This came at a substantial cost to the business. Improving Unit Economics: Amazon Prime promised free delivery to create growth. It's seen strong revenue growth, even as user growth has plateaued. Through a series of pricing innovations, LinkedIn today has become the poster child of pricing case studies. We’ll cover two types of problems:Īdding New Revenue: In the early 2000s, LinkedIn had a latent asset - an engaged social network, but they needed to monetize it. It applies to both low-marginal-cost products that want to add new revenue (like LinkedIn and Twitter), as well as high-cost-of-goods-sold products looking to improve margins (like HelloFresh). The framework is business-model agnostic. Done well, it will help you unlock new growth. This framework will show you how to add monetization while sustaining growth. In the long run, they will hurt your ability to grow and scale. These changes, while necessary, are a stop-gap. This pressure will force slapstick changes like price increases or more ad spend. You'll eventually face the pressure to add revenue or improve profit margins. You need to choose between growth and staying alive. It takes 24 months for the average customer to become profitable. Can you nurture this customer love and still make money? You don't want to alienate them with forced monetization, like ads. You have a product users love, but… you don’t know how to monetize it. Your unit economics are decent, but not great. You've tried everything to lower CAC and have a stellar marketing team. Your cost of goods sold is significant, (like Casper). Growth is too cash consumptive… and it’s a hard fundraising environment. But how do you take a product with strong traction and build a lasting business? So far you've focused on growing DAUs, retention, network effects, etc. You’ve nailed PMF and want to add revenue. This common pattern points to a pricing model that doesn't work, or a product customers don't want to pay for. Similar to Sam, your finance team regularly recommends price changes: new prices, tiers or subscriptions. You’ll learn how to layer pricing models and customize them for your users. You’ll use these segments to create product and pricing models that scale gracefully.Īnd while there's a plethora of writing on innovative pricing models and strategies, this framework will show you how to adapt these models to your product and your business. In the following four-step framework, you’ll break down your user base into value-driving segments, sketching out each segment in four buckets: Needs, Willingness-to-pay, Demographics, and Behaviors. Thoughtful monetization can even reduce prices. In the best cases, it improves the experience. Powerful monetization doesn't take away from customer experience. This is different from last-ditch price changes dictated by finance teams, where price becomes a compromise between business needs and customer experience. By doing this, you won't only improve your unit economics, but your product itself will become more appealing. The solution is to build a more diversified, customized product and pricing model - moving away from one-size-fits-all and towards granularity. But if minor changes in price cause massive fluctuations in output-KPIs, there's a deeper problem: Your product is not working. And price resets can create significant wins. The first instinct to plug the hole is to raise prices. You won’t have the same LTV and margins at 10,000 users as you did at 100. This is natural because as its customers diversify, features and prices that worked for a niche start losing oomph at scale. Contrary to intuition, he also lowered price points for their most valued customers.Ī company's margins water down as it grows. He 2xed LTV/CAC and brought the payback period to under a year - all while keeping revenue constant. Even how they measured and reported success changed.Īt the end of eight months, Sam achieved unit-economic profitability. From the business model to what they sold and the composition of their user base. What started as a trivial price increase evolved into a sweeping transformation touching everything from the guts of the software systems to the consumer funnel and brand. But it was a new job and Sam was eager to impress. A 30% price hike on an already premium product seemed excessive. Sam worked at a luxury goods startup, with prices at the top tier of the market. Sam was two months into a new job when he received a call from the CFO, asking for a nationwide price hike. She also advises companies on pricing, packaging and business models. She spent 6 years in ad-tech at Google and Quantcast. Dee was Head of Monetization at Clutter and VP of Product at Figment.
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