# Kalei — Cost Projections & Financial Analysis

# KALEI

Cost Projections & Financial Analysis

February 2026
Confidential

## Executive Summary

Kalei — Confidential | February 2026
90%
AI Cost Reduction
98.5%
Unit Margin (Prism)
Month 3
Profitability Path

### Key Findings

By transitioning from Claude Haiku to DeepSeek V3.2 via OpenRouter, Kalei achieves transformative unit economics:

AI Cost Reduction: From $0.33 to $0.034 per free user monthly, a 90% decrease. Prism users drop from $0.72 to $0.076, freeing massive margins for growth.
Margin Expansion: Prism tier achieves 98.5% gross margin. All-features v1 launch eliminates phase-gating costs and accelerates time-to-revenue.
Path to Profitability: Conservative organic acquisition (3-5 Free, 1-2 Prism/month) reaches profitability by Month 3, scaling to $3,000+ MRR by Month 18.
Competitive Position: Total monthly burn (€13-40 infrastructure + AI) positions Kalei at 1% of typical venture-backed startup costs.

### Strategic Implications

- All features ship in v1 (Mirror, Turn, Lens, Spectrum, Rehearsal, Ritual, Evidence Wall, Guide) — no product delays
- DeepSeek V3.2 delivers comparable quality to Claude Haiku at 1/10th cost
- Claude Haiku fallback (5-10% of requests) for specialized tasks without material cost impact
- Scaling milestones (Launch 50 DAU, Traction 200 DAU, Growth 1,000 DAU) decouple from feature releases
- Sustainable unit economics enable profitability without external capital

## AI Strategy & Token Economics

February 2026

### Primary Model: DeepSeek V3.2

Provider: OpenRouter / DeepInfra
Input Cost: $0.26 / 1M tokens
Output Cost: $0.38 / 1M tokens
Rationale: State-of-the-art reasoning at commodity pricing. Comparable performance to Claude Haiku on reasoning and code. Cache hit optimization reduces effective cost by 15-25%.

### Fallback Model: Claude Haiku

Provider: Anthropic API
Input Cost: $1.00 / 1M tokens
Output Cost: $5.00 / 1M tokens
Usage: 5-10% of request volume (specialized reasoning, complex multi-step verification)
Impact: Less than 1% of total AI cost due to low volume.

### Per-Feature Token Consumption

Feature | Input Tokens | Output Tokens | Total | Cost (DeepSeek)
--- | --- | --- | --- | ---
Mirror (session reframe) | 2,500 | 800 | 3,300 | $0.0048
Turn (single reframe) | 1,200 | 600 | 1,800 | $0.0023
Lens (affirmation) | 800 | 200 | 1,000 | $0.00096
Spectrum (weekly analysis) | 4,000 | 2,000 | 6,000 | $0.0095
Rehearsal (dialogue prep) | 2,500 | 1,500 | 4,000 | $0.0048
Guide (coaching) | 2,000 | 1,000 | 3,000 | $0.0035
Crisis Detection (per interaction) | 500 | 100 | 600 | $0.00058

### Cost Optimization Strategies

- Prompt Caching: Cache frequently reused context (user profiles, system prompts). Reduces effective cost 15-25%.
- Model Routing: Route 90% to DeepSeek (Turn, Lens, Spectrum), 10% to Haiku (complex reasoning, verification).
- Batch Processing: Weekly analyses and reports processed in batch mode during off-peak hours.
- Response Optimization: A/B test prompt formulations to reduce output token counts without quality loss.

## Monthly Cost Waterfall (Months 1-18)

February 2026

Complete month-by-month financial projections showing users, revenue, costs, and profitability trajectory:

Month | Free Users | Prism Users | DAU | MRR | AI Cost | Infra | Total Cost | Profit | Cumulative
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
1 | 5 | 1 | 2 | $5 | $2 | $14 | $16 | -$11 | -$11
2 | 10 | 2 | 4 | $10 | $4 | $14 | $18 | -$8 | -$19
3 | 15 | 3 | 6 | $15 | $6 | $14 | $20 | -$5 | -$24
4 | 20 | 4 | 8 | $20 | $10 | $14 | $24 | -$4 | -$28
5 | 22 | 4 | 9 | $20 | $11 | $14 | $25 | -$5 | -$33
6 | 25 | 5 | 10 | $25 | $16 | $14 | $30 | -$5 | -$38
7 | 35 | 8 | 14 | $40 | $21 | $14 | $35 | +$5 | -$33
8 | 42 | 10 | 17 | $50 | $28 | $14 | $42 | +$8 | -$25
9 | 50 | 12 | 20 | $60 | $40 | $14 | $54 | +$6 | -$19
10 | 65 | 15 | 26 | $75 | $47 | $14 | $61 | +$14 | -$5
11 | 75 | 18 | 31 | $90 | $52 | $14 | $66 | +$24 | +$19
12 | 80 | 20 | 33 | $100 | $53 | $14 | $67 | +$33 | +$52
13 | 100 | 28 | 43 | $140 | $71 | $15 | $86 | +$54 | +$106
14 | 125 | 36 | 54 | $180 | $95 | $15 | $110 | +$70 | +$176
15 | 150 | 42 | 64 | $210 | $118 | $15 | $133 | +$77 | +$253
16 | 175 | 48 | 74 | $240 | $138 | $18 | $156 | +$84 | +$337
17 | 190 | 55 | 82 | $275 | $165 | $18 | $183 | +$92 | +$429
18 | 200 | 60 | 90 | $300 | $200 | $20 | $220 | +$80 | +$509

Key Milestones: Profitability achieved Month 11. Cumulative break-even at Month 10. By Month 18, $80 monthly profit with $509 cumulative return. Scaling driven by organic acquisition (3-4 users/month) and stable 20% Free-to-Prism conversion.

## 18-Month Financial Timeline Chart

February 2026

The chart above shows MRR growth (purple), AI costs (red), and monthly profit/loss (green) across all 18 months. Profitability inflection occurs Month 11 as user base scales and fixed infrastructure costs are amortized. Revenue growth outpaces cost growth due to:

- Linear user acquisition (3-5/month) compounds to exponential DAU growth
- Stable 20% Free-to-Prism conversion maintains margin expansion
- Fixed infrastructure cost (€14-20/month) spread across growing base reduces per-user COGS
- AI cost growth lags revenue due to caching, batching, and model routing optimizations

## Sensitivity Analysis: Conservative vs. Optimistic

February 2026

What happens if key assumptions shift? Three scenarios model sensitivity to conversion rates, AI costs, and growth velocity:

Scenario | Conversion Rate | Growth Rate | AI Cost Variation | Month 12 MRR | Profit at Month 12 | Break-Even Month
--- | --- | --- | --- | --- | --- | ---
Conservative | 5% | 2 users/mo | +20% (price hike) | $45 | -$15 | Month 14
Base Case | 10% | 3-5 users/mo | No change | $100 | +$33 | Month 11
Optimistic | 15% | 8 users/mo | -10% (discount) | $180 | +$95 | Month 8

### Insights

Conservative case (5% conversion, slower growth) still reaches break-even by Month 14 due to ultra-low base costs. Optimistic case (15% conversion, rapid organic growth) reaches $180 MRR and profitability by Month 8. Base case balances sustainability with achievable acquisition rates for B2C wellness apps.

## Per-Feature Cost & Usage Analysis

February 2026

All eight features ship in v1. Understanding per-feature cost and usage patterns drives optimization priorities:

Feature | Free Tier (per user/mo) | Prism Tier (per user/mo) | Monthly Cost per User | Primary Cost Driver
--- | --- | --- | --- | ---
Mirror | 2x sessions | 8x sessions | $0.0096 (F) / $0.0384 (P) | Output tokens (240/session)
Turn | 3x/day (90/mo) | 10x/day (300/mo) | $0.0207 (F) / $0.069 (P) | Input tokens (context)
Lens | 2x/week (8/mo) | 5x/week (20/mo) | $0.0077 (F) / $0.0192 (P) | Input tokens (user data)
Spectrum | 1x/month (1/mo) | 4x/month (4/mo) | $0.0095 (F) / $0.038 (P) | Output tokens (analysis)
Rehearsal | 0.5x/month | 3x/month | $0.002 (F) / $0.0144 (P) | Input tokens (dialogue context)
Ritual | Daily reminders (free tier) | Personalized daily | $0 (F) / $0.005 (P) | Static content (no API calls)
Evidence Wall | Manual entry (free tier) | Auto-generated (4x/month) | $0 (F) / $0.0095 (P) | Input tokens (evidence synthesis)
Guide | Unavailable | 2x/month | N/A (F) / $0.007 (P) | Input + output (coaching dialogue)

### Cost Optimization Priorities

- Turn & Mirror (57% of cost): Focus on prompt caching and response length optimization. Potential 15-20% savings.
- Spectrum & Evidence Wall (20% of cost): Batch processing during off-peak hours. 10-15% savings.
- Ritual & Rehearsal (5% of cost): Lower priority. Use DeepSeek standard (no caching needed).

## User Cohort Economics & LTV Analysis

February 2026

Three user cohorts drive distinct unit economics and profitability profiles:

Cohort | Monthly Revenue | AI Cost | Gross Profit | Monthly Margin % | Estimated Lifetime Value
--- | --- | --- | --- | --- | ---
Free User | $0 | $0.034 | -$0.034 | N/A (loss leader) | $0 (conversion target)
Prism User ($4.99/mo) | $4.99 | $0.076 | $4.914 | 98.5% | $29.94 (6 mo @ 8% churn)
Prism+ User ($9.99/mo) | $9.99 | $0.12 | $9.87 | 98.8% | $65.80 (7 mo @ 5% churn)

### LTV Calculations (Base Case)

Prism User LTV: Assumes $4.99 monthly revenue, $0.076 cost, 6-month average lifetime (8% monthly churn), $0.50 operations/month = $4.414 net per month × 6 = $26.48 LTV. With customer acquisition cost allowance of $15 (3-month payback), ratio is 1.76:1.
Prism+ User LTV: Assumes $9.99 monthly, $0.12 cost, 7-month lifetime (5% churn), $0.75 operations = $8.12/month × 7 = $56.84 LTV. Premium tier drives 2.1:1 CAC ratio, enabling higher acquisition spend.
Implications: Prism tier alone achieves sustainable acquisition economics at current costs. Prism+ upgrade upsell (25% of Prism users upgrade) becomes major profit driver at scale.

## Break-Even Scenarios by Price & Conversion

February 2026

Different pricing and conversion rate combinations reveal break-even timelines and profitability thresholds:

Price Point | Conversion (5%) | Conversion (10%) | Conversion (15%) | Conversion (20%)
--- | --- | --- | --- | ---
$3.99/mo | M16 (-$5) | M12 (+$18) | M10 (+$42) | M8 (+$68)
$4.99/mo | M14 (+$8) | M11 (+$33) | M9 (+$65) | M7 (+$98)
$6.99/mo | M12 (+$35) | M9 (+$72) | M7 (+$112) | M6 (+$152)
$9.99/mo (Prism+) | M10 (+$72) | M7 (+$145) | M5 (+$218) | M4 (+$291)

### Strategic Insights

- Current $4.99 pricing achieves break-even Month 11 at 10% conversion. Conservative pricing option.
- $6.99 pricing accelerates break-even to Month 9 with buffer for market testing.
- Prism+ ($9.99) tier enables profitability by Month 7 even at modest conversion rates.
- 20% conversion (achievable with referrals + in-app prompts) reduces break-even to Months 4-7 across all price points.

## Scaling Milestones & Infrastructure Timeline

February 2026

Kalei achieves three scaling milestones tied to user growth, not product phases. All features available at all scales:

Milestone | DAU Target | Timeline | VPS Tier | Monthly Infra Cost | AI Cost (Est.) | Total COGS
--- | --- | --- | --- | --- | --- | ---
Launch | 50 DAU | Months 1-9 | Netcup VPS 1000 (2GB) | €14 | $30-50 | $44-64
Traction | 200 DAU | Months 10-14 | Netcup VPS 2000 (4GB) | €18 | $120-160 | $150-190
Growth | 1,000 DAU | Months 15-18+ | Load-balanced VPS or Managed K8s | €50+ | $600-800 | $650-850

### Scaling Triggers & Costs

- Launch (50 DAU, ~Month 9): Single VPS handles load. PostgreSQL + Redis on same instance. Monthly cost: €14 + ~$40 AI = €54 total (~$60).
- Traction (200 DAU, ~Month 10): Database optimization required. Upgrade to 4GB VPS. Load testing confirms single instance sufficient through Month 14.
- Growth (1,000 DAU, ~Month 15): Multi-instance load balancing required. Consider Kubernetes or AWS ALB. Estimated €50-100/month infrastructure.
- Database: Managed PostgreSQL (€20-50/month) not required until Month 16-18 assuming careful query optimization.

## Competitive Burn Rate Comparison

Kalei — Confidential | February 2026

Category | Typical Seed Stage | Typical Series A | Venture-Backed Wellness | Kalei (Founder-Led) | % of Typical
--- | --- | --- | --- | --- | ---
Team Salaries | $8,000-15,000 | $30,000-60,000 | $20,000-40,000 | $0 (founder) | 0%
Cloud Infrastructure | $2,000-5,000 | $5,000-10,000 | $3,000-8,000 | $50 (VPS) | 0.6-1.7%
AI / ML Inference | $3,000-8,000 | $5,000-15,000 | $4,000-10,000 | $240 (DeepSeek) | 2.4-8%
Sales & Marketing | $2,000-5,000 | $8,000-20,000 | $5,000-15,000 | $0 (organic) | 0%
Tools & Software | $500-1,500 | $1,000-3,000 | $800-2,000 | $50 (GitHub, monitoring) | 2.5-6.25%
TOTAL MONTHLY BURN | $15,500-34,500 | $49,000-108,000 | $32,800-75,000 | $340 | 0.45%-1.04%

### Key Competitive Advantages

Ultra-Low Burn Rate: Kalei operates at 0.45% of typical Series A burn and 1.04% of venture-backed wellness app burn. This 100x cost advantage is structural, not temporary.
Commodity AI Pricing: DeepSeek V3.2 at $0.26/1M input tokens replaces proprietary models costing $15-20. This single shift eliminates the largest cost center for AI companies.
Founder-Led Efficiency: Zero salary overhead in year 1. Scales to 1-2 team members at profitability, funded by Prism margins.
Sustainable Unit Economics: $4.91 monthly profit per Prism user supports 30-50 customer acquisition spend at 3-month payback.

### Profitability Pathways

- Organic Profitability (Base Case): Reach $100 MRR by Month 12, profit +$33/month. Cumulative profit of $500+ by Month 18. No external funding required.
- Funded Growth (Optional): If raising capital, unit economics justify $5-10k CAC spend. 50-100 paid users generates $250-500 MRR, funding team hire.
- Exit Optionality: Platform with $3k+ MRR, proven unit economics, and 1,000+ DAU becomes acquisition target for wellness platforms, mental health networks, or coaching apps.

## AI Pricing Comparison: Models & Impact

February 2026

Parameter | DeepSeek V3.2 | Claude Haiku (Current) | Claude Sonnet | GPT-4 Mini | Savings vs. Haiku
--- | --- | --- | --- | --- | ---
Input Cost (1M) | $0.26 | $1.00 | $3.00 | $0.15 | 74% reduction
Output Cost (1M) | $0.38 | $5.00 | $15.00 | $0.60 | 92% reduction
Blended Rate (1M) | $0.32 | $3.00 | $9.00 | $0.38 | 89% reduction
Free User Cost | $0.034 | $0.33 | $0.90 | $0.037 | 90% reduction
Prism User Cost | $0.076 | $0.72 | $2.16 | $0.083 | 89% reduction

### Model Selection Rationale

DeepSeek V3.2 (Primary, 90% of requests): Commodity pricing for commodity tasks. Comparable performance to Haiku on code, reasoning, and dialogue. Excellent caching support (further 15-25% savings). Latest benchmarks show GPT-4-level performance on many tasks.

Claude Haiku (Fallback, 10% of requests): Specialized reasoning, multi-step verification, complex user context understanding. The 10x cost premium is justified for edge cases where quality directly impacts user retention. Estimated impact: <1% of total AI spend.

Why Not GPT-4 Mini or Other Models? GPT-4 Mini offers similar pricing to DeepSeek but weaker caching and less favorable opaque pricing models. Sonnet and larger models exceed Kalei's cost budget. DeepSeek + Haiku hybrid is optimal for this workload.

## Initial Budget Allocation & Runway

February 2026

If launching with €2,000 initial budget, optimal allocation prioritizes runway over marketing:

Category | Allocation (€) | Allocation (%) | Burn Rate | Runway Coverage
--- | --- | --- | --- | ---
Infrastructure (VPS + Domain) | €200 | 10% | €14-20/mo | 10-14 months
AI Inference (DeepSeek) | €300 | 15% | €30-50/mo* | 6-10 months
Tools & Monitoring | €100 | 5% | €0-20/mo | 5-infinite months
Buffer & Contingency | €1,400 | 70% | Variable | Emergency reserves

### Runway Projections

- Aggressive Growth (5 users/month): Runway = 10 months to profitability Month 12. Buffer absorbed by Month 7-8. Requires disciplined acquisition to break-even before cash depletion.
- Conservative Growth (3 users/month): Runway = 16+ months. Profitability achieved Month 14-15 with buffer intact. Comfortable path to sustainable business without fundraising.
- Profitability Timing: Base case (3-5 users/month) achieves Month 11-12 profitability, leaving 4-5 months buffer for unexpected costs or slower acquisition.

Note: *AI costs grow with usage. Month 1 = €2; Month 6 = €16; Month 12 = €53. Conservative estimate assumes €50/month average over 12 months.

## 18-Month Revenue & ARR Projections

February 2026

Conservative annual recurring revenue (ARR) growth driven by organic acquisition and freemium conversion:

Quarter | Free Users | Prism Users | Monthly Churn | MRR | Quarterly Revenue | ARR (Annualized) | QoQ Growth
--- | --- | --- | --- | --- | --- | --- | ---
Q1 (M1-3) | 15 | 2 | 8% | $10 | $35 | $120 | —
Q2 (M4-6) | 25 | 5 | 8% | $25 | $80 | $300 | +150%
Q3 (M7-9) | 50 | 12 | 8% | $60 | $185 | $720 | +140%
Q4 (M10-12) | 80 | 20 | 8% | $100 | $320 | $1,200 | +67%
Q5 (M13-15) | 125 | 42 | 8% | $210 | $650 | $2,520 | +110%
Q6 (M16-18) | 190 | 55 | 8% | $275 | $850 | $3,300 | +31%

### Key Revenue Insights

- MRR Path to $3k: Months 1-12 show exponential growth as user base scales (5-8x users). Months 13-18 show continued growth but decelerating QoQ as base effect slows.
- ARR Trajectory: $120 (Q1) → $1,200 (Q4) → $3,300 (Q6). Represents 27x growth in 18 months with organic acquisition only.
- Prism Mix Evolution: Prism users grow from 12% (Q1) to 22% (Q6) as Free users accumulate and convert. This gradual mix shift drives incremental margin expansion.
- Annual Run Rate (Month 18): $300 MRR × 12 = $3,600 ARR achievable with conservative organic growth. With 10% Prism+ tier adoption (5-6 users), ARR exceeds $4,500.

## Risk-Adjusted Financial Model

February 2026

Probability-weighted outcomes across three scenarios (Conservative 30%, Base 50%, Optimistic 20%) provide expected value perspective:

Outcome | Probability | Month 12 MRR | Month 18 MRR | Cumulative Profit M18 | Notes
--- | --- | --- | --- | --- | ---
Conservative | 30% | $45 | $90 | +$180 | 5% conversion, slower growth. Still profitable.
Base Case | 50% | $100 | $300 | +$509 | 10% conversion, 3-5 users/month. Target outcome.
Optimistic | 20% | $180 | $500 | +$1,200 | 15% conversion, viral loops, press. Upside scenario.
Expected Value (Probability-Weighted) | $91 | $272 | +$556 | Conservative baseline with upside optionality

### Risk Assessment

- Downside Risk (Conservative): 30% probability of $45 MRR at Month 12. Still achieves profitability by Month 14-16. Worst case: break-even by end of runway without fundraising.
- Base Case Probability (50%): Most likely outcome given freemium SaaS benchmarks. $100 MRR Month 12 = $1.2k ARR, sustainable without external funding.
- Upside Potential (20%): Viral activation or press coverage doubles acquisition rate. $500 MRR by Month 18 = $6k ARR. Attractive acquisition target or Series A candidate.
- Expected Value (Weighted): $91 MRR Month 12, $272 MRR Month 18, $556 cumulative profit. Demonstrates risk-adjusted profitability across all scenarios.

## Sources & Methodology

February 2026

### AI Pricing Sources

- DeepSeek V3.2: OpenRouter and DeepInfra pricing (February 2026) — $0.26 input, $0.38 output per 1M tokens.
- Claude Haiku 4.5: Anthropic API pricing — $1.00 input, $5.00 output per 1M tokens.
- Claude Sonnet & GPT-4: Public pricing APIs (2026 rates). Performance benchmarks from Artificial Analysis and Hugging Face Spaces.

### Infrastructure & SaaS Benchmarks

- Netcup VPS: €8.45 (2GB), €15.59 (4GB), €26.18 (8GB) per month (February 2026 pricing).
- Typical SaaS Burn: Y Combinator surveys, Stripe Atlas data. Early-stage AI startups burn $15k-50k/month with 2-4 team members.
- Freemium Conversion: SaaS benchmarks (Recurly, ChartMogul). B2C wellness apps: 5-15% Free-to-Paid, 3-6 month LTV.

### User Behavior Assumptions

- Organic Acquisition: 3-5 new free users/month (conservative for B2C health app without paid marketing). Month 1-6 acquisition: 3 users/mo; Month 7-12: 4-5 users/mo; Month 13-18: 5-8 users/mo.
- Conversion Rate: 10% Free-to-Prism by Month 3, sustained through Month 18. Achieved through in-app prompts, feature limits, and organic virality.
- Churn Rates: 8% monthly churn (Prism), 5% (Prism+). Typical for B2C SaaS; wellness apps trend higher (8-12%). Conservative estimate.
- Token Usage: Mirror 3,300 tokens, Turn 1,800, Lens 1,000, Spectrum 6,000, Rehearsal 4,000, Guide 3,000. Estimated from 2-3 month alpha testing.

### Financial Modeling Methodology

- Month-by-Month Waterfall: Bottom-up from user counts → feature usage → tokens → costs. Revenue = Prism users × $4.99 (monthly recurring).
- Infrastructure Scaling: Single VPS (€14) through 50 DAU (Month 9). Upgrade at 200 DAU (€18). Kubernetes/load balancing at 1,000 DAU (€50+).
- Sensitivity Analysis: Vary conversion rate (5-15%), growth velocity (2-8 users/mo), AI costs (±20%). Outputs break-even month and Month 18 profit.
- Probability Weighting: Conservative (30%), Base (50%), Optimistic (20%) weighted by historical freemium SaaS outcomes and Kalei-specific competitive advantages.

### Key Assumptions & Disclaimers

- Token usage estimates may vary ±30% depending on user behavior, prompt lengths, and feature adoption mix.
- Infrastructure costs assume PostgreSQL on VPS through Month 18. Managed database adds €20-50/month at scale.
- Exchange rate (EUR/USD) fixed at 1.10 for simplicity. Actual rates vary; use spot rates for financial planning.
- DeepSeek pricing assumes continued commodity rates through 2026. Rate increases would extend break-even by 1-2 months.
- User acquisition assumes zero paid marketing. Paid CAC of $5-10/user would compress break-even by 3-6 months if conversion rates exceed 15%.
- Product development and maintenance costs not included. Post-profitability, allocate 20% of revenue to R&D and support.