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From Impossible To Inevitable by Jason Lemkin, Aaron Ross

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Chapter 15Deal Size Math

Push yourself to go upmarket as soon as you can. Here's why.

What Jason Learned: You Need 50 Million Users to Make Freemium Work

Having spent six-plus years building the web's leading freemium e-signature service at EchoSign, I've learned one thing if nothing else: Almost everyone gets the math wrong in assuming how much revenue they can make from giving away a free product and how many users will choose to upgrade to a paying version. It's tempting to believe in the fairy tale that posting free stuff will generate waves of inbound fans who convert to paying customers at a high rate.

But 9 times out of 10, don't expect a freemium model to generate most of your revenue. Especially if you want to Go Big. There just aren't enough businesses in the First World to get to a $100 million freemium business all that often.

Let's do the math:

  • Assume you can get $10/month per paid user (many times you can't).
  • To build a $100 million business, you'd need almost a million paid seats to hit that.
  • Assume a 2% conversion rate, for simplicity's sake of active users converting to paying customers. You'd need 50 million active users—not pretend users and not users who registered and never came back, and not even users that use you once a year, but 50 million active, passionate, engaged users who are using your business regularly. That is extremely tough, but it can happen. Facebook is at 1 billion. Twitter is past it, and Pinterest may be, but in SOHO (small office ...

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