For any startup, unit economics is a critical metric for success. Most companies struggle to maintain the same unit economics when they expand internationally. Many factors, such as customer acquisition costs, pricing, and average consumer spending, differ from one geography to another, which unsettles the unit economics.
Indian non-music audio entertainment startup Pocket FM, however, claims to have defied these odds. It has, as its co-founder and CEO Rohan Nayak said, managed to maintain its unit economics across both India, its home market, and the United States.
"Our LTV (Lifetime Value) to CAC (Customer Acquisition Cost) ratio is similar in both India and the US. India has a higher number of users, while the US has higher revenue per user, but the unit economics are the same (and strong) in both markets," Nayak said.
But how did the company do it?
Micropayments: The backbone of unit economics
Pocket FM's monetization strategy, backed by microtransactions, helped the company manage its unit economics in India and the US. Unlike its peers, Pocket FM ditched the subscription model for monetization. Instead, it adopted a micropayments-backed freemium model to give its listeners the option of a pay-per-episode basis.
"Our microtransaction model changed the game for Pocket FM. In the US, users can buy a pack of virtual coins for less than a dollar ($0.99) and use them to unlock episodes on a pay-as-you-go basis," said Nayak.
This not only democratized audio entertainment but also helped Pocket FM ensure better retention. Several audio series, such as Insta Millionaire, Saving Nora, Insta Empire, Rekindled Heartache, and My Vampire System, have individually generated over $10 million in revenue from users.
The beauty of Pocket FM's flexible and affordable monetization model is that it adapts seamlessly across markets. In price-sensitive India, the low cost per episode makes it easy for Pocket FM listeners to engage without a long-term commitment. In the US, where spending power is higher, the same model generates significantly higher revenue per user.
"At present," Nayak added, "90% of Pocket FM's revenue comes from microtransactions."
Low production costs
At the same time, Nayak said, Pocket FM needed to keep production costs low without compromising quality. The cost of production for video content can be prohibitively expensive especially for genres like science fiction and fantasy unlike audio.
"In video, the production cost for a fantasy or science fiction show is much higher than for a drama. But in audio, the lack of visuals means the production cost is similar across genres," added the Pocket FM CEO.
Besides, the startup has been using many artificial intelligence (AI) tools for the creation, production, and marketing of its audio shows to keep product cost low.
Retention: The key to profitability
Nayak said Pocket FM's success is not measured by the number of users who start a show but by how long they stick with it.
"The most important metric for us is retention," he said. "If a user starts with episode one, we want them to reach episode 50. If retention is strong, users will keep paying for more episodes, making our business model sustainable."
The balancing act
Pocket FM's success in the US can be taken as a case study to understand how Pocket FM managed to find a balance.
"The US is a very competitive market, and customer acquisition costs are much higher than India's. But we've been able to balance that with higher revenue per user, which makes the economics work," Nayak said, adding that the startup's playbook for India has worked well even in the US, and now the same playbook can be replicated across other markets including Latin America and Europe.
