# Financial Model -- LLMHosts.com

## META
- relevance: CORE -- revenue projections, unit economics, break-even, investor-ready
- created: 2026-02-14
- version: 1.0
- grounded_in: Market research (Feb 2026), OpenRouter Sacra report, SlashData developer survey (Q4 2025), SaaS benchmarks (Proven SaaS, Monetizely), AI inference market reports (MarketsAndMarkets, SNS Insider)

---

## 1. MARKET SIZING

### Total Addressable Market (TAM)
**AI inference market**: $106B (2025) growing to $255B by 2030 at 19.2% CAGR (MarketsAndMarkets).
LLMHosts sits in the AI inference optimization and routing layer -- the infrastructure between developers and inference.

### Serviceable Addressable Market (SAM)
**Developer AI tool spending**: ~50M developers use AI regularly. Average monthly AI spend: $97/developer (SlashData Q4 2025 survey, n=127). SAM = developers who own GPUs AND pay for AI tools.

Estimation:
- ~50M developers use AI tools regularly
- ~15% own a dedicated/gaming GPU usable for inference = ~7.5M
- Average spend: $97/mo on AI tools
- **SAM = 7.5M developers x $97/mo x 12 = ~$8.7B/year**

### Serviceable Obtainable Market (SOM)
Phase 1-2 target: developers who (a) own GPUs, (b) pay for AI coding tools, (c) are CLI-literate, (d) feel cost pain.

- Realistic penetration in Year 1: 0.01% of SAM = ~750 paying users
- Realistic penetration in Year 3: 0.1% of SAM = ~7,500 paying users
- Realistic penetration in Year 5: 1% of SAM = ~75,000 paying users
- **SOM Year 1 = ~$170K ARR. Year 3 = ~$1.7M ARR. Year 5 = ~$17M ARR.**

### Market Comparables
| Company | Model | Revenue/GMV | Users | Founded |
|---------|-------|-------------|-------|---------|
| OpenRouter | API proxy marketplace (5.5% fee) | $5M ARR / $100M GMV (May 2025) | 5M+ | 2023 |
| LiteLLM | Open source proxy + enterprise | Undisclosed (seed-funded) | 100K+ GitHub users | 2023 |
| Ollama | Local inference runtime | Undisclosed (Series A) | Millions of installs | 2023 |
| Tailscale | Mesh networking | $100M+ ARR (est.) | 10K+ paying teams | 2019 |
| PostHog | Open source analytics | $20M+ ARR | 50K+ companies | 2020 |

---

## 2. PRICING MODEL

### Design Principles
- Algorithms FREE and open source (unlimited local use)
- Charge for DATA INTELLIGENCE + COORDINATION INFRASTRUCTURE
- NO credits, NO per-request charges, NO token pricing
- Flat subscription = predictable revenue, predictable user cost

### Tier Structure
| Tier | Price | Target | Key Value |
|------|-------|--------|-----------|
| Free | $0 | Everyone | Full proxy + router + cache + dashboard. 1 device. |
| Pro | $19/mo | Individual developers | Cloud intelligence, global router, multi-device (5), tunnel coordination |
| Team | $49/seat/mo | Small teams (3-20) | Hive Mode, RBAC, shared configs, team cache, 25 devices |
| Enterprise | $50/user/mo | Companies (20+) | SOC2, SLA, audit logs, SSO, unlimited devices |

### ARPU Projections
| Year | Pro % | Team % | Enterprise % | Blended ARPU |
|------|-------|--------|-------------|--------------|
| 1 | 85% | 12% | 3% | $23.60/mo |
| 2 | 70% | 22% | 8% | $28.40/mo |
| 3 | 55% | 30% | 15% | $33.80/mo |
| 5 | 40% | 35% | 25% | $39.50/mo |

---

## 3. UNIT ECONOMICS

### Cost Structure Per User (Monthly)

**Pro user ($19/mo)**:
| Cost Component | Monthly Cost | Notes |
|---------------|-------------|-------|
| Cloud dashboard hosting (per user) | $0.50 | S3 + CDN + API compute |
| Global router intelligence compute | $1.00 | Aggregate model training, periodic |
| Tunnel coordination overhead | $0.50 | Tailscale/Cloudflare API calls |
| Customer support (AI + human blend) | $1.00 | AI handles 80%, human 20% |
| Payment processing (Stripe 2.9%+$0.30) | $0.85 | Per transaction |
| **Total COGS** | **$3.85** | |
| **Gross margin** | **$15.15 (79.7%)** | |

**Team user ($49/seat/mo)**:
| Cost Component | Monthly Cost | Notes |
|---------------|-------------|-------|
| Cloud dashboard hosting | $0.50 | Shared infra, marginal |
| Global router + Hive coordination | $2.00 | Headscale VPS, ACLs |
| Tunnel coordination | $0.50 | |
| Customer support (priority) | $2.00 | Faster human response |
| Payment processing | $1.72 | |
| **Total COGS** | **$6.72** | |
| **Gross margin** | **$42.28 (86.3%)** | |

**Blended gross margin target: 80-85%** (above AI-first SaaS benchmark of 55-70% because LLMHosts's AI costs run on USER hardware, not ours).

### Key Insight: Our Gross Margin Advantage
Most AI SaaS companies face 20-40% variable COGS from LLM inference. LLMHosts's inference runs on the USER'S hardware. Our COGS is hosting dashboards and coordination -- traditional SaaS infrastructure costs. This gives us traditional SaaS margins (80%+) while being an AI product.

---

## 4. CUSTOMER ACQUISITION

### CAC Model (Open Source PLG)
Open source developer tools achieve 30-35% better marketing efficiency than traditional SaaS (research benchmark). LLMHosts's acquisition funnel:

```
GitHub/HN/Reddit discovery (free)
  -> pip install llmhosts (free, 30 seconds)
  -> Use locally (free, unlimited)
  -> Want remote access -> llmhosts tunnel (needs Pro)
  -> $19/mo Pro subscription
```

**Estimated CAC by channel**:
| Channel | CAC | Volume | Notes |
|---------|-----|--------|-------|
| Organic (GitHub stars, word of mouth) | $0 | 40% of users | Open source flywheel |
| Content marketing (blog, tutorials) | $15 | 25% | Founder time + hosting |
| HN/Reddit/Discord community | $5 | 20% | Time investment only |
| Paid (Twitter/X ads, sponsorships) | $80 | 10% | Phase 2+ only |
| Referral (Hive Mode invites) | $10 | 5% | Phase 3+ |
| **Blended CAC** | **~$18** | | |

### LTV Calculation
- ARPU: $23.60/mo (Year 1 blended)
- Gross margin: 80%
- Monthly churn: 5% (Year 1, developer tools benchmark)
- **LTV = ($23.60 x 0.80) / 0.05 = $377.60**
- **LTV:CAC ratio = $377.60 / $18 = 21:1** (benchmark: 3:1 minimum)

This ratio is extremely favorable because open source PLG has near-zero CAC. The real risk is churn, not acquisition.

### Churn Projections
| Year | Monthly Churn | Annual Retention | Driver |
|------|--------------|-----------------|--------|
| 1 | 5.0% | 54% | Early product, finding PMF |
| 2 | 3.5% | 65% | Router intelligence improves, tunnel stickiness |
| 3 | 2.5% | 74% | Hive Mode social lock-in, team accounts |
| 5 | 1.5% | 83% | Platform dependency, enterprise contracts |

---

## 5. REVENUE PROJECTIONS (5-Year)

### Year 1: Finding Product-Market Fit
| Quarter | Users (Free) | Paying Users | MRR | ARR |
|---------|-------------|-------------|-----|-----|
| Q1 (Weeks 1-12) | 500 | 50 | $950 | $11.4K |
| Q2 (Weeks 13-24) | 3,000 | 300 | $5,700 | $68.4K |
| Q3 | 8,000 | 600 | $11,400 | $136.8K |
| Q4 | 15,000 | 1,000 | $19,000 | $228K |
| **Year 1 Total Revenue** | | | | **~$110K** |

### Year 2: Growth + Team Tier
| Quarter | Users (Free) | Paying Users | MRR | ARR |
|---------|-------------|-------------|-----|-----|
| Q1 | 25,000 | 2,000 | $47K | $564K |
| Q2 | 40,000 | 3,500 | $85K | $1.02M |
| Q3 | 60,000 | 5,500 | $135K | $1.62M |
| Q4 | 80,000 | 8,000 | $200K | $2.4M |
| **Year 2 Total Revenue** | | | | **~$1.4M** |

### Year 3-5 Summary
| Year | Free Users | Paying Users | ARR | Blended ARPU | Key Driver |
|------|-----------|-------------|-----|-------------|-----------|
| 3 | 200K | 20K | $8.1M | $33.80/mo | Team + Enterprise growth |
| 4 | 500K | 50K | $23.7M | $39.50/mo | Enterprise self-serve, international |
| 5 | 1M+ | 100K+ | $47.4M | $39.50/mo | Market leadership, network effects |

### Path to $1B+ Valuation
At typical developer tool SaaS multiples (15-25x ARR for high-growth):
- Year 3 at $8M ARR x 20x = **$160M valuation** (Series A/B territory)
- Year 5 at $47M ARR x 20x = **$940M valuation** (approaching unicorn)
- Year 6-7 at $100M+ ARR x 15x = **$1.5B+ valuation** (unicorn)

**Critical assumption**: 3-5% free-to-paid conversion sustained. OpenRouter achieved 5M users but unclear paid conversion. Tailscale doubled paying customers in 10 months (5K to 10K). PostHog reached $20M+ ARR with open source PLG.

---

## 6. BREAK-EVEN ANALYSIS

### Fixed Costs (Monthly)
| Category | Month 1-6 | Month 7-12 | Month 13-24 |
|----------|----------|-----------|------------|
| Founder salary (deferred) | $0 | $5,000 | $10,000 |
| Infrastructure (cloud, hosting) | $50 | $200 | $1,000 |
| Domain + email (Zoho Free) | $0 | $0 | $0 |
| Legal (incorporation, TOS) | $100 (amortized) | $0 | $200 |
| Marketing budget | $0 | $500 | $2,000 |
| Headscale VPS (Phase 3) | $0 | $0 | $100 |
| **Total fixed** | **$150** | **$5,700** | **$13,300** |

### Break-Even Points
- **Infrastructure break-even**: 8 Pro subscribers ($150/mo fixed) -- achievable Week 4-6
- **Ramen profitability** (founder takes $5K/mo): 300 Pro subscribers -- achievable Month 6-8
- **Real profitability** (founder takes $10K+, team of 2): 1,000 paying users -- achievable Month 10-14
- **Venture-scale** ($100K+ MRR): 5,000+ paying users -- achievable Year 2

### Cash Flow Projection (Month 1-18)
```
Months 1-3:   Revenue $0-2K.   Expenses $150-500.   Net: -$500 to +$1.5K
Months 4-6:   Revenue $2-6K.   Expenses $500-2K.    Net: +$1K to +$4K
Months 7-9:   Revenue $6-15K.  Expenses $6-8K.      Net: $0 to +$7K
Months 10-12: Revenue $15-25K. Expenses $8-12K.     Net: +$7K to +$13K
Months 13-18: Revenue $25-85K. Expenses $13-25K.    Net: +$12K to +$60K
```

**Key insight**: LLMHosts can be bootstrapped. No external funding required through Year 1. Seed round ($500K-$1M) accelerates Year 2 growth if PMF is proven.

---

## 7. SENSITIVITY ANALYSIS

### What If Scenarios
| Scenario | Impact | Mitigation |
|----------|--------|-----------|
| Free-to-paid conversion = 1% (not 3-5%) | Year 1 ARR: $76K instead of $110K | Tunnel is the conversion trigger; cloud dashboard has standalone value |
| Monthly churn = 8% (not 5%) | LTV drops to $236 (LTV:CAC still 13:1) | Router intelligence improves with use; switching cost rises |
| Cloud GPU prices drop 50% | "Save money" value prop weakens | "Access from anywhere" + privacy + latency are price-immune |
| Ollama adds routing natively | "Just a wrapper" risk realized | Tunnel + mesh + intelligence + vCache are differentiated |
| Competitor raises $50M, copies approach | Marketing/awareness disadvantage | Data moat (aggregate router), community, first-mover on tunnel |

### Bull Case (Year 5)
- 200K paying users, $39.50 ARPU = $95M ARR
- 25x multiple = $2.4B valuation
- Triggers: viral tunnel screenshots, developer word-of-mouth, enterprise adoption

### Bear Case (Year 5)
- 25K paying users, $25 ARPU = $7.5M ARR
- 10x multiple = $75M valuation
- Triggers: high churn, competitor response, limited tunnel adoption

### Base Case (Year 5)
- 100K paying users, $39.50 ARPU = $47M ARR
- 20x multiple = $940M valuation

---

## 8. FUNDING STRATEGY

### Phase 1-2: Bootstrap (Months 1-8)
- $0 external funding
- Revenue from cloud cost dashboard covers infrastructure
- Founder runway: personal savings or part-time consulting
- **Goal**: Prove PMF (500+ installs, 50+ paying, NPS >50)

### Seed Round: $500K-$1M (Month 9-12, if PMF proven)
- Use of funds: hire 1 engineer, marketing budget, infrastructure scaling
- Target metrics at raise: $5K+ MRR, 5K+ installs, 100+ paying users
- Valuation target: $5-10M pre-money (20-50x revenue multiple for dev tools)

### Series A: $5-10M (Month 18-24, if growth trajectory holds)
- Use of funds: team of 5-8, enterprise features, international expansion
- Target metrics: $50K+ MRR, 50K+ users, 3K+ paying
- Valuation target: $50-100M

### Decision: Bootstrap vs. Raise
The financial model shows LLMHosts CAN be bootstrapped profitably. External funding accelerates growth but is not required for survival. The founder should:
1. Bootstrap through Phase 1-2 to prove PMF
2. Only raise if: (a) PMF is proven, (b) growth is constrained by capital, (c) competitive pressure demands speed

---

## 9. KEY METRICS TO TRACK

### North Star Metric
**Monthly Active Paying Users (MAPU)** -- not installs, not free users, not GitHub stars. Paying users who actively route requests through LLMHosts in the last 30 days.

### Weekly Dashboard
| Metric | Target (Month 3) | Target (Month 12) |
|--------|-----------------|-------------------|
| Installs (cumulative) | 500 | 15,000 |
| Weekly Active Users | 200 | 5,000 |
| Free-to-paid conversion | 3% | 5% |
| Monthly churn (paid) | <8% | <5% |
| MRR | $950 | $19,000 |
| Blended ARPU | $19 | $23.60 |
| NPS | >30 | >50 |
| `llmhosts tunnel` active | N/A | 500 |
| Cache hit rate (avg) | 20% | 35% |
| vCache false positive rate | <1% | <0.5% |
