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Key KPIs for a music streaming service like Spotify could include:
1. Number of active users: This includes both free and paid users. It's important to track the growth of this number over time.
2. Conversion rate: This is the percentage of free users who convert to paid subscribers. A higher conversion rate indicates a more successful business model.
3. Customer Acquisition Cost (CAC): This is the cost to acquire a new customer. In the case of Spotify, it was calculated to be $16.2 per user.
4. Lifetime Value (LTV) to CAC ratio: This ratio indicates the profitability of each customer. For Spotify, this ratio was approximately 2.2, which is below the desired value of 3.
5. Revenue per user: This is the amount of revenue generated per user. For Spotify, it was $14.9 per subscriber in 2019.
6. Churn rate: This is the percentage of customers who stop using the service over a given period of time. A lower churn rate indicates higher customer retention.
Question was asked on:
Shah calculated Spotify's total sales and marketing cost per new gross subscriber and the cost of revenue to support free users divided by the total free users to find Spotify's CAC: $16.2 dollars per user. According to Shah's calculations, Spotify made $14.9 dollars from every subscriber in 2019, which made Spotify's LTV to CAC ratio approximately 2.2. For reference, 3 and above is what you want. Back then Spotify had 116 million free users and 94 million paid users. As of Q1 2022, Spotify has basically doubled those numbers.
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