Innovation Tactics

Develop innovation ideas you can be proud of

Netflix Business Model Canvas

I have covered Netflix in great detail as one of the champions of the subscription business model. Our journey has covered the most important elements of the Subscription Business Model which are:

Crucial accounting metrics: Contribution Margin, Free Cash Flows
Crucial microeconomic metrics: Customer Lifetime Value/Customer Acquisition Costs, Economies of Scale, Diseconomies of Scale
Business Management: the Flywheel & the importance of the investment cycle
Customer Value Proposition: 12 Ways to make the Subscription Business Model work
Strategy: business model canvas (this article)

Join me to get a comprehensive overview of Netflix’s business model using the popular strategy tool of the business model canvas

Customer Acquisition Cost (CAC), Customer Lifetime Value (CLV) or (LTV): Learn from Netflix

We are continuing our mini-series of crucial metrics for growth companies using Netflix as an in-depth real-world example. Last time, I covered the crucial metric Contribution Margin that guides Netflix’ decision making on content investment on a macro level.

Today, we are going to look at a number of metrics that are being used in the context of assessing companies’ growth potential:

CAC: Customer Acquisition Cost
CLV (or LTV): Customer LifeTime Value
ARPU: Average Revenue per User
Churn
The important ratio of LTV/CAC
Profit per user
These metrics are helpful in the context of repeat users within the subscription business model but also the platform business model (e.g. Uber, Airbnb, TripAdvisor, Facebook, etc) which I have covered in extensive detail under those links.

Join me today to gain valuable real-world innovation knowledge.

Contribution margin: why Netflix uses it for their most important decisions

Our US contribution margin structure is set mostly top down. For any given future period, we estimate revenue, and decide what we want to spend, and how much margin we want in that period. Competitive pressures in bidding for content would lead us to have slightly less content than we would otherwise, rather than overspending. The same is true for our marketing budget. The output variable is membership growth that those spending choices influence. 

This is what Netflix tells their investors in the long-term view (the wording has slightly changed just a few weeks ago but this is how it read for a long time until then).

With this, you know they are using the contribution margin metric in one of the most important business decisions: investing in content.

That is why we are covering the topic of contribution margins: it is one of the most important metrics and decision making tools for many companies like Netflix (I have an example from Lyft’s recent IPO filing at the end).

It is also a crucial tool in the break-even analysis (i.e. finding out when you start making money).

Find out more about one of the most crucial business metrics for many companies.

Economies of scale [part 2]: Learn from Netflix about related concepts

Last time I have covered economies of scale using Netflix as an excellent example of this important concept.

This time we will be looking at important concepts related to economies of scale:

– Diseconomies of Scale
– Economies of Scope
– Economies of Density and Economies of Agglomeration
I will continue using Netflix since we want to learn from real-world examples.

Join me for a tour through these concepts and more interesting facts about Netflix!

Economies of Scale: what you can learn from Netflix about scaling up

The concept of economies of scale can be one of the most valuable ingredients to bringing down your cost structure as you scale up your innovation idea.

Economies of scale are an accepted concept that makes common sense – so, why bother writing anything about it?

Because the journey of scaling up (and benefiting from economies of scale) will, in reality, be very different from what you learn in the economics textbook. Today, I am going to use Netflix as an in-depth, real-life example to demonstrate the challenges on their innovation journey as they have grown over the years.

You will also learn how Netflix transformed from a DVD-mailing company to an envied tech powerhouse.

Check out their exciting journey …

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