Andrew Chen has posted a condensed and yet brilliantly efficient way of finding out whether your online business makes sense or not. Seemingly out of the blue, he introduces the concept of “customer lifetime value”. Although this is an established concept in the offline world, it has for some reason not resonated well with all online entrepreneurs. Chen concludes the obvious: in order for your freemium business to make sense:
has to be larger than
[Cost per acquisition + Cost of service (paying & free)]
An excel sheet is included to the benefit of entrepreneurs and – hopefully – also us. Before pitching your freemium business: run the numbers!