Profit formula of a freemium business

Consider an online freemium business that gives access to books with 10,000 users
These users can be segmented into 3 categories (number of users are assumed)
 Paid users-> 20% of the total = 2000 users
Users who are willing to pay in order to avail access to more services
 Free users 50% of total = 5000 users
Users who use the content that is available without paying a cost
 Viewers 30% of total=3000 users
Users who visit the website but do not use any of its services

Freemium businesses can obtains profits only when

LIFE TIME VALUE of customers > Acquisitions cost + Service costs

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Life Time Value (LTV)= 1/(1-R) * rev

R Retention rate
rev revenue generated per user

Considering the costs and revenues for all 3 categories of users

Paid users (calculated per one user)
Acquired cost= Rs 10 Revenue =Rs12 (assumed per one
user)
Service cost=Rs 40
Total cost per user= Rs 120
Total cost for all the paid
users= 50*1000=Rs50,000

Free users

Acquired cost= Rs10 Revenue =Rs0 (assumed per one

user)
Service cost=Rs20
Total cost per user= Rs30
Total cost for all the free
users= 30*5000=Rs1,50,000

Viewers
Acquired cost= Rs10 Revenue =Rs0 (assumed per one
user)
 Service cost=Rs0
Total cost per user= Rs10
Total cost for all the paid
users= 10*3000=Rs30,000

Total cost incurred by the company in providing service to all the customers
= Rs(30,000 +1,50,000+10,000)= Rs 2,80,000

Total revenue should be greater than Rs2, 80,000 in order to acquire profits

Retention rate(R) = 20% (paid users )

rev= Rs120
1/(1-0.2) * Rs120= 150 Rs (revenue generated per each paid customer)
Total revenue generated = 150Rs * 2000=30,0000
Therefore a profit of 20,000 is recorded in a given time period.