Communicating your value is the unshakeable core of a successful product-led growth strategy. If you have simple pricing tiers and plans, users will upgrade on their own. If you have complicated pricing or users have to reach out to understand your “unique” pricing model… game over, you’ve lost a ton of sales you didn’t even know you could win.
In this course, we’ll cover:
Wes Bush:
Let's start off with this. Do you agree the fact, that your pricing and customer acquisition model are in an arranged marriage? Now, maybe when you were a sales led company it was much different. Your pricing and customer acquisition model could coexist and they didn't really interact too much. But when you decide it's time to be product led you really have to understand that you are putting these two models into an arranged marriage. And so if you give too much away for free, for instance, and your customer acquisition model gets the better end of the deal, your customer acquisition model might thrive while your business erodes, because you're just giving everything away for free. You're not charging for anything. Of course, your pricing model will get a little upsets in this capacity. And then on the further end of the spectrum, let's say you decide, "Let's gate all our features," and you will most likely see this short-term spike in revenue, but your customer acquisition model will really take this big hit.
Wes Bush:
So that's not ideal either. So what do we do? What is the perfect balance? And is one side of the model always going to be unbalanced? Does our customer acquisition model always have to be stronger than our pricing model? Or is there a way for these two models to co-exist? The question really is, well, the answer is, it depends. And I hate this answer too just as much as you do. Because in your market, you might want to over-index on one side or the other. Now, I'm going to share five different scenarios as it relates to finding your unique balance between your pricing and customer acquisition model. And as I'm going through these examples, I want you to think about, "Where do I stand? Am I over-indexing, for instance, on my customer acquisition model versus my pricing model? Where do I stand?" And the closer you can get to that understanding, the closer you are to understanding the best monetization strategy that you have moving forward.
Wes Bush:
So here's the first one. I call it the danger zone. This is when you have a very weak customer acquisition model and you also have a very forceful or, in this case, no pricing model. And so when you have that, it's very tricky. Usually, you'll find folks in the danger zone who are pre-product market fit. They hear about freemium, they think it's a great idea. They launch a freemium product and the entire product's pretty much all free. They still have this weak customer acquisition model. They don't quite get it. They don't know how to make money in this case. And it's a very dangerous spot to be, because a person who's sailing a boat with just sails sales is if there's no wind behind those sales and you're stuck in the middle of the ocean, it's very dangerous place. You need to get out of there as soon as possible.
Wes Bush:
So typically, when you're in the danger zone, you have a few choices. Now, I'll go through the next one, because this might be a step better than the danger zone, and this is really when you become user hungry. So let's say you're in that weak customer acquisition model, the place where it's really hard for you to acquire customers, you might say to yourself, "Well, maybe if we give away more of our product for free, we could in theory get a stronger customer acquisition model." So this is actually very true. There's lots of great companies that have done this and just sacrificed revenue in order to drive a bunch of users. Everyone likes to make fun of the VC backed startups in this case, because this is pretty common. I'll give you an example. So loom.com, they probably had one of the most powerful freemium models for the video recording space for a long time.
Wes Bush:
They gave away a ton of value for free, but that was, really, it was just feeling their strong customer acquisition model. They had a very strong Flywheel working for their business, and they decided to optimize that for a very long time. But eventually, as of this week, Loom decided, "Hey, we have a ton of users. We probably have the majority of users in this particular space. The customer acquisition model is still working fine, but maybe our venture capitalists friends who are funding us, they're getting a little antsy. They want to see, can this free product actually deliver significant revenue and returns on my investment." All right, so then you think about, "Well, let's go upgrade hungry. We have this strong customer acquisition model. We're generating leads front, right, left, and center. Of course, we can create a more forceful pricing model. Maybe instead of having videos that people can record for hours on end, we just cap it at five minutes."
Wes Bush:
It's not as powerful of a customer acquisition model now since the free product isn't as incredibly amazing as it used to be, but more people will upgrade. That's what we're banking on. And so you can see the logical progression. If maybe you are early on in your markets and you want to become the market leader, it might actually make a ton more sense for you to be user hungry early on and maybe sacrifice the pricing model a bit in hopes that you're going to conquer the majority of the market and get the lion's share of the market share. And then you can always figure out the monetization at the next stage and become upgrade hungry. And so it really just leaves us with one last monetization strategy, and this is really when you think about it not so much a good place to be either, because you're having this weak customer acquisition model and a forceful pricing model.
Wes Bush:
So this is pretty common too I've found whenever companies are making the transition from sales that are product led. And the reason why is because, typically, when you get to this zone, you're thinking to yourself, "Hey, we have this weak customer acquisition model. It's not working out that well for us. What the hell? Let's just put up more upgraded CTAs. Maybe that's the problem. Maybe that's why people aren't upgrading." And what they probably should have done is optimize more towards the user hungry group if they're in that weak customer acquisition model, because I would have put potentially some more wind in their sails as they could figure out, "Okay, what do our users really care about?" and learn from them a lot faster than just putting up more forceful calls to actions to upgrade without actually delivering more value.
Wes Bush:
So I hope by going through these four different monetization strategies, you're able to see a little bit more of the reasoning behind them. And so I've found that it's super helpful to identify what position you'd like to take and hold. And I want you to write down, where does your business stand? Which bucket do you fall in? And the last one I haven't touched on, because it's always elusive, in my opinion, is really the sweet spot. That's what I was referring to as the balance. You can find the balance between your customer acquisition model and your pricing model. But that sweet spot might not be the right spot for you if you're just starting out. You might want on over optimize on being user hungry and getting as many users into your platform as possible. That might be a better option than the sweet spot. So balance. Take it with a grain of salt. It's not what it's cracked up to be. It can make a lot more sense to be in other areas.
Wes Bush:
But that is the golden rule of, obviously, where we want to eventually be. But different circumstances in the market can persuade us to take some of these other options that might sound, at least from this chart, might sound counterintuitive to what we might have thought of. So how you optimize for the sweet spot? That's where we're gunning for eventually. I want you, by the end of this lesson, to really get crystal clear on how you could potentially figure out how to get very close to that sweet spot.
