Comments on: Freemium Business Model Template

By: Keeping It Simple: Unit Economics — giffconstable.com

Keeping It Simple: Unit Economics — giffconstable.com — Mon, 22 Feb 2010 04:41:49 +0000

[...] in November, I wrote about financial modeling and wanted to pick up the topic again. I think this is very important for lean startups. A [...]

By: giffc

giffc — Sat, 21 Nov 2009 14:44:20 +0000

Hello Claudius,
Basically the offset function in excel allows you to change where the formula is really pointing to. In the case of user churn, what it wants to do is multiply the number of new users from X months ago by the number of users lost that month. It points up to row ten, and then offsets X number of months to the left to find the right number of new users. Then it does a VLOOKUP to the “churntable” array on the assumptions tab (which starts at C17) to pull the right loss % for the right month. The ISNUMBER function is just error checking.

It seems a bit complicated a first, but go into Excel help and look up the offset and vlookup functions and it will make more sense. “Churntable” is a named range of cells, so if you are new to excel you'll want to look that up as well.

By: Claudius

Claudius — Sat, 21 Nov 2009 14:36:47 +0000

Mr. Constable and others,

I have a couple of questions about the mechanics in this spreadsheet.

1. In the Model tab the "User Churn" formula is this: =IF(ISNUMBER(OFFSET(AR$10,0,-$C14)*VLOOKUP($C14,ChurnTable,2,0)),(OFFSET(AR$10,0,-$C14)*VLOOKUP($C14,ChurnTable,2,0)),0)
What is this formula doing?

2. In the same model tab there is"premium subscribers" formula is:
=IF(ISNUMBER(OFFSET(AR$10,0,-$C66)*VLOOKUP($C66,ChurnTable,3,0)*VLOOKUP($C66,ConversionTable,2,0)),OFFSET(AR$10,0,-$C66)*VLOOKUP($C66,ChurnTable,3,0)*VLOOKUP($C66,ConversionTable,2,0))*1
The same question as before. What is this doing?

By: Anders Sundelin

Anders Sundelin — Fri, 13 Nov 2009 20:02:39 +0000

Great article!
Business modeling forces the business model designer or analyzer to identify key variables, make and verify important assumptions, test for different scenarios and by that understand the complexities of the business model and how different attributes and factors relate to each other.

When designing models I recommend the following process:
1. Identify the purpose with the business modeling and the outputs required.
2. Identify the input variables and major drivers of input variables that determine the outputs.
3. Develop formulas (logical arguments) for how outputs are derived from inputs.
4. Gather data and make assumptions.
5. Build the spreadsheet model.
6. Test the spreadsheet model.
7. Enter gathered data.
8. Test alternative scenarios.
9. Analyze the results.
10. Adjust the business model.
For more details about each step, see The Business Model Database: http://www.tbmdb.com

By: justinpirie

justinpirie — Sat, 07 Nov 2009 15:00:53 +0000

Kudos to you Giff- an EXCELLENT model- THANKS.

@justinpirie

By: mdebenedittis

mdebenedittis — Fri, 06 Nov 2009 13:35:48 +0000

Great tool Giff, you could do an entire series of posts around each set of assumptions.

By: timothyvanloan

timothyvanloan — Fri, 06 Nov 2009 02:21:43 +0000

This is an excellent post- and financial model- for a freemium service. It dovetails well with a lot of the high-level presentations on the topic of “freemium” by people like Chris Anderson. The detail you go into here though is really helpful for companies considering this model to attain revenue.

We summarized Chris Anderson's discussion on Freemium biz models at this year's startup weekend- you can find it at:
http://blog.recurly.com/2009/10/chris-anderson-...

Freemium models also typically require subscription billing- which is solely what our company Recurly does. We can help you quickly take the pricing models you create here and turn them into subscription plans you can bill your customers with. Find out more at our site at http://recurly.com