Investors have shown confidence in Chinese STEM education firms as the sub-sector took over the K12 track in terms of attracting investment in 2019.
The COVID-19 epidemic forced students to stay and study at home. The impact caused financial breakdowns in offline education institutions. This situation became the wind in the sales for online education companies.
Meanwhile, VIPThink, a children’s online mathematics startup, recently announced that it is making profit with a user renewal rate of about 80%.
The company has managed to generate profits before its courses were renewed. Usually, after a customer purchases the course for the first time, for say CNY 5000, the customer acquisition and service cost charged is CNY 6000 which is CNY 1000 in losses for the company. The customer needs to renew the course after it expires for the same price of CNY 5000, which basically cuts the customer acquisition cost.
VIPThink said that the core reason for the company to make profits is the ‘8-9-8’ strategy based on the ‘user's word of mouth’ and that 80% of new sign-up users come from referral.
Yu Dachuan(于大川), co-founder and president of the startup, pointed out that “VIPThink’s breakthrough profit is mainly due to product models, teaching quality, and the resources. First, the 1V6 product class has been proven to be very efficient and effective. Performance naturally has profit potential; secondly, VIPThink maximizes products and services to customers, forming a word of mouth effect, high referrals and high renewal fees greatly reduce customer acquisition costs.”
Regarding when the company expects to make an overall profit, VIPThink told TechWeb, a Chinese media firm, that although VIPThink has managed to generate profit from payment of its courses, it also needs to continuously spend on research and development and administrative development. As the size of users grows, the R&D costs and administrative costs allocated to each user will gradually decrease. When the user size reaches a certain number, each single profit-customer acquisition cost, teacher service costs, even R&D and administrative costs, etc. will be more than zero. When that happens, the company will be able to achieve overall profitability.
Besides being the fastest growing firm in its field, VIPThink emphasized that the current user growth rate is fast, and the average monthly growth rate since its launch has reached 100% month-on-month.
The VIPThink brand was established in 2016, focusing on the mathematical thinking, and concentration and learning habits of children aged 3-8. The firm focused on offline lessons for children's mathematical thinking before fully migrating to online in 2018.
To date, VIPThink has obtained a total of 4 rounds of financing. In September 2019, the firm completed Series B worth hundreds of millions of yuan led by industry leader New Oriental Group and well-known investors such as DCM Ventures, Sinovation Ventures and Ximalaya(喜马拉雅). It is also worth noting that, since the transition to online back in August 2018, VIPThink has maintained a monthly revenue growth rate of 100%. In May 2019, the company's online single-month revenue reached CNY28 million, compared with CNY300,000 in the first month of the transition to online.
VIPThink is one of the companies in the list of EqualOcean’s Global 50 Edtech firms. You can read the full G50 report here.