A business consultant is advising a startup on its pricing strategy for a new subscription service. The service offers three tiers: Basic, Premium, and Enterprise. The consultant wants to analyze the revenue generated per subscriber, considering the churn rate (subscribers canceling their subscription). Basic Tier: $10/month, 1,000 subscribers, 5% monthly churn Premium Tier: $25/month, 500 subscribers, 3% monthly churn Enterprise Tier: $100/month, 100 subscribers, 1% monthly churn The consultant wants to identify which tier generates the highest average monthly revenue per 'stable' subscriber (i.e., subscribers who do not churn in a given month).
- ABasic and Premium Tiers generate similar revenue per stable subscriber
- BEnterprise Tier
- CPremium Tier
- DBasic Tier
Show answer & explanationAnswer & explanation
Correct answer: B. Enterprise Tier
First, calculate the number of stable subscribers for each tier: Subscribers * (1 - Churn Rate). Basic: 1,000 * (1 - 0.05) = 950. Premium: 500 * (1 - 0.03) = 485. Enterprise: 100 * (1 - 0.01) = 99. Then, calculate the total monthly revenue for stable subscribers for each tier: Stable Subscribers * Monthly Price. Basic: 950 * $10 = $9,500. Premium: 485 * $25 = $12,125. Enterprise: 99 * $100 = $9,900. Finally, the question asks for highest average monthly revenue per 'stable' subscriber which is simply the monthly price. Basic: $10, Premium: $25, Enterprise: $100. So the Enterprise Tier generates the highest average monthly revenue per stable subscriber.
Why the other options are wrong
- A. Basic ($10) and Premium ($25) Tiers do not generate similar revenue per stable subscriber; Enterprise is much higher.
- C. Premium Tier generates $25 per stable subscriber, which is not the highest.
- D. Basic Tier generates $10 per stable subscriber, which is not the highest.
Revenue Per Stable Subscriber
Revenue Per Stable Subscriber (RPSS) is a metric that measures the average monthly revenue generated by subscribers who are not expected to churn in a given period. It focuses on the income from retained customers.
- Calculated as (Monthly Subscription Price * (1 - Churn Rate)).
- Provides insight into long-term customer value.
- Helps evaluate pricing and retention strategies.
Memory trick: Retain subscribers to maximize revenue; every stable customer is pure gold.