Comments on: How to calculate cost-per-acquisition for startups relying on freemium, subscription, or virtual items biz models

By: Andrew Chen

Andrew Chen — Wed, 03 Feb 2010 16:58:04 +0000

what I mean is that whether it's CPC or CPA or CPM, you can calculate the $ per lead. You can normalize it down just by doing the division. So they are all the same thing, except that as an advertiser, if you pay on an impressions basis you are taking on more risk than if you pay on the action (like for completed lead forms)

By: Raifinho

Raifinho — Wed, 03 Feb 2010 16:50:28 +0000

• Cost model is something you should be able to normalize into CPA and mostly ignore, except for cashflow and risk reasons

Hi Andrew, what do you mean with this sentence? Could you explain little bit please?

By: dave doctor

dave doctor — Sat, 03 Oct 2009 12:45:32 +0000

Your twitter badge obscures the table.

By: Dave Doctor

Dave Doctor — Sat, 03 Oct 2009 12:44:28 +0000

Thanks, very helpful. Your survey banner on the top right inspired me to research adding a fixed ad banner to my site. I found this helpful tutorial: http://designm.ag/tutorials/fixed-position-banner/. I also posted a request for code to place it on the far right and left, rather than the top or bottom.

By: Jesse

Jesse — Sun, 10 May 2009 06:16:00 +0000

“it is better to have a small user base of incredibly loyal followers, than it is to have an enormous user base of casual ones.”

By: St. James

St. James — Fri, 03 Apr 2009 22:18:45 +0000

This guy's analysis is smoking hot!!!!

By: busby_seo_test

busby_seo_test — Wed, 03 Dec 2008 03:46:22 +0000

Thanks for all of this great articles and tips.You help us a lot. Just keep on posting useful stuffs…God bless dude!

By: Vin

Vin — Mon, 01 Dec 2008 20:05:53 +0000

Greetings folks,

I'm not from the Internet marketing space. I'm currently working on a start up that is internet based and am looking to learn a method of assuming (budgeting) a CPA for my business plan. Any help would be GREAT!!!

Thanks,
Vin

By: GJ

GJ — Thu, 27 Nov 2008 12:26:12 +0000

basic and brilliant

By: Eric Dewhirst

Eric Dewhirst — Sat, 22 Nov 2008 00:01:40 +0000

We try and tie it back to traffic source after we have acquired new members and monitor them over a month. We find that with Google we get targeted and committed members and from Facebook we get enthusiastic at first but they return rate falls off faster. To us it is the difference between people window shopping and those that come in the store to really check you out. A new member is really only worth it if they get engaged and it is that challenge to find them and give them what they are really looking for.

As a side note – I really appreciate the quality of your posts – you say the tough things that I sometimes try to forget but need to stay on top of.

Cheers – Eric

By: spanky

spanky — Tue, 18 Nov 2008 15:19:57 +0000

Good point – don't want to forget about branding. Maybe I'm calling “viral factor” the wrong thing – it's actually the “freebie factor.” If you calculate overall CPA as total media spend divided by total sign-ups, and back out a freebie factor – which includes direct viral, WOM, SEO, etc. – then it takes into account the branding value. It's just that it's really hard to measure and might take time to see. So a campaign that gets tons of impressions, but shows little direct LTV, might actually increase the freebie factor over time, and drive down overall CPA, which is the ultimate goal.

By: Andrew Chen

Andrew Chen — Mon, 17 Nov 2008 19:43:45 +0000

yep, and in fact an interesting calculation is figuring out how much it costs to support a free user, and count that as part of your “cost” for acquiring paying users. That way you can compare, apples-to-apples, against paying users acquired via advertising.

By: rtwomey

rtwomey — Mon, 17 Nov 2008 18:51:39 +0000

Great overview. I typically focus on two critical parts of this for my freemium service: breadth and conversion ratio. I first ensure that we have a steady flow of new users coming to our service and registering for the free account, then I make sure I'm spending enough time getting our conversion ratio as high as possible. It's death if either of these sides of the equation get out of balance.

I've found that getting people to sign up for a free account is often the easy part: convincing enough people to sign up for the paid version is where the real work lies.

By: Glen Moriarty

Glen Moriarty — Mon, 17 Nov 2008 17:52:47 +0000

Thanks for the overview. Very helpful information. We worked through a similar process with some MBA professors at William and Mary (part of a tech incubator) and they detailed much of what you detailed above. Nice work!

By: Andrew Chen

Andrew Chen — Mon, 17 Nov 2008 16:54:24 +0000

One argument for looking at total impressions is that you get some branding value out of it, which helps you in longer-term LTVs – but I agree, looking at the CPA and LTV are probably worth focusing 99% of your attention on.

Great point on the viral ratio and making that explicit!