Estimate Revenue and Profitability for Share Workplace's Paid Tier
Overview
This question evaluates revenue forecasting, unit-economics modeling, cohort and funnel analysis, and marketing ROI estimation for a freemium/subscription product.
Freemium + Subscription Sizing, Margins, and Marketing Impact (Year 3)
Context
You are evaluating a freemium enterprise collaboration app ("Share Workplace") three years after launch. Users flow through a funnel from site visits to sign-ups, to actives, to paid subscriptions. Both free and paid cohorts monetize (subscriptions for paid; ads/upsell for free). Variable COGS apply to both cohorts, and the company spends on paid marketing to drive a portion of visits.
Assume reasonable funnel, monetization, cost, and marketing parameters where not provided. Show clear formulas and step-by-step math. Keep unit economics visible.
Tasks
- Size the annual revenue opportunity for the paid tier in Year 3 (12 months ending month 36).
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Using separate ARPU assumptions for paid and free cohorts, compute:
- Cohort-level contribution margins (paid and free, excluding marketing).
- Total contribution margin (including marketing spend).
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If marketing spend increases by 20% at the start of Year 3, estimate the impact on:
- Subscriber count (paid) and free MAU in Year 3.
- Profitability in Year 3 and at steady-state.
- Clearly state any assumptions.
Hint: Structure the funnel (site visits → sign-ups → active → paid), keep unit economics visible, show math clearly.
Solution
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