Money talk — for founders and CMOs
6 tips on monetization
Erik, a friend and former Double colleague is now the Head of Growth of a very cool social product, Amigos.
It’s an app for people to find cool social events like house parties, barbeques, etcetera. They started in Amsterdam, and now have a cool 700,000 users across a couple different countries.
One problem that they now face, is how to best monetize the product.
As I spoke with Erik about the matter earlier this week, it struck me that we have never written much about monetization, even though it’s arguable an important aspect of growth.
So without further ado, here six key pieces of monetization advice (in no particular order) that I find myself dishing out to startup founders and CMOs:
No guarantees
Just because you made a cool product, doesn’t necessarily mean that monetization will be easy. Amigos is in such a situation — it’s a cool product, but how to do monetization effectively isn’t obvious. They now rolled out five different monetization strategies (across different geographic markets), to test what works best.
Remember that there’s no guarantee that every good product will have find strong product/monetization-fit (for lack of a better description).
Avoid the ARPU/CAC death zone
Read this article, and take it to heart. Most products fall roughly into 4 buckets in terms of monetization and viable acquisition channels:
Viral ARPU/CAC — (viral growth, referrals, USG-SEO, product-led growth). Like Amigos, users are worth less than ~$100, so paid ads aren’t viable
Paid ads ARPU/CAC — ARPU typically $200-2.000, you can scale using paid ads, influencers, maybe organic content. You can’t afford a sales team to close deals. Our client InsideTracker is a good example.
Sales-supported ARPU — Typically B2B SaaS products. They can combine complex marketing motions with inside sales teams. Payhawk is a recent client that fits here, as well as Glowforge on the high-end B2C side.
Enterprise ARPU — Deals are so big (>$200k) that you can afford complex sales motions. You could fly out to a client to close a deal. We recently did some work for Deloitte, where each deal is worth >$10M.
Which bucket do you fall into?
Freemium vs free trial?
Freemium is mostly appropriate when the free users become your marketing team. Think products like Mailchimp, Loom or Figma, where free users actively help spread the product and become the driving force of your (product-led) marketing. If that’s not the case, then probably a free trial is better.
Experiment more
There’s generally less friction to changing prices than you might think. You can simply grandfather existing clients into the old pricing, then offer new pricing to new clients.
Fun fact: I personally started out offering marketing consulting for $70/hour (6 years ago), and we now charge $160/hour as a flat blended rate across our team!
Align pricing with value
In an ideal situation, you charge people every time you provide value to them. The better you can align pricing to the value you create, the better you’ll typically do. The more flexible you can make your pricing, the more precise you can capture value.
Freemium models can scale much more aggressively than paid or free trial SaaS (see e.g. Mailchimp, Figma, Slack, Loom) — because product-led growth is much more efficient than marketing- or sales-led growth
Fixed-rate pricing is easier to sell, but performance-based comp leads to much higher payouts if you can deliver success. Align pricing with the value provided.
Auctions and bidding mechanisms allow platforms to capture much more value than by using traditional deal-making (see #6 below!)
Revenue model vs pricing
While pricing matters, the much more significant factor is your revenue model. For instance: a completely underappreciated aspect of the success of Google is how switched from a model where advertisers would buy media via enterprise deals (as e.g. radio or TV stations did before them), to pay-per-click advertising. As it turns out, the bidding mechanism of PPC platforms is the ultimate money-making model, and extracts money like nothing else.
Are those all my thoughts on monetization?
No, of course not.
But it’s hopefully there’s something interesting in there that you haven’t considered before!
Best,
—Pieter