Mobile Subs: Unit Economics 101
In case you missed it, I published a simple Mobile Subs KPI Dashboard here recently and am expanding on it with this 101 on Unit Economics.
If you are running a mobile subscription company, chances are the big majority of your revenue is driven by annual subs. Save for giants like Spotify and Netflix (who have the inverse margin profile), most early-stage mobile subs companies offer monthly or quarterly plans to anchor customers higher or to give them a longer ‘paid trial’ period, while the majority of revenue is actually driven by yearly prepaid plans. This is why the business model can be very cash efficient and it also makes it important to properly understand the unit economics of the underlying annual plans.
Some additional context:
- Apple and Google currently take a 30% cut for subscriptions in the 1st year and 15% beyond. Web cut refers to stripe fees of ca 3% for web signups.
- While most mobile sub ventures don’t start with web signups, they are in fact one of the most effective levers to significantly increase LTV.
- The % of organic subscribers shows us how dependent we are on marketing.
- We want to look at LTV/pCAC as well, to avoid unsustainable growth (or paid marketing addiction) from day 1.
I decided to use the more conservative 3-year LTV in this example, as it usually takes a while to get a good grip on 5-year LTV or longer. As the company matures, it naturally makes sense to get a more granular grip on these numbers to steer marketing more effectively. But for the beginning, it is good to be conservative and assume a 3 Year LTV in my experience.
It would be recommendable to do a similar exercise for monthly and quarterly plans vs mixing them into annual as averages, as the user behavior is typically so different from the annual plans. Let me know if you have any other Qs by leaving comments in the Google Sheet!
Lastly, while I am planning to conduct and share a wider benchmarking survey later this year, the best in class companies I have worked with at Seed and Series A typically fall within the following benchmarks:
- 50%+ Y1 Renewals
- 30%+ Y2 Renewals
- 10–20% Web Signups
- 50%+ Organic Subs
- 1–2+ LTV/pCAC (paid CAC)
- 3–4+ LTV/CAC (blended CAC)
Let me know if you are (getting) there and looking for funding… =)
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