Spotify Makes $195M from Subscriptions by Converting 8% of Users

New figures released by Spotify show that the subscription music streaming service makes 83% of its annual revenues from subscriptions — that’s a little more than $195.6 million of a total $235.7 million. More interestingly, the site’s subscriber list (2.6 million strong) is just 8% of its user base — a whopping 32.8 million worldwide.Normally, an 8% conversion rate from registered users to paying subscribers is decent. But as Strategy Eye’s Digital Media blog points out, Spotify is still struggling to be profitable. The resources required to serve more than 30 million free users cannot be offset by advertising revenue, and so the company is likely to raise another round of investment funding.That’s not to say a subscription model can’t work, even with an 8% conversion rate. But “freemium” models are becoming cautionary tales in the industry to some extent.Subscription site owners need to carefully weigh conversion rates for subscribers against reasonable expectations for advertising rates, and then decide how much to offer free and for how long (in many cases, a free trial and re-targeted marketing may be a better option, especially if you continue to market to trial takers even if they cancel).You can find help in calculating projected revenues and operating costs on our sister site Subscription Site Insider, which has a handy Membership & Subscription Site Business Workbook and Spreadsheet.(Note: I previously estimated Spotify’s revenues to be around $480 million, based on a monthly subscription rate of $9.99. The number above is reported directly from the company and is based on Spotify’s two-tier subscriptions plans, priced at $4.99/month and $9.99/month.)

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