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Freemium unit economics calculator

See what your free users cost each paying user, and the contribution, lifetime value and acquisition payback left after that. Find the paying share you need to cover your free users.

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How to use Freemium unit economics calculator
  1. Enter your active free users, paying users and average revenue per paying user each month.
  2. Enter payment fees and the monthly cost to serve a paying user and a free user.
  3. Enter monthly churn, acquisition cost per sign-up and the share of sign-ups who pay.
  4. Calculate, review contribution, lifetime value and payback, then download the report.

Useful next steps

Contribution per paying user

Each paying user contributes their monthly revenue after payment and app store fees, minus the cost to serve them: 12.00 less 5% less 1.40 is 10.00 in the example. All free users together cost the cost to serve one free user times their number, 48,000 times 0.18, or 8,640.00 a month. Shared across 1,900 paying users that is 4.55 each, which leaves 5.45 of contribution per paying user. Vineet Kumar describes this link between free-user costs and paying users in Making Freemium Work (Harvard Business Review, May 2014).

Break-even paying share

Free users are covered when the paying share times the paid contribution equals the free share times the free-user cost. Solving that gives a break-even paying share of the free-user cost divided by the sum of the paid contribution and the free-user cost: 0.18 divided by 10.18 is 1.77%. The example has 3.81% paying, so its free users are covered. One paying user can carry up to the paid contribution divided by the free-user cost, here 55.56 free users.

Lifetime and payback

Expected paid lifetime is one divided by monthly churn, the average lifetime formula for a constant retention rate in Marketing Metrics by Farris, Bendle, Pfeifer and Reibstein (2nd edition, Pearson, 2010): 4% churn gives 25 months. Lifetime contribution multiplies that by the contribution after free users and is not discounted. Acquisition cost per paying user is the cost per sign-up divided by the share of sign-ups who pay, 1.10 divided by 3.5%, or 31.43, and payback is that cost divided by the monthly contribution, 5.76 months. Fixed costs such as salaries and development are not included.