How Linktree's unit economics work + its journey to become a uni(t)corn

Link in bio isn’t a new thing nor is it a complex one. Linktree started as a simple tool to add multiple links thanks to Instagram’s restrictions on links in bio. Linktree now is one of the largest software companies and it's remarkable to think that it charges its users less than $1 per month. In this edition, we’ll dive deeper into the unit economics of Linktree and its growth.

Founded by digital marketers Alex Zaccaria, Nick Humphreys, and Anthony Zaccaria in 2016, Linktree now has 40M+ users across the world with 5M+ subscribers. How did they even get to this point?

The co-founders knew firsthand the pain of constantly updating website link bios whenever a new landing page or content was published. Their core insight was that giving users a simple, mobile-optimised landing page with a unified bio link could be a powerful utility.

LinkTree's viral growth can be attributed to their masterful exploitation of bottom-up adoption channels. Rather than relying on top-down sales or marketing, they focused on making their free product as frictionless and shareable as possible. Instagram and TikTok creators eagerly adopted the tool, embedding their LinkTree URLs across their accounts and content. This grassroots adoption, coupled with powerful network effects as more creators joined, allowed LinkTree to rapidly scale with virtually no customer acquisition costs.

Their premium features like link analytics, custom URLs/themes, and e-commerce integration created a funnel to monetize this base. But even more critically, LinkTree made sure to keep free accounts incredibly useful with unlimited links. This allowed the product to spread through word-of-mouth, with free users becoming evangelists. LinkTree essentially turned the creator community itself into an army of micro-influencer marketers. With minimal traditional sales/marketing spend, they could invest resources into continuously improving their simple yet viral product.

So how has this seemingly simple link organising site unlocked such immense growth on the back of micro-pricing? The answer lies in its compelling unit economics.

A Powerful Funnel from Free to Premium

While LinkTree offers a free product, the conversion rate to their paid tiers is impressive at around 5% according to investor comments (Source: The Twenty Minute VC). With an average revenue per user (ARPU) estimated at $1-2 annually based on their pricing, this translates to a remarkable LTV:CAC ratio likely in the range of 10-20x for their premium subscribers acquired through the free funnel.

Lean Operating Costs

Unlike most SaaS companies, LinkTree operates with very low overhead and personnel costs. As of late 2021, the company had under 80 employees (Source: Crunchbase) while serving tens of millions of users. By keeping operations lean, LinkTree can thrive on lower ARPUs that would be unsustainable for most software businesses.

Pay-as-You-Go Infrastructure

LinkTree's service relies heavily on cost-effective, pay-as-you-go cloud infrastructure from vendors like Amazon Web Services and Cloudflare. As their scale grows, their marginal costs grow linearly rather than requiring major fixed cost increases. This scalable model allows them to be profitable on even micro-transactions.

Linktree’s journey into becoming a unicorn is truly fabulous. I hope you had a nice time reading this edition. In the next edition, we’ll cover a unicorn that has a s#*$ unit economics but is revolutionary.

P.S.: If you’re reading this, could I ask you to stay notified about my product’s (Obsidian’s) product hunt launch here: https://www.producthunt.com/products/obsidian-6