So many Monetization Strategies and so little time. Gather around my virtual bonfire as I tell you stories about how monetization can feed growth (as part of a holistic approach), what you should focus on when defining your strategy and which options are actually a good fit for your business. I’ll also toss in some example of companies that tried them and lived to tell a successful tale.So many Monetization Strategies and so little time. Gather around my virtual bonfire as I tell you stories about how monetization can feed growth (as part of a holistic approach), what you should focus on when defining your strategy and which options are actually a good fit for your business. I’ll also toss in some example of companies that tried them and lived to tell a successful tale.
Oana Trif:
Hi everyone. My name is Oana Trif and I lead the product management and product marketing at 2Checkout. Today, I'm excited to talk to you about monetization strategies and opportunities for software companies. And I know that sounds pretty abstract. So here's the down to earth topics that I'll actually be talking about. First, I want us to get on a common ground, and what does monetization actually mean? Where does it start and does it ever end? And then I'll walk you through some of the strategies you can try and hopefully by the end of this talk will figure out which one is right for your business. At the end, once you know all your options, I'll try and help you get started. So what do you say, shall we begin?
Oana Trif:
Now, in my early days as a hardworking contributor to society, I stumbled across a quote by Paul Freet that sits in the back of my mind every time I think about monetization. It says that, "A business is a repeatable process that makes money and everything else is a hobby." I like to invite you to think about how does your product and strategy relate to this quote? Because in my opinion, if a product has no monetization mechanisms built into it, it's usually not always one of three things. And by the way, none of them is bad. It's either an experimental product or a department inside a well-funded corporation, which can afford to lose money. It's a venture backed startup, which has yet to monetize in any meaningful way, but has all the necessary funds to keep the lights on until it demonstrates the growth, or it's a side project that you work on just for fun and it may never become a business, which is perfectly okay. Same as it's okay to be thinking about monetization for your product without feeling guilty.
Oana Trif:
And I'm saying this because the word monetization sounds dirty to many, it sounds like you're planning to exploit your users or find your ways to dupe them into paying for something they won't want in order to generate that cold, hard, evil cash. And sure, there are plenty of businesses out there who have gone way too far in monetizing their product at the cost of invading the user's privacy or destroying the user experience. But that's just monetization and sales done badly. As the tech industry rapidly shifts from a growth at all costs mindset to a sustainable growth, the top leaders no longer focus on just the acquisition, on just the conversion optimization part of the business, they are validating and testing new pricing models. They are searching for ways to leverage existing technologies.
Oana Trif:
And if all of this sounds difficult, it's because it kind of is. Your product in the end, if it's a product for using is delivering a meaningful value to its users in some way, so it's only natural that you can expect to receive something in return, including revenue. And this revenue may not always come from your users, but it is fair to suggest that in exchange for the value that you offer, you can expect to be able to derive some form of remuneration from somewhere.
Oana Trif:
And just to remember the quote that I started with, if you're in business, it means that the revenue you're achieving happens through a repeatable process that lies at the core of sustainable profitability. And by the way, that is now the new standard for investors. Monetization at the end of the day requires gathering insights and data into how your customers use your product over time. It requires breaking down all those tiny pieces of your offering, whether it's product features, your support, customer training, all the technology platforms that you use just to find the ones that drive value and then reassembling them into their most compelling forms. It requires getting training and incentives to align the monetization objectives with all your departments inside the company.
Oana Trif:
And over the years, I've consulted with multiple companies and then what I found was many of them would like to take the path of least resistance in terms of growth. And in this context, that path is usually dumping a pile of money into the acquisition channels and hoping for the best, which usually leads them into this addictive phrase for customer acquisition, as opposed to allowing them to focus on sustainably growing their business. I know we all want customers to prove that our businesses actually work. However, the truth is many times we don't think about what we'll do with them when we do get them. And while acquisition can play a huge part in growing your business, it isn't the only option. Hopefully by the end of this talk, I would have managed to give you a couple of new ideas to try. That being said, I'm not arguing that I'll be handing you the Holy Grail today, many times focusing on the wrong monetization strategies in the early stages of a startup can actually inhibit growth instead of sustaining it.
Oana Trif:
And many of the top companies that we hear about today as successful would probably not be here if they focused on getting revenue before they got a massive pool of free subscribers and a solid platform which could be monetized. So if you're a startup and you know upfront that you'll not going to be seeking to generate a meaningful revenue until you have reached X number of users, make this decision and set your investment and growth goals based upon it. Instead, maybe try and focus on figuring out what delights your customers, even if it might not seem scalable at first, maybe if you go out of your way to make every existing users really happy, you'll one day have too many of them to keep up. And that's actually a good problem to have, because accidentally when that does happen, you'll find that delighting customers scales a lot better than you expected, partially because you can actually find ways to scale and monetize your product a lot easier when it's clear what the actual value is that you're delivering.
Oana Trif:
So even if you don't have revenue generation baked into your product from day one, it's still worth pondering on what your revenue streams might be in the future. So, as I will be talking about a few strategies today, I thought it would help to structure them in an order that I see delivering the best results. It's not the only one, but yeah, here's something you can try. So, because everything you do in a business is a process, you should think about monetization the same way. Your strategy will always depend on what your product does, who your customers are and what they expect to get from your product at what cost? There are many ways to look at it, but for the sake of this talk, I'll focus on the ABC of monetization. And I even threw in a D in there just as a bonus.
Oana Trif:
When it comes to deciding on monetization, step one is figuring out your value metric, meaning what are you charging for? And this shouldn't be driven by how your customers use your product and what value are they getting from it, whether it's cost savings or revenue generation, or automating different processes. This crucial monetization step comes down to answering one simple question in the end, who is your ideal customer? Once you know which customers are more likely to buy your product, monetizing a software business comes down to simply fulfilling that customer's expectations. Which features do they expect? Will these features be available only to premium levels or for additional fees? Should certain features be packaged into a different product and will your customers be treated the same or differently than new customers coming in? All of these are important questions to nail down. And once you do clear that up, you can define your pricing process. I've added this word process because pricing should be a living organism in an ecosystem that evolves as your company and product does.
Oana Trif:
So as your product improves, your pricing should change with it. Contrary to popular belief, software pricing isn't a one time event. And despite the hopes of many product managers out there, one size is never going to fit all. So the main question I ask you right now is when is the last time you checked your pricing strategy? Because many SaaS companies often reach a mature stage and settling to a sense of comfort, thinking that just because they have a solid profit [inaudible 00:09:10] their business must be running at a maximum potential, when in fact, mature SaaS companies are often well positioned on a pile of potential revenue and they're wasting it with poorly chosen price points and models. And as a last step, perhaps the one that is most often left behind, making monetization a core focus shared across all your company departments is important. Because contrary to common belief, I don't see it as being owned by just sales or product management or marketing, or as it happens in many cases that one person that has a bit of skin in the numbers game and is willing to take the challenge.
Oana Trif:
So, let's take this whole process for a spin, shall we? Now, if your business hasn't defined buyer personas yet, then you're probably losing out on some potential gains. You have to know who your customers are in detail. And if you don't, how do you know who you're driving to your pricing page? How do you know what to put on that pricing page to optimize the funnel? Even more importantly, how will you retain those customers once you do get them if you don't have enough knowledge about who they are at their core, and where do they see value from? You can start to build your personas by doing a thorough research on your existing customers and segment the people that you're speaking with. Don't be afraid to ask questions and think about this as a way to help you position your product more effectively, because knowing how to differentiate what a startup will want versus an enterprise customer will also help you pack and sell your features at a different price point and models. And at the end help you sell more effectively.
Oana Trif:
Now, I'll tell you a story. About three years ago, our company Avangate it was called at that time, bought another platform and we were faced with an interesting challenge. We were looking at combining two platforms into one and bridging two sets of different customers of various verticals and industries, different sizes and spread across the world. The combined solution, we were aiming to help our customers with it and grow our business and expanding two markets with them. So we had to clearly map out who our buyer personas were. What did they value most from the products that they were using now and what was creating more noise and distraction than value? After we listened to all those customers, it became obvious that certain products we were offering worked better with certain monetization strategies, depending on why and how they were relevant in the market.
Oana Trif:
And in order to focus on delivering that value to a core target audience, we even had to sunset some features, even at the cost of losing some of the existing customers that were falling outside of the target. So now if you have this buyer persona clear, if you're clear on the value that your product creates, what easily accessible tools are there to help you monetize, and what is your target market willing to use? I will be talking about four ways to search for the right monetization tool for your business, but there are definitely many more. That exercise we did to learn about our customers also reveal that we were sitting on a trove of additional revenue streams without even realizing it. Aside from our core value that the product delivered, we had additional tools and technologies, which have been built to support the infrastructure of our business and they were actually needed by the customers as well. And I will give you an example.
Oana Trif:
We had developed a set of API, which were being used internally by our engineers to perform different business function. And as it turns out, our customers had the same business functions from the same [inaudible 00:12:59]. And I'll give you another example, Amazon Web Services. I'm not sure if you know, but this now accounts to a greater share of its operating income in North America than its core e-commerce business, which is pretty astounding to think about. Do you know how Amazon Web Services actually started? It was originally built as an internal product to support infrastructure of its core business, and then they commoditized it into a product for external customers. So, consider how you may take each of these products and services that you might have and package them in ways which may bring additional revenue to your business.
Oana Trif:
It's also important to think about your overall customer life cycle and explore the strategies that fit each stage from that initial acquisition point where you could be A/B testing, your offering and your messaging, or you could be expanding into new regions and localizing your customer's experience to onboarding and activating users and focusing on ways to engage the customers during trial and speed up the activation time, which [inaudible 00:14:07] can talk to for days if you want. And of course that last piece of the cycle, the renewal, then the upgrades, which if you're selling products on a subscription model are very important to take into account. Bundling on the other hand is another interesting strategy to experiment with. You may find that your product suite includes standalone products, which by themselves don't amount to enough value to generate that significant revenue, but bundling and packaging these products together into a unique offering can help you generate new revenue streams.
Oana Trif:
And I'll talk about Amazon this time again. Amazon Prime is a fine example of product bundling. For a nominal fee and I'm missing the dollar amount per month, you not only get the core value, which is the free nice day delivery, but you'll also get Prime Now, which is one or two-hour delivery. You'll get Prime Video, which is unlimited streaming of thousands of TV shows. You'll get Prime Music, Prime Early Access and the least goes on. Amazon is the king of bundle from this point of view. And there's often a line that's being drawn between products and services and businesses typically choose between the two. Looking at what services your product might be able to offer to your existing or future user base, is a creative way to generate monetization ideas because many companies, software companies are in the business of delivering services. They just didn't realize it yet, because these companies are missing out on the revenue they could generate by simply charging for what they already do. For example, helping their customer set up or customize their environments or automate different things for them.
Oana Trif:
That first step is just expanding a service capability into how your company and your customers need to be aware of the value that it's being provided by those existing services. And with that, I'll be talking next about a few pricing models and the few pricing strategies. But as I do, I recommend you to think about them beyond just initial acquisition. There is an opportunity to either convert or lose customer at every phase of his life cycle. And only if you'll look closely at the value they're getting versus the dollar amount you ask for it and looking at it at every phase of their journey, only that way you can improve your customer lifetime value.
Oana Trif:
So, because I alluded to this earlier, improving monetization has to be part of a process. The average SaaS company drops the ball here. I was reading on the research done by Price Intelligently and they were pointing out that the average amount of time spent on pricing amongst companies is about eight hours in total for the whole life of the business. And that's a phenomenal thing to realize because you have to ask yourself, could your business be successful if you only spend eight hours on product or on marketing or on your sales team? The answer to these questions is probably no. So you shouldn't only spend eight hours on pricing either, because it plays an integral part in helping you monetize your customers and keep your customers and your business in good health. It shouldn't be overlooked or thought of of just getting customers to buy your product.
Oana Trif:
So, how do you choose a pricing model that's in tune with your monetization strategy? Well, I thought I'd tell you a bit a few different types and in the software and SaaS world. And as I do, I'll also [inaudible 00:17:52] to some examples of dos and don'ts to help you out. The first one I'll be talking about is the zero price model, the trials and the freemiums of the world. And while they don't generate revenue, I think both options can play a crucial role in a company's monetization efforts. You can opt in for the free trial monetization model if the customers that purchase your service would usually prefer to test that out before committing to a paid relationship. Then just free is a legitimate business model and many startups change nothing at the beginning in order to get that critical mass of users and the word of mouth before they can figure out how to profit.
Oana Trif:
Think about Twitter in the early years. While it's not a viable long-term strategy, it can make sense for the short-term, just to remember that no business should be married to just one pricing model over the life of its product. Simply free may also be a way to drive your sales in another channel. For example, the software might be free, but you might be making money on services or sister products. In contrast, the freemium model allows you to invite users to sign up for a free but limited version of your product. And there are a few variations on this model. You could offer two versions of your products, free and paid for basic and enhanced features for a like use versus a power use and on so on. Or you could be offering a free version with in-product micro-transactions. Think about the virtual goods and currencies that you could purchase in a game, which by the way, accounts to about 70% of Apple Store revenue.
Oana Trif:
Now the freemium model acts as a front door that lets your customers in by allowing them to use parts of the product for free, but it's also the ideal testing round to experiment with new features because this way you don't risk upsetting your paying customers. However, the downside with this model is that there's always a burden put on your internal resources, which might be used to service your free users more than your paid customers. And I want to look as some interesting examples of companies who've experimented with these two models just so you see them in action. I'm sure you're all familiar with Shazam, the audio recognition app that helps you discover and remember who sings a song that you're hearing right now that's going to be stuck on your brain for hours. Well, what I'm not sure you know is that Shazam began as an all free solution. It then moved to a freemium model once it started to ramp up users. It's free version then was limited to about five songs per month and unlimited access was a one-time payment of, I think it was about $499 or something like that.
Oana Trif:
Now, down the road, Shazam actually dumped its freemium scheme and went back to a free for all access again. But this time it added a little twist that increased the revenue greatly. Tagging a song actually searches Shazam's database and presents you with the answer along with some affiliate links now to download and buy the tracks or to buy tickets to local gigs from that player. So while you're making the product itself entirely free for the users, solutions like Shazam widen their opportunity for affiliates revenue, because more tags to them means a wider funnel and more revenue coming in from the Apple music of the world or the ticketing stores. So not bad for a product that's free, right?
Oana Trif:
Another example is the digital newspaper industry who has been nibbling at subscriptions for years. And I have three examples of the same companies targeting the same audience. The Sun was originally free-to-read. They then introduced a [inaudible 00:21:54] paywall when they saw visitors starting to decline year over year. And that is the point when they decided to ditch the subscription model and reintroduce the free-to-read, which was a resounding failure to them. The Guardian on the other side has stuck with free-to-read but in the face of declining revenue, they looked to alternative revenue streams. They looked to books and e-commerce. And recently, they revisited the paid subscription model, but positioned it a bit differently, they positioned it as a membership, [inaudible 00:22:26] using similar language to Wikipedia's donation messaging and linking that revenue to its ultimate survival as a business. And I'd say they had limited success so far.
Oana Trif:
The third example is the Financial Times. They introduced a paywall with an allowance, if you want for viewing a few free articles per month. Financial Times actually reported recently that it's revenue are solid and thanks in part to an increase in its digital subscription business. So that was a pretty successful move for them. All these three different approaches of introducing a subscription model and the free version in the mix for the same industry demonstrates how flexible and how creative you can be when introducing these models to your target audience. Now, the second pricing model I want to talk about is the flat rate. With this model, there's no pricing options or features to choose for. It's basically based on that one-size-fits-all pricing strategy, and you can charge your customers the same amount regardless of how many users or what their usage is. As with any pricing strategy, there are both pros and cons. The flat rate can be a tool for early monetization, but it does lack the flexibility and scalability to grow.
Oana Trif:
The greatest benefit of the flat rate pricing is it's simple. It's easy to communicate and it's easy to sell. If your ideal customer value simplicity or needs a straightforward solution for a straightforward problem, then flat rate pricing might work well for you. It can also work well for companies that have a narrow product or a single buyer persona because in this situation, a flat rate pricing structure frees your customers and yourself to focus on different things, to focus on acquisition and retention, instead of tailoring the pricing strategy to multiple personas that don't exist. But better and cheaper technology has enabled the creation of scalable pricing structure that I'll be talking about next. And we're seeing fewer and fewer examples of flat rate pricing in the SaaS world. It's still a model that's being used by businesses that sell physical products like Bitdefender's IOT that I'm showing here, or those oriented towards niche or traditional B2C audience. But even that trend is changing because large entertainment subscription services for example, that once you use the flat price for their monthly subscriptions, they're switching to their own version of tiered pricing.
Oana Trif:
Netflix, for example, evolved from a flat rate pricing into a tiered pricing structure, a move that may or may not be sufficient to increase their revenue in already a saturated market. And I mentioned about tier pricing model. This is a model that's providing different versions of your product at the varied prices. And this can be based on features or number of users or on usage, billing schedule and the list go on. Usually there's about two to five tiers and your customers are allowed to choose based on their needs. In this model, the revenue scales along with the adoption of the product. So you need to focus on tying the price directly to the value that you're offering and the one that's perceived by your customers.
Oana Trif:
It appeals to different customers from beginners to advanced, and it gives them power of choice so they can pick and choose a plan that works for them depending on where they are in their life. The tiers should be carefully thought out and constructed based on how your customers are interacting with your product, because a lot of tiers can be confusing, whereas too few number of tiers won't really help you reap the benefits of the tiered model. And every tier increases the complexity of your customer's decision-making process. You could, for example, start with a simple model. You could then add local flavors if you know certain features might not be as desired in certain markets. You can offer different billing cycle [inaudible 00:26:52] to give alternatives to subscribers who would not prefer a long-term commitment or to those who would expect a better deal just because they're paying in advance for a longer period.
Oana Trif:
And you can combine this with the freemium model and offer a free plan alternative to give the option to downgrade to free plans and replacing customer churn with temporary revenue churn, but still reducing the costs of reacquiring those customers later on. If some of your customers do not use all the bells and whistles of your product or your service, you could just let them downgrade to a less feature-rich plan, or even to a free plan in the hopes of keeping them on board until their needs might change. And by contrast, there may be customers seeking richer features who aren't yet ready to commit to an upgraded plan. So for these ones, you could set limited upgrades to the next plan, just so they could get a taste of the extra potential. Finally, consider adding one or more usage-based variables to your plans to convey to your subscribers that they will only be billed for what they are using.
Oana Trif:
And just because I mentioned usage billing, it's a model that's also known as pay-as-you-go in the industry. And in this model, your customer is charged based on their usage of the product. If they use more, they're charged more. If they use less, obviously they pay less. Now, the usage could be charged based on a variety of factors, like the number of emails that are being sent, the number of API calls that a customer makes per transaction and so on. There are a few variants of usage-based SaaS models. Some are purely usage-based and some have a base subscription fee and an extra charge according to the usage. Again, there are advantages and disadvantages.
Oana Trif:
And I took Twilio as an example to talk about them, because customers might often perceive this pricing model to be the fairest among all, because it's directly proportional to their usage. And looking at this pricing page, it's pretty simple. If they use more calls, they're charged more, it's transparent, there's no hidden fees. And to top that, it's also designed in a tiered way so that it's easily adaptable according to the fluctuations in their business. Now, on the disadvantages, predicting revenue can be difficult because it's based on the customer's usage of the product. And that's an unpredictable thing many times. Keeping an eye on the customer engagement in this scenario becomes a full-time job because any delays in deploying the product means less or no revenue. Closing a unit that was using it, again means a drop in revenue for Twilio.
Oana Trif:
So if you're targeting B2B customers like Twilio does, you also need to think that the sales negotiation process can become a bit more complicated with the customers using this model because they might want to define and negotiate when and how strict the downgrade and upgrade process is for different tiers, whether it happens automatically or they have to do something about it.
Oana Trif:
And now the last model is a Multi-option. That means basically combining all the previous strategies in a structure that appeals to different personas. The basis of this model is the value metric. And I'll give you an example of video hosting as a point. The value metric for them could be bandwidth or, and the number of videos. And for them, in pricing could mean they could have a freemium model, allowing a small number of videos to be hosted for free. They could offer the possibility to upgrade to higher speed and capacity through tiered models or ask to pay based on the storage the customers consume and even offer the flat rate pricing for recovery services, for example. The idea here is to have the flexibility to cover all your angles.
Oana Trif:
And in theory, this means combining the best of each model, but for this to happen, there's work to be done behind the scenes. Yeah, if for example, you haven't made the jumps to subscription and you're pondering about it, first of all, you should take into account how this change will impact your revenue stream, both on the short and on the long-term. Because the perpetual model ensures a payment on the spot and the revenue you could recognize upfront for the entire lifetime of your customer. The financial adjustments that you need to put in place to move to a subscription model is many times a stumbling block on the subscription journey for many companies, because let's be honest, there's a high risk that revenue will take an early dip and the future of the revenue stream might seem uncertain unless you build some processes around it, taking for example, a user-centered approach on how you deliver and support your subscription offering can also support a long-term customer success or can lead to high churn rates and revenue losses.
Oana Trif:
Now, with all these pricing strategies, before you go and revolutionize your offering, I want you to also consider four guiding principles. The first one is pricing isn't something you set for one time and forget. It should be revised as your product ages, as you enter new markets, as your customers progress in their life cycle with you. Don't set your pricing and billing models in stone by hard-coding the logic into your software or the tools that you use, instead consider your billing models as a set of little variables. In this way, you can quickly and easily iterate on your pricing while still grandfathering your previous customers on the existing plans. The second principle is pricing should scale along with your product and should convey the value of it. You need to consider the value or bring it at all stages and create upsell and downgrade experiences for your products, because making sure they're just one click away when the time is right and removing any frictions between the user's goal and your pricing is key in this point.
Oana Trif:
The third guiding principle is your pricing models should resonate with how your product is packaged and with your buyers. If for example, you're selling a B2B software that can be used across multiple departments in an organization, you need to think about how your upsell strategy will look like for your sales assistant funnel. Because sending invoicing while chasing payments for past usage, reconciling payments to accounts and updating user access, revenue recognition that's dependent on contract billing length and so on, all of these need a robust structure behind the scenes to happen more than once, because on the early stage products or startup, this manual work that I've been describing can be managed by a small group of people, but this doesn't scale when you scale your sales team and you mature into an enterprise business.
Oana Trif:
And the fourth principle, but maybe the most important piece of knowledge that I want to convey is that the fastest growing software businesses don't think about pricing as an isolated box that you play in. Companies like HubSpot, like Shopify work on multiple strategies at the same time, from experimenting with their pricing, to moving up market, to expanding internationally and adding new products and services.
Oana Trif:
So remember that in the end, you don't control who signs up or buys your product. So you might not actively be focusing on all those strategies, but your customers might surprise you and they might expect you to. Many software and SaaS strategies were designed, are US-focused. And while it's still the largest single software market, it only accounts for less than half the total market by spent. So, if you're thinking about monetizing your product internationally, or you're seeing international sales come in already, localizing your purchase experience can make a dramatic impact in your revenue growth. And we work with thousands of companies that sell internationally, and I've seen this impact up close. In Germany for example, we've seen conversions double when the checkout was in German language and the pricing was presented in Euros instead of English and US dollars. And just by supporting the preferred local payment method, in Brazil, those same conversion rates pretty much tripled.
Oana Trif:
So as I'm getting to the end of this talk, I'm hoping I managed to give you at least one idea to test for your monetization strategy. And just because I know getting started can be difficult, I am also sharing a few tips that we've tried on our side and found useful when trying to rally up our whole organization into this process. One thing to test is do monetization hack days, same as your engineers do to build new stuff, get all your teams to come up with new five ways to commercialize aspects of your business and involve everyone, including your engineering team. They'll definitely hate and kill you for that and see what the results you get.
Oana Trif:
The second tip is if possible, try to foster a cross-functional culture so that your commercial teams work closer with product and technology. If you can't completely enforce the cross-functional teams, which isn't always suited for all the companies, at the very least, make sure you catch up regularly and factor commercial considerations into your roadmap. And this leads me to the last point. When putting together your product roadmap, link some of the features and items on your roadmap to financial and revenue-based goals. Because while the focus of a product manager's role is to first and foremost deliver value to users, it's also important to remember that those product features that drive the value, ultimately impact the bottom line in revenue as well.
Oana Trif:
So if you made it till here, just as a closing note, remember monetization might seem hard, but as you apply a structure and a process to it, it comes a lot easier with time. And as I mentioned, it is a process that you need to evaluate often, and you also need to make changes often. And with this, I thank you for staying with me up until this point, and I wish you a great summit ahead. I know there are multiple talks that are incredible, so go and enjoy. Cheers, everyone.
