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  1. business
  2. accounting
  3. 2. suppose a firm offers a free trial for two mont

2. Suppose a firm offers a free trial for two months and has acquisition rate...

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Accounting

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2. Suppose a firm offers a free trial for two months and has acquisition rate of 0.3, a conversion rate of 0.5, nobody buys the premium version direction (buy high rate=0), they make $10 per month if a customer converts, marginal costs per month are $5 and the average customer lifetime is 12 months. Suppose there are 1 million customers in their market. a. What is their total revenue currently? b. What are total costs (assume FC=0)? C. Based on this, what is gross margin (e.g., profits not accounting for fixed costs). Suppose fixed costs are 1 million. What is net margin (overall profits). d. They are considering reducing the length of the free trial to 1 month. Their data science team estimates the conversion rate will drop to 0.45 and the acquisition rate will drop to 0.28, what is the new revenue, new costs, and gross margins

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