Projection Analysis for Profitability: A 12-Month Forecast

The Happy Giraffe | Nigel Bloomfield

September 25th, 2024

Overview

This analysis forecasts the profitability of the app over a 12-month period, with a focus on user acquisition, conversion rates, and revenue generation. The app is projected to experience consistent growth, with cumulative increases in paying subscribers driving the revenue forecast. Profitability will be achieved through a combination of strong subscriber retention and minimized churn rates.

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Assumptions

  • Daily Downloads: The app is projected to attract 200 new downloads per day, which equates to 6,000 new users per month.
  • Conversion Rate: From the pool of new users, 2% are projected to convert into paying subscribers each month. This is a standard conversion rate for freemium models within finance apps. Based on 6,000 new users per month, this results in 120 new paying subscribers per month, generating an additional $960 in Monthly Recurring Revenue (MRR).
  • Monthly Subscription: Each paying subscriber is assumed to generate $8 per month in revenue.
  • Churn Rate: A low churn rate of 3% per month for paying subscribers is expected, which is based on industry benchmarks for finance apps that offer essential tools for long-term user retention.
  • Growth Rate: The app will maintain steady growth by attracting new users at the same daily rate while the percentage of free users converting to paying subscribers will gradually decrease as the pool of free users shrinks.

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Monthly Subscriber Growth

The app will start with 480 paying subscribers in the first month. Each subsequent month, approximately 2% of the remaining free users will convert to paying subscribers. The cumulative number of paying subscribers will increase month over month, reaching 1,557 paying subscribers by the end of 12 months. New additions will gradually slow as the potential user base decreases, but consistent growth is still projected.

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Revenue Projections

  • Monthly Revenue: The app will generate $3,840 in the first month, based on 480 paying subscribers. By month 12, monthly revenue will grow to $12,461.
  • Total Revenue: Over the course of 12 months, the app is expected to generate a total revenue of approximately $105,241.

This revenue trajectory demonstrates significant growth potential over a relatively short period, contingent on sustained user retention and effective management of churn.

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Path to Profitability

In this scenario, the path to profitability was modeled based on several cost factors:

  • Initial Development Cost: The development of the app requires an upfront investment of $27,000.
  • Owner’s Salary: The business owner plans to pay themselves $100,000 per year, equating to approximately $8,333 per month.

When excluding marketing and backend costs, the app will break even after 18 months. The business is projected to generate sufficient revenue by this time to cover both development costs and the owner's salary.

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Key Considerations

  • Retention and Churn: Managing churn effectively will be crucial for sustaining growth. A 3% churn rate is assumed, but real-world conditions may cause fluctuations. Regular analysis and customer engagement efforts are necessary to minimize attrition.
  • Market Saturation: As the app grows, it may become more challenging to acquire new users, potentially leading to slower growth beyond the first year. To mitigate this, exploring alternative marketing strategies and adding new features to improve the app's value proposition will be important.

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Industry Comparisons

  • Finance Apps: In the financial technology sector, freemium apps tend to perform well when addressing key pain points such as budgeting, investing, and expense management. Conversion rates typically range from 2% to 5%, and subscription models are profitable when churn is kept low.
  • Subscription Models: Apps offering recurring value, such as financial tools and automation features, tend to enjoy higher retention rates. It's important to continuously enhance the app's features to keep users engaged and justify the subscription fee.

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Conclusion

This projection provides a clear roadmap to profitability, assuming conservative estimates for user growth, conversion, and churn. By month 18, the app will have covered its initial development costs and owner salary, assuming minimal additional costs. The app will establish a significant recurring revenue stream over time, and the key to sustained success will be maintaining low churn rates while continuing to attract and convert new users.

Please note these are projections based on general market research and should not be taken as a guarantee.

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Confidentiality & Disclaimer

This document is disclosed only to the recipient to whom this document is addressed and is pursuant to a relationship of confidentiality under which the recipient has obligations of confidentiality. This document constitutes confidential information and contains proprietary information belonging to UtahTech Labs, LLC. The confidential information is to be used by the recipient only for the purpose for which this document is supplied. The recipient must obtain UtahTech Labs, LLC.  written consent before the recipient or any other person acting on its behalf communicates any information on the contents or subject matter of this document or part thereof to any third party. The third party to whom the communication is made includes an individual, firm, or company or an employee or employees of such a firm or company.

The recipient, by its receipt of this document, acknowledges that this document is confidential information and contains proprietary information belonging to UtahTech Labs, LLC, and further acknowledges its obligation to comply with the provisions of this notice.

The contents of this document are provided in commercial confidence, solely for the purpose of evaluating whether the contract should be awarded to UtahTech Labs, LLC.

The information contained in this document represents the views and opinions of UtahTech Labs, LLC on the issues discussed, as of the date of publication. Due to the dynamic nature of the industry and the technology that it depends upon UtahTech Labs, LLC makes no warranty as to the long-term accuracy of the assessments made herein.

Copyright ©Utah tech Labs 2019 – 2024. All rights reserved. All product and company names mentioned herein are trademarks or registered trademarks of their respective owners.

WRITTEN BY

Deimante Boguzaite

2024-09-30

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