Hey how’s it going?! Just got done with a hectic week of finals and now I’m ready to head back to the Twin Cities and relax for Christmas break. What are your plans for Christmas, anything cool going down?
I spent a little time looking around at this relatively new site called Theme Forest (part of the envato network). It’s a bad ass site full of really cheap, yet awesome templates for sale. They prices range anywhere from $8-$25. You can even become an author for them and sell your own templates via their site.
One thing that really bothers me about Theme Forest though is that they take up to 75% commission every time your template is sold! This bothered me right a way because it made me wonder what would happen if sites like eBay and Amazon charged that much commission every time you sold something. That’s right, they wouldn’t exist!
I decided to register under the usual “nickclarson” and start a thread about the issue. It sounds like a lot of authors on the site are bothered by the really high commission price because it seems like Theme Forest is doing little to no work yet making most of the money.
I also proceeded to analyze their business further with a Fermi Problem. The following is a summary of the analysis I made.
Calculating total Revenue:
Based off the november popular users and how much they sold lets be conservative and say 1300 templates were sold in November. Looks like the most popular themes are the html templates which sell for around $10-12. So if we consider that some higher cost wordpress and joomla themes were sold as well lets have the average price per theme be $15 (also a relatively conservative estimation). That comes out to $19,500 revenue in november.
Calculating Costs:
Based on a few factors that we discussed in the thread we can conclude that the maximum being paid out to authors is 37%. Lets just use the 80/20 rule and say 80% of the authors are selling 20% and 20% of the authors are selling 80%. Lets over estimate (to make up for our underestimates) then and say there is an average of 30% being payed out to the authors per sale. So that’s only $5,850 paid out to authors compared to their $19500 revenue.
Also can’t forget about another main cost which is to have reviewers review the templates. There are currently 490 templates at TF and taking lets say a cost of $5 to review each template, that comes out to $2,450 TO DATE cost of reviewing the templates. This is based on paying reviewers a high $25/hour to review and assuming they can only review 5 templates per hour. So even if they reviewed 100 templates in November that’s only $500.
Calculating Profit:
That means based on our Fermi Problem, $19,500 (revenue) – $5,850 (authors) – $500 (template reviewing estimate) = TF made $13150 in profits during the month of November. (Please note I tweaked a few numbers from the actual thread to make them a better estimate)
Analysis of other costs:
Other costs would include anything like advertising, development, reviewers. As far as advertising goes, my guess is envato uses most of their network sites to advertise TF for free. Even if they spend 3k advertising a month that’s still over 10k left over for other things like development work, blog posters, and what ever else you can think of.
Conclusion:
Here’s our final estimation involved: “There’s a very high chance that Theme Forest is making a ton of money and there’s no reason why they can’t offer the authors a higher commission.”
The goal of this post was not necessarily to complain about a random website that you don’t care about, but rather to share with you an example of how quickly you can pull apart a business using a Fermi Problem with a predictable amount of accuracy. The idea is to make an equal amount of over estimations as underestimations. The more accurate you do this the more accurate your outcome will be. Fermi Problems are great for estimating things like this!
I hope you learned something new and hope that you are able to apply Fermi Problem to something you are working on in the future.
