Startup Unit Economics and basic metrics.
By Ilya Parshin, Dec. 8, 2014, 6:26 p.m.

Intro

The main task for almost any company is making profit. It is rather clear. However, to understand at what price you should sell your product or how much can you spend money to attract users, you need to model your economy. Modeling will help you to understand what metrics (indicators) you should improve to get the maximum profit.

Part I: basic metrics and revenue per paying user.

All values are interrelated. You can see the formula by clicking the cell in the spreadsheet.

User Acquisition – the number of users which were on your landing page

C1 - conversion

Buyers — the number of paying users.

Now let's look at the metrics that will help us determine the income from paying user:

ARPPU – Average Revenue per Paying User

Average Price – Average price of your product/service

Average Payment Count – the average number of repeat purchases

We can start from the following assumptions: you can assume how much you can attract traffic and what conversion rate. And at what price you will sell your product and what numbers or purchasing is (for example, if you are working on a subscription model, it is likely > 1). If you don't know the accurate number, but you believe that you will have repeat purchases - type 1.1

Your task: change the values in the cells (which are shaded in blue) and see how ARPPU will change

Part II: metrics for all users

CAC - Customer Acquisition Cost or CPA (Cost per Acquisition)

ARPU – Average Revenue per User

ARPU - CPA = profit per user

The beauty is that in order to do the calculation you need to know only your CPA.

Now you can change the CPA

Calculation of income.

We have already completed almost all metrics for calculating our income. Now it remains only to calculate the total profit.

Profit - Revenue without acquisition costs (without Fixed costs)

Revenue - no comments

Fix. Costs - our standard costs: salary, rent.

Net Profit = Profit - Fix. Costs

Try to change the cells with your data.

Now, with this model, you can quickly understand: can you earn and what you need to do. For example, you understand that your net Profit is less than 0 and you will not be able to raise the conversion. Thus, how much you need to increase the visitors? With the help of this simple model you will always know the answer.

Don't forget to split your data into different channels: CPC( adwords), organic search, Social Media, etc.

Good luck!

If you have any comments or suggestions - feel free to email me: ilya@datamonkey.pro

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