Lifetime value metrics for subscription / a la

businesses
(How does cost-per-acquisition compare to your lifetime-value)

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Lifetime value metrics for subscription / a la carte
businesses
(How does cost-per-acquisition compare to your lifetime-value)

Based on the retention rate, ARPU, and registration funnel, what is your LTV? And can you re-invest that
LTV cash profitably to acquire more users via paid acquisition?
Andrew Chen (voodoo@gmail.com)
Daniel James (Three Rings)
http://andrewchenblog.com
http://thefloggingwillcontinue.com
1/18/2009
Distributed for free under GNU Free Documentation License - http://www.gnu.org/copyleft/fdl.html

If you have questions, anything to add, or want to generally chat, don't hesitate to reach me at my e-
mail address, voodoo [at] gmail --Andrew Chen
 Paid user acquisition model
Source CPM CPC CPA Impressions CTR Clicks
Google $1.00 1,000,000 3.13% 31300
Ad.com $1.00 2,000,000 0.50% 10000

Total 3,000,000 1.38% 41300

odel
Signup % Registered users Cost CPA
10% 3130 $31,300 $10.00
20% 2000 $2,000 $1.00

12% 5130 $ 33,300.00 $ 6.49

 User funnel a
Free-to-pay conversion 10%

CPA (unadjusted for virali $ 6.49

New registered uu / week 5,130
Ad spend increase % 5%

Viral growth kicker 0.8

invite conversion rate % 15%
avg invites 5.00

time period viral acq users bought users

1 5,130
2 3,848 5,387
3 6,926 5,656
4 9,436 5,939
5 11,531 6,236
6 13,325 6,547
7 14,904 6,875
8 16,334 7,218
9 17,664 7,579
10 18,933 7,958
11 20,168 8,356
12 21,393 8,774
13 22,626 9,213
14 23,879 9,673
15 25,164 10,157
16 26,491 10,665
17 27,867 11,198
18 29,299 11,758
19 30,793 12,346
20 32,354 12,963

Cumulative users
600,000

500,000

400,000
Total users

300,000

200,000
 400,000

Total users
300,000

200,000

100,000

-
1 2 3 4 5 6 7 8 9 10

Time pe
User funnel and simple virality

ad spend total new users paying users cumultative users

$ 33,300.00 5,130 513 5,130
$ 34,965.00 9,234 923 14,364
$ 36,713.25 12,581 1,258 26,945
$ 38,548.91 15,375 1,537 42,320
$ 40,476.36 17,767 1,777 60,086
$ 42,500.18 19,872 1,987 79,959
$ 44,625.18 21,779 2,178 101,737
$ 46,856.44 23,553 2,355 125,290
$ 49,199.27 25,244 2,524 150,534
$ 51,659.23 26,891 2,689 177,425
$ 54,242.19 28,525 2,852 205,950
$ 56,954.30 30,167 3,017 236,117
$ 59,802.02 31,838 3,184 267,955
$ 62,792.12 33,552 3,355 301,507
$ 65,931.72 35,321 3,532 336,829
$ 69,228.31 37,156 3,716 373,984
$ 72,689.72 39,065 3,906 413,049
$ 76,324.21 41,057 4,106 454,106
$ 80,140.42 43,139 4,314 497,245
$ 84,147.44 45,317 4,532 542,562

Cumulative users over time

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Time period
cum. paying users adj CPA
513 $ 6.49
1,436 $ 3.79
2,695 $ 2.92
4,232 $ 2.51
6,009 $ 2.28
7,996 $ 2.14
10,174 $ 2.05
12,529 $ 1.99
15,053 $ 1.95
17,742 $ 1.92
20,595 $ 1.90
23,612 $ 1.89
26,796 $ 1.88
30,151 $ 1.87
33,683 $ 1.87
37,398 $ 1.86
41,305 $ 1.86
45,411 $ 1.86
49,724 $ 1.86
54,256 $ 1.86
6 17 18 19 20
retention rate % 80%

Paying user retention matrix

1 2 3 4 5 6
1 513 410 328 263 210 168
2 923 739 591 473 378
3 1,258 1,007 805 644
4 1,537 1,230 984
5 1,777 1,421
6 1,987
7
8
9
10
Time-period cohorts 11
12
13
14
15
16
17
18
19
20

paying users 513 1,334 2,325 3,398 4,495 5,583

Total users (paying and free) retention m

1 2 3 4 5 6
1 5,130 4,104 3,283 2,627 2,101 1,681
2 9,234 7,387 5,910 4,728 3,782
3 12,581 10,065 8,052 6,442
4 4,232 3,386 2,708
5 17,767 14,213
6 19,872
7
8
9
10
Time-period cohorts 11
12
13
14
15
Time-period cohorts

16
17
18
19
20

paying users 5,130 13,338 23,252 22,833 36,033 48,699

 User retention

Time period
7 8 9 10 11 12 13 14
134 108 86 69 55 44 35 28
303 242 194 155 124 99 79 63
515 412 330 264 211 169 135 108
787 630 504 403 322 258 206 165
1,137 910 728 582 466 373 298 238
1,590 1,272 1,017 814 651 521 417 333
2,178 1,742 1,394 1,115 892 714 571 457
2,355 1,884 1,507 1,206 965 772 617
2,524 2,020 1,616 1,292 1,034 827
2,689 2,151 1,721 1,377 1,101
2,852 2,282 1,826 1,460
3,017 2,413 1,931
3,184 2,547
3,355

6,644 7,671 8,661 9,618 10,547 11,454 12,347 13,233

retention matrix
7 8 9 10 11 12 13 14
1,345 1,076 861 689 551 441 353 282
3,026 2,421 1,937 1,549 1,239 991 793 635
5,153 4,123 3,298 2,638 2,111 1,689 1,351 1,081
2,167 1,733 1,387 1,109 888 710 568 454
11,371 9,096 7,277 5,822 4,657 3,726 2,981 2,385
15,898 12,718 10,175 8,140 6,512 5,209 4,168 3,334
21,779 17,423 13,938 11,151 8,921 7,136 5,709 4,567
23,553 18,842 15,074 12,059 9,647 7,718 6,174
25,244 20,195 16,156 12,925 10,340 8,272
26,891 21,513 17,210 13,768 11,015
28,525 22,820 18,256 14,605
30,167 24,134 19,307
31,838 25,471
33,552
60,738 72,143 82,958 93,258 103,131 112,672 121,976 131,133
 15 16 17 18 19 20
23 18 14 12 9 7
51 41 32 26 21 17
86 69 55 44 35 28
132 106 85 68 54 43
191 153 122 98 78 63
267 213 171 137 109 87
365 292 234 187 150 120
494 395 316 253 202 162
662 529 424 339 271 217
881 705 564 451 361 289
1,168 935 748 598 479 383
1,545 1,236 989 791 633 506
2,038 1,630 1,304 1,043 835 668
2,684 2,147 1,718 1,374 1,099 880
3,532 2,826 2,261 1,808 1,447 1,157
3,716 2,972 2,378 1,902 1,522
3,906 3,125 2,500 2,000
4,106 3,285 2,628
4,314 3,451
4,532

14,118 15,010 15,915 16,837 17,784 18,759

15 16 17 18 19 20
226 180 144 116 92 74
508 406 325 260 208 166
865 692 553 443 354 283
364 291 233 186 149 119
1,908 1,526 1,221 977 781 625
2,667 2,134 1,707 1,366 1,092 874
3,654 2,923 2,338 1,871 1,497 1,197
4,939 3,951 3,161 2,529 2,023 1,619
6,618 5,294 4,235 3,388 2,711 2,168
8,812 7,049 5,639 4,512 3,609 2,887
11,684 9,347 7,478 5,982 4,786 3,829
15,446 12,357 9,885 7,908 6,327 5,061
20,377 16,301 13,041 10,433 8,346 6,677
26,842 21,473 17,179 13,743 10,994 8,795
35,321 28,257 22,606 18,084 14,468 11,574
 37,156 29,725 23,780 19,024 15,219
39,065 31,252 25,002 20,001
41,057 32,845 26,276
43,139 34,511
45,317

140,227 149,338 158,535 167,885 177,446 187,274

 Revenue versus ad spend
Revenue mix Avg rev %
Hardcore $25.00 10%
Subscription $7.99 40%
Casual / A la carte $1.50 50%
Rev/paying $6.45

Cost of service $0.10

Time period 1 2 3 4
Paying users 513 1334 2325 3398
Total users 5130 13338 23252 22833
Revenue $3,307 $8,598 $14,988 $21,901
Ad spend $33,300 $34,965 $36,713 $38,549
Cost of service $513 $1,334 $2,325 $2,283
Total cost $33,813 $36,299 $39,038 $40,832

Profit per user $ (59.47) $ (20.77) $ (10.34) $ (5.57)

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0
1 2 3 4 5 6 7 8
rsus ad spend

5 6 7 8 9 10
4495 5583 6644 7671 8661 9618
36033 48699 60738 72143 82958 93258
$28,973 $35,988 $42,829 $49,445 $55,828 $61,997
$40,476 $42,500 $44,625 $46,856 $49,199 $51,659
$3,603 $4,870 $6,074 $7,214 $8,296 $9,326
$44,080 $47,370 $50,699 $54,071 $57,495 $60,985

$ (3.36) $ (2.04) $ (1.18) $ (0.60) $ (0.19) $ 0.11

Ad spend versus Revenue

Revenue
Total cost

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
 11 12 13 14 15 16
10547 11454 12347 13233 14118 15010
103131 112672 121976 131133 140227 149338
$67,984 $73,833 $79,590 $85,299 $91,008 $96,757
$54,242 $56,954 $59,802 $62,792 $65,932 $69,228
$10,313 $11,267 $12,198 $13,113 $14,023 $14,934
$64,555 $68,221 $72,000 $75,905 $79,954 $84,162

$ 0.33 $ 0.49 $ 0.61 $ 0.71 $ 0.78 $ 0.84

Revenue
Total cost
 17 18 19 20
15915 16837 17784 18759
158535 167885 177446 187274
$102,587 $108,535 $114,635 $120,919
$72,690 $76,324 $80,140 $84,147
$15,854 $16,788 $17,745 $18,727
$88,543 $93,113 $97,885 $102,875

$ 0.88 $ 0.92 $ 0.94 $ 0.96

 Lifetime value
Paying users LTV
Time period 1 2 3 4 5
Paying users 513 410 328 263 210

User periods 2535

Rev/paying user $6
Aggr LTV $16,343

LTV for paying users $31.86

New users conv % 10%

New (unregistered) users LTV
Time period 1 2 3 4 5
New users 5130 4104 3283 2627 2101

User periods 25354

Aggr LTV $16,343

LTV for new users $3.19

e
6 7 8 9 10 11 12
168 134 108 86 69 55 44

6 7 8 9 10 11 12
1681 1345 1076 861 689 551 441
13 14 15 16 17 18 19
35 28 23 18 14 12 9

13 14 15 16 17 18 19
353 282 226 180 144 116 92
20
7

20
74