The Revenue Is Solid, But Mind the Conversion Denominator
Ada re-derives this chapter’s own numbers step by step, at full precision
ADA · CALCULATION AUDIT
The Revenue Is Solid, But Mind the Conversion Denominator
A security camera company runs freemium pricing with 500K free users, 75K Basic at $3/month, and 25K Premium at $10/month, for $475K in monthly recurring revenue — $5.7M a year. The chapter then reports a 20% conversion (100K paid over 500K free) and calls it excellent against a typical 2-10% band. The revenue math is clean, but this audit asks the harder question: which denominator should that conversion rate be measured against?
Companion to the chapter Pricing and Revenue Models — every number here comes from that chapter.
Ada: The freemium camera example gives four hard numbers – two tier lifetime values, a monthly recurring revenue, and a conversion rate. The revenue arithmetic is clean; the conversion figure hides a choice of denominator worth making explicit.
- Basic tier lifetime value:
3 x 24 = 72per customer; Premium:10 x 24 = 240per customer. - Monthly recurring revenue:
75,000 x 3 + 25,000 x 10 = 225,000 + 250,000 = 475,000per month. - Annualised:
475,000 x 12 = 5,700,000, the stated $5.7M in recurring revenue. - Conversion, paid over free:
100,000 / 500,000 = 0.20, the stated 20%.
Those all hold. But notice the base: there are 500,000 + 75,000 + 25,000 = 600,000 total users, so conversion measured over the whole base is 100,000 / 600,000 = 16.7% – which is what the page’s own live calculator reports. Neither value is wrong; they answer different questions. The design meaning is that a conversion rate is only comparable to a benchmark once its denominator is named, so a pricing review should always label whether a rate is paid-over-free (20% here) or paid-over-total (16.7% here) before ranking it against the 2-10% industry band.
Every number above is taken from the chapter’s own material and re-derived step by step.