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“Think business with Penny Schiffer”

Part 3: Consumer sales


After finding out more about SME and enterprise sales, it’s time to take a look at consumer sales. This kind of sale involves normal transactions in which products are sold to individuals rather than enterprises.

Penny Schiffer, 14. Februar 2018




In consumer sales, many more customers are needed to make a model work, either because the model has lower revenues per customer (“freemium”) or because there is a minimum penetration rate to achieve any network effects. Because of the high competition and risk, it’s essential to have a good business strategy when selling to consumers.

Short example

Let´s take the example of a mindfulness mediation app. You estimate to make CHF 2 per paying customer per month if you can provide some great content and experience for enriching people’s daily life.

Some considerations on how to build a model (some further considerations here):

  • To recover the development and recurring content creation cost, you need to make at least CHF 500,000 per year.
  • This would mean acquiring around 21,000 customers paying CHF 36 per year or CHF 3 per month.
  • If you rely on ads to drive sales, you might pay about CHF 0.50 per click and be able to make 5% of those who clicked start a trial and convert 10% of them into subscribers.
  • Each of your subscribers will then cost you CHF 100 because you need 200 clicks to find one subscriber (0.5% of the clicks end up in a subscription).
  • In that scenario, it would take 3 years until a customer has paid off the customer acquisition cost of CHF 100, and you would need a little over CHF 2m for adds to achieve the target of 21,000 customers.

Conclusion

Be realistic about how much money you need and design a model that will recover customer acquisition cost in less than 12 months rather than several years. And believe me, yours is not the only app out there that dreams of “going viral”!