Hi folks! You may remember from the patch notes a few weeks ago that we're approaching our cost limits for activating new users. We're going to activate another batch of 250 today, but will have to slow down for a bit after that. Since slowing down activations isn't ideal for anyone, we wanted to provide transparency on our financials and why we're choosing to do this. We plan to do this as a monthly update, as we do our internal auditing once a month for our all-hands1 member meetings.
To start with, let's talk about conversion rates. "Conversion rate" in this instance refers to the percentage of cohost users that are subscribed to cohost Plus!. Based on our research, we know that industry standard conversion rates for "freemium" services are between 5% and 8%. In order for us to reasonably hit sustainability, we don't want to drop below 5%, as getting back up above that number would be extremely difficult.
Right now, we keep track of two user ceilings: one for 5% conversion and one for 6% conversion. Subscriber churn is a real thing (we've already seen 4% churn just for users that subscribed in July) and so targeting the 6% ceiling helps ensure we can endure some churn. Another way to think about this is that with every new cohost Plus! subscription, we're able to activate another 17 users.
Now that that's established, let's talk numbers.
Every employee of anti software software club makes a base salary of (currently) $87,285.00. When we started the company, we made $80k flat. We do cost of living adjustments once per year, based on the change in the Consumer Price Index over the past 12 months. (As you probably know, inflation is hog wild right now so our increase for 2022 was fairly substantial.) We don't do any other pay increases or bonuses. On the benefits front, we also have a QSEHRA2 available for all employees which pays premiums for an ACA gold-level plan.
For our expense estimates, we've (safely) overestimated at $86k per quarter with three employees. We usually come in a couple thousand below this at the end of the quarter, but having the buffer makes me feel way less nervous when we have unexpected expenses.
As of August 3 (most recent date stripe gives us data for), we have 358 active cohost Plus! subscriptions, accounting for $1,692.36 of Monthly Recurring Revenue. Taking this and our expenses into account, we would expect to lose at most around $81,000 for Q3 2022. July was an exceptionally good month for us from a gross revenue standpoint (lots of new subscriptions and merch sales from launch) so we only lost $21,217, but we don't expect that to hold through the quarter.
At this exact moment, we have 369 subscriptions listed as active in our database (stripe's numbers lag a few days) with 6,068 activated users and 17,801 total users. We only count activated users in our conversion rate as they incur less cost by virtue of not being able to post3. At this moment, we have a conversion rate of 6.08%. With 369 subscriptions, we have a 6% max of 6,150 users and a 5% max of 7,380 users.
As of our last all-hands meeting, we had a total of $158,711 in the bank and anticipated (with current MRR) that we will end the year with just under $24k in cash. This is obviously not enough money to keep existing, so we will be seeking additional funding before the end of the year, as we do not anticipate becoming sustainable within 2022.
With three employees, we'll need around 5,700 subscribers to break even. With a 5% conversion rate, this requires around 114,000 activated users, which is around 96,000 more than we currently have total. At 2% conversion (the current rate when accounting for all users) we'd need around 285,000 users. At our current subscription growth rate (roughly 3.6 per day in July, 4.2 per day so far in August), it'll take a few years to break even.
We're posting all these numbers because when we say "we have to slow down activations because we don't have enough money," we want y'all to know we're being serious and not secretly rolling in cash.
Like I said, we're planning to update these numbers once a month. If something Major happens mid-month then we'll post a small update, but otherwise expect to see these after our Member Meetings.
That's all for now. As always, thanks for using cohost (and for subscribing to cohost Plus!)
which i admit is a silly term since there's only three of us
"Qualified Small Employer Health Reimbursement Account" -- basically how we give everyone health insurance without a group plan (we are too small for a group plan). more details on our corporate health insurance forthcoming from one of our personal accounts because holy shit it's a mess to an extent that even we never expected.
also, if we did count them in the conversion rate we'd be at about 2% and i would be having a panic attack constantly