Tag Archives: Analytical Culture

Customer Value in the Freemium Model

DataBase Marketing, Driller Q & A, Newsletters, Web AnalyticsAnalytical Culture

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Q: You kindly clarified a few issues when I was reading Drilling Down earlier this year – so I hope you don’t mind the direct email.

A: Yes, I remember!

I am working for www.XYZ.com, a social networking / virtual world site based abroad but visitors are 85% US.

Our growth up to now has been mainly viral and in the summer we hit 1.2M UVs operating on the Freemium model with only 5% of our registered users converting to paying customers and a significant portion of our revenue coming from ads. On average our customers are active on the site for something like 4 months making their first purchase around day 28.

But to take us to the next stage we are embarking on some marketing for the first time using AdWords and various revenue share campaigns, and of course to do this sensibly we need to arrive at a reasonable estimate of LTV.

A: Makes sense!

Q: To calculate an adjusted LTV I removed all customers with a lifetime of less than 4 months but this gives a low estimate as this calculation ignores the bumper summer months and the extra paid for features put in place earlier this year. Calculating LTV using ARPU and monthly churn (not sure how to calculate this in our environment) gives another different estimate. Is there any help or advice you could perhaps give us? If not in the US then perhaps you could recommend somebody abroad – can’t find anything in the literature relevant for start-up like us.

A: It sounds to me like you’re trying to make this too complicated, at least for the place you are at this time. Monthly churn and the “28 day” threshold are nice to know on a tactical level, but LTV is more of a Strategic idea that does not necessarily benefit from analysis at that level. And you may not really want LTV, but a derivative that might be more helpful.

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The Other 3 P’s

Customer Experience, DataBase Marketing, Marketing thru OperationsAnalytical Culture

It’s interesting most folks that consider themselves Marketers, especially of the online variety, seem to only discuss and have ideas about Advertising. But of the 4 P’s that make up Marketing – Product (which includes People), Price, Place (channel), and Promotion – Promotion (Advertising) is the weakest element of the four.

I say weakest because Advertising cannot fix a poorly thought out Product, Pricing Strategy, or Distribution system. It just can’t. Yet huge amounts of money are wasted trying to do exactly that.

Perhaps this why someone feels they need to publish a book that tells people Product is important in Marketing. To me, that’s the most circular or redundant idea for a Marketing book I’ve ever heard.

Marketing starts with Product, which should include all the audience or market segmentation studies (People) that drive the creation of the Product – defining the need. If you do this first and develop a Product which truly fills the need, AND you get the Pricing and Distribution right, the Product will literally sell itself to the core audience.

If you can make it that far, THEN the Product can perhaps be sold to the next segment out from the core through Advertising. All “Marketers” should know this.

Continue reading The Other 3 P’s →