The one million euro question: how many customers does your idea need?
In the guide Canvases and templates
Nobody can tell you today whether your idea will make money. You can still work out how many customers it needs to succeed, and ask yourself whether that number is within reach.
One question does it. How many customers do you need to make one million euros in revenue a year?
One million is a lot
Not really. If you are serious about your business, it is a reasonable first step. Maybe not in year one, but within the first three years.
One million is nothing
True. I hope you won’t stop there. But before you make 10 million, 100 million or a billion, you have to make the first million.
What the question is for
It is a filter, not a forecast. You do it in under an hour, with your best guesses, to throw out ideas that cannot work. If the number you get is out of reach, change the model, not the ambition.
Step 1: the annual value of one customer
Start with the customer lifetime value. Here, cap it at one year: what one customer brings in over twelve months. The calculation depends on how you make money.
- Subscription. Monthly price × months a customer stays, capped at 12. A 50 euro subscription that customers keep for 18 months counts as 12 × 50 = 600 euros.
- Commission on transactions. Your margin per transaction × transactions per customer per year. A marketplace that takes 10% of 100 euro sales earns 10 euros a sale. With 3 purchases a year, a customer is worth 30 euros.
- Advertising. Revenue per 1,000 ad views (the CPM) × ads seen per user per year ÷ 1,000. A free Android game earns about 2 euros per 1,000 views. A player who sees 500 ads a year is worth 2 × 500 ÷ 1,000 = 1 euro.
- Lead generation. Price per lead × leads per user per year. Building contractors pay 10 euros for a qualified lead. If each user of your service brings 2 leads, a user is worth 20 euros.
These are illustrations. If your model is different, write its own equation. The only goal is the value of one customer over one year.
Step 2: divide one million by that value
Customers needed per year = 1,000,000 € ÷ annual value of one customer
| Model | Value of a customer per year | Customers for one million |
|---|---|---|
| Subscription at 50 € a month | 600 € | about 1,700 |
| Marketplace, 3 purchases a year | 30 € | about 33,000 |
| Ad-funded Android game | 1 € | 1,000,000 |
| Lead generation, 2 leads a year | 20 € | 50,000 |
Adjust the target to your ambition: run it for 500,000 euros, or for 10 million.
Check 1: does the market hold that many customers?
Compare the number you need with the number of customers who exist.
Say you build an app that lets surfers check the waves before they go out. It costs 2 euros a year. You need 500,000 surfers to make one million. There are about 450,000 surfers in France. The target is out of reach.
So you rework the revenue model, the customer segment, or something else. Add revenue streams such as affiliation or advertising.
Same exercise for the Android game. Can you get one million active players? With which marketing? If the number looks too high for your market, change the plan: publish on Android and iOS, ship five games instead of one, or sell in-game purchases.
With a subscription, test the price. What happens if you double it? If you halve it, can you find enough customers?
Check 2: how many new customers a day?
Those customers will not all arrive on the same day. Turn the yearly number into a monthly, weekly and daily one. Three new customers a day looks doable. Three thousand a day is another business.
The orders of magnitude say a lot. To make one million, it may be easier to sell a 10,000 euro product to 100 people than a 1 euro product to a million.
| Price | Customers a year | A month | A week | A day |
|---|---|---|---|---|
| 10,000 € | 100 | 8 or 9 | about 2 | one every 3 or 4 days |
| 1 € | 1,000,000 | about 83,000 | about 19,000 | about 2,700 |
The daily number tells you whether your acquisition plan is credible, and how much marketing it takes.
A word on market size
Many ideas are judged on the size of their market. That is a mistake. An innovative offer does not fit an existing market, precisely because it is new: some investors passed on Uber because the taxi market looked too small. And the intensity of the need matters more than the number of people who have it. Better to be essential to a few than vaguely interesting to many. The Mac was first built for graphic designers and teachers.
The million question does not ask how big the market is. It asks whether your model can reach one million in it.
This tool is step 1 of the method in my book Passez en mode startup (Eyrolles, 2022), right after the Startup Canvas.