis can occur.
Fundamental Requirement: Before we can build a reliable profit model, we must first establish a single, agreed SAC calculation that captures all acquisition costs consistently across all systems and reporting.
What SAC Must Include
Direct Product Costs
Base cost of the product or service being sold, including device subsidies and SIM costs.
TOTAL_COST_ACT_TOTAL_BASE
Channel Partner Costs
All costs associated with sales through affiliate and retail partners, including commissions and incentives.
Commissions + Gift Cards + Cashback
Customer Incentives
All promotional costs, vouchers, cashback offers, and referral programme costs paid to customers.
Vouchers + Referral Costs + Promotional Offers
Digital Marketing Costs
Pay-per-click (PPC) advertising and digital marketing costs allocated proportionally across transactions by channel and time period.
PPC_COST × SALES_ALLOCATION_RATIO
Physical Location Costs
Tenancy and physical store costs allocated to transactions based on sales channel and volume distribution.
TENANCY_COST / TENANCY_SALES_VOL_SUM
Network Access Costs
Costs paid to Three UK for network access, varying by data allowance tier (limited vs unlimited plans).
THREE_COSTS = SALES_VOL × Network_Rate
Regulatory & Service Costs
Master Service Agreement (MSA) costs and fixed per-customer regulatory compliance expenses.
MSA = SALES_VOL_ACT_TOTAL × MSA_RATE
Manufacturer Funding
Funding received from device manufacturers that reduces the net acquisition cost.
- MANUFACTURER_FUNDING (reduces SAC)
The Problem: Inconsistent SAC Calculations
Critical Business Issue: iD Mobile currently calculates SAC differently across three models - the Revenue Share model, Trading Report, and Profit Model. This inconsistency prevents accurate profit analysis and undermines confidence in financial reporting.
Before we can build a reliable profit model, we must address the fundamental problem: SAC is calculated differently in our three core models. This creates conflicting views of customer acquisition costs and makes it impossible to establish accurate profit metrics.
Impact of Inconsistent SAC Calculations
1
Conflicting SAC Values
Different models show different acquisition costs for the same customers, creating confusion and undermining trust in financial data across the three models.
2
Duplication of Effort
Multiple teams spend time maintaining separate SAC calculations, leading to wasted resources and increased operational complexity.
3
Poor Channel Decision Making
Without consistent SAC, we cannot accurately compare channel performance or make informed investment decisions.
4
Inaccurate Financial Forecasting
Inconsistent acquisition cost data leads to unreliable financial projections and business planning.
5
Regulatory and Audit Risk
Inconsistent cost calculations create audit risks and compliance issues with financial reporting standards.
SAC Integration into Profit Calculations
The calculated SAC components feed directly into the final profit model, with different applications for contract periods and revenue sharing calculations.
Profit Calculation Framework
Final Profit Calculations Using SAC:
-- PRIOR_PROFIT: During initial contract term PRIOR_PROFIT_GROSS = PRIOR_REVENUE_PAID_TOTAL + RRP_ACT_TOTAL_BASE_ADJUSTED - TOTAL_SALE_COST PRIOR_REV_SHARE = ((PRIOR_REVENUE_PAID_TOTAL) - ((TOTAL_SHAREABLE_SALE_COST - RRP_ACT_TOTAL_BASE_ADJUSTED) × (PRIOR_INVOICE_PAID_COUNT/FIRST_CONTRACT_TERM_FIX))) × REV_SHARE PRIOR_PROFIT = PRIOR_PROFIT_GROSS - PRIOR_REV_SHARE - PRIOR_CONTACT_COST -- POST_PROFIT: After contract term completion POST_PROFIT_GROSS = POST_REVENUE_PAID_TOTAL POST_REV_SHARE = ((POST_REVENUE_PAID_TOTAL) - ((TOTAL_SHAREABLE_SALE_COST - RRP_ACT_TOTAL_BASE_ADJUSTED) × (POST_INVOICE_PAID_COUNT/FIRST_CONTRACT_TERM_FIX))) × REV_SHARE POST_PROFIT = POST_PROFIT_GROSS - POST_REV_SHARE - POST_CONTACT_COST -- CONTRACT_PROFIT: Total contract profitability CONTRACT_PROFIT = PRIOR_PROFIT + POST_PROFIT
Prior Period Profit
Profit during the initial contract term, where the full SAC is applied against upfront revenue and RRP.
Revenue + RRP - TOTAL_SALE_COST - Revenue Share - Contact Costs
Post Contract Profit
Profit after contract completion where no new acquisition costs apply, but revenue sharing continues based on original SAC.
Post Revenue - Allocated Revenue Share - Contact Costs
Revenue Share Allocation
TOTAL_SHAREABLE_SALE_COST (minus RRP) is spread across paid invoices and multiplied by the revenue share percentage.
((Revenue - (SAC × Invoice Proportion)) × REV_SHARE%)
Total Contract Value
Complete lifetime profitability combining initial acquisition investment with ongoing post-contract returns.
PRIOR_PROFIT + POST_PROFIT = CONTRACT_PROFIT
Implementation Logic
Dynamic Cost Allocation Rules
1
Volume-Proportional Allocation
Marketing costs (PPC, Tenancy) are allocated proportionally based on sales volume within specific time periods and channels.
2
Channel-Specific Logic
Different cost structures apply based on sales channel (iD Direct, CPW, DCL) with specific rules for upgrade vs new sale scenarios.
3
Product Class Differentiation
Costs calculated differently for Handset (104), SIMO (108), Data (149), and Tablet (152) product classes with specific SIM cost handling.
The Solution: Establishing a Unified SAC KPI
Strategic Solution: Establish a single, comprehensive SAC calculation that becomes the authoritative KPI for customer acquisition costs across all systems, ensuring consistent profit analysis and enabling reliable business decision-making.
To resolve the SAC inconsistency and enable accurate profit modelling, we must implement a unified SAC KPI that captures all acquisition costs comprehensively and consistently.
Implementation Roadmap
1
Agree SAC KPI Definition
Establish a new agreed SAC KPI to be used across the 3 models as the single, authoritative SAC measurement that all models must adopt for consistent reporting.
2
Update Trading Report System
Modify Trading Report calculations to match the agreed SAC KPI, ensuring all affiliate costs, commissions, and adjustments are included.
3
Establish SAC KPI Monitoring
Create dashboards and alerts to monitor SAC KPI consistency across systems and flag any discrepancies for immediate resolution.
4
Enable Profit Model Build
With unified SAC in place, proceed to build the comprehensive profit model using the consistent acquisition cost foundation.
Expected Benefits of Unified SAC KPI
Consistent SAC Reporting
All models will report identical acquisition costs, building confidence in financial data and enabling reliable performance tracking.
Accurate Channel Comparison
True acquisition costs enable fair comparison of channel performance and informed investment allocation decisions.
Strategic Decision Making
Reliable SAC data supports pricing strategies, contract design, and customer acquisition planning with confidence.
Audit & Compliance Ready
Consistent calculations across all systems reduce audit risks and ensure compliance with financial reporting standards.
The Foundation for Success
A unified SAC KPI is not just a technical requirement—it's the foundation that enables iD Mobile to make confident, data-driven decisions about customer acquisition, channel investments, and long-term profitability strategy.