- What is the main revenue source of FreeCharge? Why are investors investing so much in this startup when ads can’t make sufficient revenue?

Shaping the great minds.

Thursday, 8 March 2018

What is the main revenue source of FreeCharge? Why are investors investing so much in this startup when ads can’t make sufficient revenue?

The mystery behind FreeCharge and the temptation of Indian mindset to go after 'Free' stuff.

How does FreeCharge work?
Besides the advertisements that you see on the website, FreeCharge would earn a percentage of the amount of recharge that you do from the operator (ex: Airtel etc) and a percentage of the amount of the coupon that you spend.
Freecharge earns a lot of commission on per coupon used or shopping done through the link provided in the coupon email. Commission margin ranges from 1% to 40% and above of total sell value .
Let us see this with an example:
So, you need to recharge your mobile, data card or DTH or whatever else you may have in mind.
You decide to do a recharge for 300 Rs and get Dominoes Pizza coupons for 300 Rs.
You would be happy thinking that you've literally got your mobile recharged for Rs 300 and you've got your money back in terms of coupons as well. Isn't that great?
No, it is not. Because that is how they make money.
The Fine Print
Now that you've got coupons for Rs 300, you might notice that you have coupons worth Rs 300 but also you have six coupons of Rs 50 each.
This is where the fineprint written in small letters in the coupons come into picture.
You walk in to a Dominoe's Pizza Store and realize the following things:
1. You need to spend a minimum of Rs 200 to get a discount of Rs 50.
2. You cannot use the coupon in combination with any other existing offers provided by Dominoes.
3. The product offerings at the Dominoes would also be priced in such a way that you would find it little difficult to buy something. Pizza might cost more than Rs 200 or you would have to buy 2 or 3 things to cross the limit of 200 Rs.

Anyway, the idea is that you might end up spending more than 200 Rs. You might go in with friends as well and hence, the revenue for Dominoes would only increase.
How does FreeCharge and Dominoes earn out of this?
Let us say, FreeCharge has a deal to get 10% of every coupon spent from Dominoes.
10% of Rs 50 = 5 Rs.
Final Revenue for Dominoes: 145 Rs. (200 - 50 - 5)
FreeCharge would also have a deal with the mobile operators as well and they would give say, 5% of the amount of recharge done.
5% of 300 = Rs 15.

The Final Equation:

You spend: Rs 300 on FreeCharge and get the service.
You get: Coupons of Rs 50 each and 6 of them.
You would have to spent a minimum of 200 for each coupon to be used.
Revenue Per Coupon for Dominoes = 200 - 50 (coupon value) - 5 (FreeCharge commission) =  Rs 145
Revenue Per Coupon for FreeCharge = Rs 5
If you use all the coupons then,
Revenue for Dominoes = 145 * 6 = Rs 870

Revenue for FreeCharge = 15 (from mobile operator) + (5*6) = Rs 45

Total money you would spend to avail all coupons: (200 - 50) * 6 coupons = Rs 900
This is how it works :)
Moral of the story:
One does not simply, get things for free !! The world isn't that kind !

Business and Earning, business guidance, business technology, company, earning, Freecharge, freecharge wallet, revenue source, startups, Ads, adsense
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