# Say you want 10% increase in customers in your freemium startup

Say you want to increase customers (those who pay for the service as opposed to freeloaders)  by 10% in your freemium business. You have two options:

1. Blue Pill: Increase user base by 10% – if the proportion remains the same, % customers goes up by 10%

Which one would you pick? You pick the option that delivers higher incremental profit, that is new revenue less the marketing costs and operational costs.

Let us use some numbers – because of the ubiquity let us use numbers published by EverNote (otherwise there is no connection to EverNote).

Current number of users:  2.7 Million
% customers:                        2%
Revenue/year/customer:  \$45
Fixed Cost/year: .09*2.7M =\$243,000
Incremental revenue from 10% more customers = \$243,000 (just coincidence)

Incremental profit is \$243,000 less cost to acquire and support 270,000 more customers.

Incremental Operational Costs: Let us assume you are at capacity and need to add new capacity to support 10% more customers. A moment’s reflection will convince you that this is not an unreasonable assumption. So adding 10% more customers would incur \$24,300 incremental cost for capacity enhancements.

Incremental Customer Acquisition Costs: These are the marketing costs. Despite the claims that “free is free marketing”, there is a cost to acquire 270,000 new users especially after already  acquiring 2.7 million users. This is going to take time and will  cost \$5,000- \$10,000. But to keep with the freemium model assumptions, let us treat the marketing costs as \$0.

For option two, both these costs are zero and you only need to convert .22% of the freeloaders compared to acquiring 270,000 new users.

So  converting even a tiny fraction of your freeloaders delivers you higher incremental profit than growing your total user base by 10%.

Is your choice the  blue pill  or the red pill?

Now my selling point – any solution that enables this conversion will add \$24,300 in value to you. The value scales as more of your freeloaders are progressively converted to customers.

The value can grow further,  if a solution can find 10% of freeloaders who will never pay and hence enables you to fire them – that is another \$24,300 in value for a total of  at least \$48,600.

Would you be interested in sharing a fraction of incremental value-add for that solution?