The Company on the ‘freemium’ Business Model
What do you think of company’s revenue/business model?
The company operates on the ‘Freemium’ business model where it gives the core product called Achieve Express (a set of 8 modules) free and plans to sell premium products namely Achieve Logic (additional set of 3 modules) to a small set of this user base.
# schools planned
1999-2000
3990
2000-2001
3226
2001-2002
2438
2002-2003
2438
2003-2004
2438
The firm assumes that 65% of the schools targeted as mentioned above will use the ‘Free’ version of the product and 20% of these users will buy the complete package, which will result in a FCFE of $18,721,046. However, a sensitivity analysis done on these assumptions reveal the following, as per the table shown below:
Achieve Express Retention
Achieve Logic Subscription
FCFE
$18,721,046
-$922,214
-$1,402,104
A reduction in Achieve Logic subscription rate by 5% points results in a FCFE of -$922,214.
Further, if only 50% of the schools subscribe to the free version of the product with a 20% Achieve Logic subscription will result in a FCFE of -$1,402,104.
These analyses reveal the two most important factors in this business model:
Annual Active Users.
Conversion rate.
Hence the goal is to have as many active users as possible and convert them to paying customers and only then can satisfying revenue and profitability can be generated. However, as shown above, if the above factors are missed by a narrow margin, the net FCFE over a ten-year period turns negative.
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