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18 October 2016

Growth hacker notes #2

Gross Profit calculation formula is quite simple:

GP = (ARPPU x C1 — CPA) x UA

This ARPPU value is calculated according to the formula proposed by Ilya Krasiński:

ARPPU = (Av.Price — COGS) x APC −1sCOGS

However, this formula has one drawback, it does not take into account the costs incurred by business to customer retention, and a repeat sales, and these costs are quite substantial. By this, I decided to improve the formula and add value responsible for these costs — Buyer Retention Cost or BRC. How do you calculate this value. BRC = RetCost / Nret, where RetCost your cost of customer retention in a cohort, and Nret — the number of repeat sales.

Nret = N — Buyers

Where, N — the total number of sales and Buyers — the number of clients in the cohort.

Our formula for ARPPU taking into account retention costs would be as follows:

ARPPU = (Av.Price — COGS) x APC — BRC x (APC-1) — 1sCOGS

Let’s look at an example, let us Av.Price = $5000, COGS = $300, N = 374, Buyers = 157, and customer retention costs in the cohort was $100 000. Thus Nret = 374-157 = 217. The BRC = 100000/217 = 460.83. The APC = 374/157 = 2.38. And hence

ARPPU = (5000 — 300) x 2.38 — 460.83 x (2.38 — 1) = 10550.06

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