@andrewchen - Latest Comments in How to create a profitable Freemium startup (spreadsheet model included!)

Re: How to create a profitable Freemium startup (spreadsheet model included!)

David Cummins — Mon, 09 Aug 2010 00:37:21 -0000

Great post. In the spreadsheet on the "Funnel" tab, isn't the "invite conversation rate %" a product of % of users that invite other people x % of those invitations that are accepts? This would get us to the viral k factor equation of: % of users inviting other users x average # of invites x % of invitations that are accepted. If that is correct, it might be worth dropping a little not in the b9 cell of the spreadsheet to let folks know. Thanks for the insight.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

paris hilton — Mon, 09 Aug 2010 00:36:06 -0000

Great post. In the spreadsheet on the "Funnel" tab, isn't the "invite conversation rate %" a product of % of users that invite other people x % of those invitations that are accepted? If this is the case, I believe this would get us to the viral k factor equation of: % of users inviting other users x average # of invites x % of invitations that are accepted. If that is correct, it might be worth dropping a little note in the b9 cell of the spreadsheet to let folks know. Thanks for the insight.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

nabsy — Mon, 07 Jun 2010 09:16:21 -0000

Hi Andrew,

This is a fantastic post! Thank you for showing us how its done. I have one question about the model. In the cashflow tab if you look at the number of paying users in Time Period 3, there are 52 paying users which is MORE than the cumulative paying users for the same time period in the Funnel spreadsheet (28 paying users). Is there something wrong here or have I understood the retention tab incorrectly?

Nabil

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Max Marmer — Sat, 05 Jun 2010 02:56:53 -0000

Should a startup worry about the business model pre-product market fit? If so, what should they pay attention to and in what level of detail?

At pre-product market fit do they just need to approximate the size of the market, and all of these tactics are essentially about optimizing the slice of the pie they capture in the market?

Re: How to create a profitable Freemium startup (spreadsheet model included!)

grassroots — Thu, 03 Jun 2010 12:19:21 -0000

Excellent blog post on freemium. This is going to help me immensely with my new start-up. I was reading David Skok's blog post on sales complexity, http://www.forentrepreneurs..., which got me thinking about a freemium model for my business. Your post has been bookmarked and I will be sure to revisit it in the future. Thanks for the detailed post and keep up the great content!

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Max Yankov — Tue, 02 Mar 2010 05:02:54 -0000

Would you kindly send your template to golergka@gmail.com? I'm not yet skilled enough to contribute to it, I think, but I will share it with producers at my company, Playnatic Ent.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Oscar A Jofre — Mon, 01 Mar 2010 20:45:43 -0000

Very interesting, I found this to be extremely useful. It is refreshing to see that people are taking the business model of FREEMIUM serious.

Thank you
Oscar A Jofre
Founder, BoardSuite Corp.
A Freemium company..

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Yast.com — Mon, 01 Feb 2010 16:37:25 -0000

Thanks for a good article. Will use your spreadsheet and have looked at it and entered data valid for our company. Interesting that even if the CPA is doubble the LTV, it is still a good deal taking viral effects into consideration.

Keep posting articles like this. And with spreadsheets :)

Minor correction though. In cell B53 under the "Retention" sheet. I think it should say: Total users, not paying users.

And may I suggest that you build into your model that you already have a certain number of beta-testers and how this comes into effect. Read somewhere that beta testers have a lower rate of convertion than the effects from marketing.

Thanks!

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Max Yankov — Sat, 09 Jan 2010 14:49:46 -0000

Great article. I used similar spreadsheets working on various f2p games. I also found that dividing users into groups very helping. Different user groups (hardcore paying gamers, casual gamers, socializers, etc; first I based it on the Bartle groups and then tweaked a little) have very different statistics (but small dispersion) and, more importantly, their metrics are affected by different aspects of the game itself. For example, improving PvP aspects of the game worked very well on players that were into that gameplay, but it didn't went so well for socializers.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Emre Sokullu — Tue, 05 Jan 2010 15:12:45 -0000

Andrew - this is fascinating, very informative. Thank you very much for sharing.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

brezina — Wed, 30 Dec 2009 14:27:48 -0000

Yo Andrew - great post. Also, very funny timing - I just posted a blog post talking about Xobni's freemium business and the 4 metrics I measure for each customer. I also posted a screenshot of our funnel dashboard.

here is a link: http://www.mattbrezina.com/...

Re: How to create a profitable Freemium startup (spreadsheet model included!)

SharelOmer — Sun, 27 Dec 2009 19:01:55 -0000

Just read it again! love this post and the mention of @joshk tweet, so smart, funny and true.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

KirkWard — Fri, 11 Dec 2009 23:33:42 -0000

Andrew,

I like the article, and love the general usefulness of the spreadsheets.

But, I agree with Steve that a constant retention rate seems a bit off. I am thinking that most sites would have a decay model following a logarithmic formula, and looking at the model you used, the 20 time periods sort of implies a 20% monthly loss, which winds up giving you a less than 10% retention at the end of a year. Else you're analyzing over 20 years. All of which confuses me.

Do you have any suggestions for how to come up with a logarithmic formula to project customer loss from a known retention rate?

Kirk

Re: How to create a profitable Freemium startup (spreadsheet model included!)

danielg86 — Wed, 28 Oct 2009 13:57:09 -0000

This is an awesome article very insightful and very useful. I don't run a web-biz but I took from this article and aplied it to my parking lot cleaning business. here my website www.exosweep.com, contact me on the webform I'd like to hear how others applied this to their businesses.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Ryan Yan — Tue, 20 Oct 2009 22:53:52 -0000

Good article!

Re: How to create a profitable Freemium startup (spreadsheet model included!)

J. J. Raju — Mon, 12 Oct 2009 19:40:59 -0000

wow...

Re: How to create a profitable Freemium startup (spreadsheet model included!)

thrashr888 — Mon, 05 Oct 2009 23:37:32 -0000

I love the freemium breakdown here. Brilliant analysis, Andrew. Thanks!

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Mohan Arun L — Sun, 06 Sep 2009 05:49:57 -0000

For calculating cost of service this spreadsheet may be useful - NPPA cost of doing business calculator
https://www.nppa.org/profes...

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Matthew Warneford — Mon, 31 Aug 2009 12:21:19 -0000

Hey Andrew! I've riffed off a few of your posts in the process of developing our virtual world business model. The model is a template to help our partners who build on our virtual world platform understand how worlds generate revenue, their growth and costs.

I've blogged about the process and shared the spreadsheet here: http://dubitplatform.com/bl...

I wanted to say a quick thanks for sharing your insights, and thought you'd be interested to see how they've been used!

Matt

Re: How to create a profitable Freemium startup (spreadsheet model included!)

SharelOmer — Sun, 16 Aug 2009 11:48:59 -0000

Great post! Thanks for the excel example and the summary (profitable Freemium startup model): Lifetime value > Cost per acquisition + Cost of service (paying & free)

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Martin Thomas — Mon, 10 Aug 2009 12:51:16 -0000

Hi.. Your post got me thinking… What is more valuable for a software company (like facebook or flickr). 1,000 paying users or 100,000 non-paying users? What are your thoughts? View my blog post here: http://www.purlem.com/blog/...

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Andrew Chen — Tue, 05 May 2009 15:27:55 -0000

Do you have a spreadsheet template that shows what you describe? You should publish it.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Lucien — Tue, 05 May 2009 15:13:07 -0000

unfortunately, without doing the 'extra financial stuff' you can get very misleading results. Your spreadsheet example actually returns a Negative Net Present Value with any reasonable assumption of cost of capital. Not a huge negative, but any negative isn't good.

Likewise, ignoring cash flows is probably the single biggest reason that businesses fail. Ultimately, cash is king.

The biggest issue with the model that I found is that it doesn't account for the large upfront fixed cost of the game, the infrastructure, etc. That's a huge burden on the LTV of the customer and the bottom line. Even a 'cheap' game made with a 500k investment would make it almost impossible to achieve a positive result with the numbers you give

BTW, I enjoyed the article and appreciate the model, but it's a mistake to dismiss the complexities of investment and cash flow when making a decision about your business model.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Sami Linnanvuo — Thu, 05 Mar 2009 10:05:55 -0000

Thanks a million, this is exactly what I was looking for. I'll put the spreadsheet into my business plan and will subscribe to your blog.

Re: How to create a profitable Freemium startup (spreadsheet model included!)

Steve — Wed, 04 Mar 2009 16:01:17 -0000

I don't think a constant retention rate (whether it's month to month, week to week, or year to year) mirrors the real world. The recent post on the iPhone findings from Pinch shows that the retention is terrible for iPhone apps the first couple of weeks and begins to level out after 90 days.

Thoughts?

(Great work BTW Andrew!!!)