SaaS companies today tend to focus more on customer acquisition and less on customer retention and monetization. My guest this week is Patrick Campbell, CEO of Price Intelligently, a price optimization software agency that helps SaaS businesses adopt a strong pricing strategy. They also offer a free subscription analytics tool called ProfitWell. In this episode we will talk about why retaining customers is actually more profitable than obtaining new ones, and go through a detailed step by step process to help you get the most out of your current customers with clever research and tactics. Patrick gives us a lot to learn about today so don’t miss out and listen in.
Listen to this Episode:
Topics Discussed in this Episode:
- Obsession with customer acquisition
- Marketing at Price Intelligently
- Ethics of clickbait
- Customer growth methodology for small and large companies
- Buyer personas and the key difference between the value of a feature and the way it’s used
- Recommended resources
— Price Intelligently (@priceintel) September 2, 2017
- Price Intelligently
- Hacking Growth by Shane Ellis
- The Saddest SaaS Pricing Pages of the Year by Patrick Campbell
- Web Summitbase
- Coelevate blog by Brian Balfour
- Price Intelligently eBook
Louis: Hi Patrick, thank you so much for your time today. Thank you for being on the show. I learned from your company last year, and I remember it vividly because it was from an article you wrote, and I really agreed on it. You were saying that marketers, SaaS marketers in particular and even SaaS businesses in particular, have an unhealthy addiction and obsession to acquisition.
In this article, you are saying that 8 out of 10 articles being written about growth in general is about acquisition while only less than 2 out of 10 will be about monetization or even retention. It’s not only about the blog post. You’re also saying that the C-Suites, they want more customers. That’s their main objective. That will be 75% of the C-Suite, while only less than 10% want to make more money from the customer which is quite very interesting and this article contains all of the data that you got.
My first question to you would be why do you think we are obsessed by acquisition and why is this a problem?
Patrick: That’s a great question. I don’t think it started off necessarily as an unhealthy obsession. If you think about marketing, particularly in technology and in software, the path of least resistance for the past 15, 20 years was basically acquiring logos or acquiring customers. There wasn’t as much competition out there so it became all about who can get the most customers the quickest.
It wasn’t necessarily something where retention or where your monetization strategy really mattered. I think the reason was it just was the path of least resistance, it was just the easiest path to get to the goals that people wanted. I think another subsection about it is if you think about a lot of businesses out there, particular those who have loud mouth pieces, they’re very focused on acquisition mainly because they are customer funded, they’re venture funded.
The idea is that they need to acquire as much surface area within that market to hopefully get that particular exit or race that next round or do whatever needs to happen. The issue is, and this is where this becomes a huge problem for businesses, is that the old tactics, the old guard, the things that were able to get us there in the past, even five years ago, just aren’t working anymore.
If you look at the data and you look at the number of new channels that are being created per year, that’s down dramatically. If you look at things like customer acquisition cost, those are up all across the board dramatically. You look at competition for content, competition for even podcast, which is a relatively newer medium and a newer channel, it’s becoming harder and harder across the board. The issue is that where this acquisition obsession starts to kill you is that you hire growth folks, you hire marketers, or you tell these marketers that the goal is really around acquiring new customers and that’s where the least amount of growth is actually going to come from. It’s all supported by the data.
This isn’t even like an opinion, it’s just one of those things where you look at all that data and you’re referring to the couple of posts that we wrote on this and you’re actually going to get 2x the growth. 2x the growth, if you’re going to focus on retention versus if you’re focusing on acquisition and you’re going to get 4x the growth if you focus on your monetization than if you focus on your acquisition.
It’s just amazing if you look at that impact. I think we’re starting to realize this or the true growth people are starting to realize this and that’s changing how they think about their businesses because you obviously have to acquire a customer but that doesn’t mean that the primary focus just needs to be on that acquisition.
Louis: Yeah, that’s a really good point right there. My thinking would be if you have to think of those very, very successful companies in the last decade or even centuries, you would argue that those successful companies have one thing in common. They are able to create loyal customers. Customers who came back, who are happy, and who referred their friends, family, and colleagues. I’m going to ask you a very leading question on purpose, would you say that it has always been the truth? That acquisition was never really the end goal anyway?
Patrick: Yeah. That’s a really good point. I think it’s yes and no. Even if you go back to the 1920s, the 50’s, the 60’s, if you look at any market, not just in technology, the early parts of the market, it was a gold rush. If you quite literally look at the gold rush in the United States, it was all about we just need to go this advantage of literally walking around and just picking up gold off the ground isn’t going to last forever. Eventually, you’re going to need to drill into the ground, you’re going to need pulverizing rock technology, etc.
I think what happens is in the infancy of any industry or infancy of any vertical, there is a bit of a gold rush. The issue is that gold rush used to last 50 years and now that gold rush in new industries is or even new technology verticals, it lasts years and in some cases months, depending on what the technology is. I think it’s definitely something where it’s always been that way but we haven’t necessarily felt it because the cycles of innovation, particularly in growth, have not been this short in the history of the world. There isn’t another industry besides SaaS, and to a great extent, technology, where these cycles have been so quick ever before.
Louis: That’s actually a very good point. I like your analogy about the gold rush because it’s actually exactly what it is, isn’t it? What’s going on in the minute.
You’re mentioning a few data sources and the data telling us this is what’s happening. Would you mind mentioning a few reports or studies around this particular topic that listeners might be interested in?
Patrick: Yeah. Absolutely. A lot of this data is researched and mined by us. We’re in a unique position because we have a product called ProfitWell, which is free subscription financial analytics that plugs right into your billing system so you can plug in Zora, Stripe, Braintree, whatever you’re using and get free access to your churn, your MRR, etc. and we monetize through some paid add ons. What’s fascinating about it is we’re sitting at this point on the most kind of subscription or SaaS financial data out there and when we cross reference that with some of these other data points that we’re collecting, it allows us to really give this nice tableau of what’s actually happening in the market.
One study we did is we compared basically the macro and micro economic trends, these different three verticals in your business, the acquisition, monetization, retention. I can give you the link that you can share with folks but basically what we found was that whole retention 2x is better that acquisition 4x. Monetization 4x is better than acquisition in terms of growth.
A couple other studies we do is because we’re in this unique position at the center of this universe, we have really access to actually pull and ask some of these individuals. The acquisition focused study that we did, we actually asked 1,600 founders and executives what their main focus was and that’s where we found it. We’re sitting on that large cache of data that we can mine and help the community at large basically get better about their business.
Louis: These are very interesting studies. I read that a few times, really good insight. I’m not sure there are any other reports or insights that are that precise or that detailed over this particular vertical. Just to explain to listeners, you’re the CEO of Price Intelligently and as you mention you also have a SaaS tool called Profit Well and you’ve been the CEO for the last five years, right?
Patrick: Yup. It’s been me from just me in a room alone, dying, because I was working so much to now we’re about 40 people here in Boston and we’re completely customer funded. We’re bootstrapped is another way to put it. There’s been no outsider, even inside funding in the business. We basically didn’t hire until we had money from our customers.
Louis: Am I right to say you started as a consulting business before moving on or is it the other way around?
Patrick: It’s funny because the original Price Intelligently product was a pure software product and then we evolved into, essentially it’s called a tech enabled service, which is like there’s software but you can’t buy the software. We use the software for you. The reason we did that is because we found we could get a higher price if we did that but also it wasn’t a great experience from a retention perspective if we just allowed someone to use the software on their own because it’s pricing data and people don’t really do pricing every day and so they weren’t really comfortable or confident and so we added analysis or people or that consultive side that allows them to be confident and coach them through things.
Louis: Well done on this journey. We can do a whole series of episodes of how you managed to bootstrap a business from 1 employee to 40 but we won’t because we want to talk about marketing now. But it’s a very nice story. We talked before once and I found what you do really interesting.
Let’s move on to marketing, and the use of subject within marketing that is very close to my heart which is the fight against bad marketing and defining what is good marketing, what is bad marketing and all those shady manipulative tactics that people use sometimes to grow because they have no choice.
I know you’re not necessarily a marketer but as a founder of a business, I would definitely classify you as a marketer because you managed to grow a company from nothing to 40 employees, why do you think marketers have a bad reputation in general?
Patrick: I think I would consider myself as a marketer because I run our marketing team, at least for now, and that’s not necessarily a good thing but I’m at least in the middle of it. We tried the whole shady tactics that’s in the eye of the beholder. Those things that are very obviously shady and things that are very obviously not then there’s this nice middle ground which I think we sometimes fall into depending on what we’re trying or testing. That was just my full disclosure. I don’t want someone to say I’m the authority on non-shady tactics when I send out a title or subject line that they might consider shady. We try to live in a world, one of our values is you build the company you’d want to buy from and so you try to minimize as many of those or use that as our litmus on what’s good or bad.
To answer your question, I think it’s two parts. I think the first part is because people being marketers, I don’t think they approach marketing or growth and there’s a bit of a distinction between the two as a framework or something that’s’ an actual specialty. We’re in Boston and in Boston, HubSpot is headquartered and so we get a lot of people and we’ve been trying to hire VP of Marketing, CMO, even a director of marketing for a while now.
Every time we meet someone, and it’s not just at HubSpot but I think they’ve tainted the entire city here a little bit in good and bad ways but when we meet somebody and they’re like, “Oh I’m going to be VP of Marketing.” We go, “Okay, what does that mean? What are you going to be working on? How do you evaluate things? What do you do?”
I kid you not, at least half of those people that we meet, they’re basically describing a content role. They’re describing what would be a VP of Content or Director of Content or Chief Content Officer and that’s not a bad thing. Content is really all the marketing we really do but it’s one of those things where they don’t know how to do high tempo testing, they don’t even know what high tempo testing is, they don’t know how to test PPC, they don’t know how to do a lot of what other people are jargony calling full stack marketing. And then what the kicker, and this is where I think HubSpot tainted folks for better or for worse is, they want $200,000 a year and they don’t know any of those things.
It’s like one of those things where maybe they are worth it without it but it’s just been kind of fascinating. When people think and call themselves a marketer or growth hacker, they don’t know the true definition of the term and it’s very similar for any developers listening to this to someone calling themselves a full stack developer when in reality, they only know a little bit of back end, they only know a little bit of the middleware and they’re really just a front end developer with some extra skills. I think that’s one of the big things people don’t understand.
I think the other thing is because of that lack of foundation, and I’m not saying I’m anywhere near full stack marketer myself, just to be super clear. But because of that lack of foundation, what ends up happening is there’s this path of least resistance that we talked about. The path of least resistance is to use these little tactics that they read about in different blog posts and those tactics either completely fail in terms of hey, the channel’s already gone, or they’re shady because it’s like this quick thing that they can do that might give them some gains and I think that just turns into not a great experience. I don’t know, that’s what I would say, I kind of went on there, so sorry about that.
Louis: No, no, you’ve been great. Don’t worry about it.
Patrick: I think that’s what I think the issue is. I think you see that in the results and what’s scary is it’s becoming more and more obvious where these folks are not able to get the work that they need because they’re not willing necessarily to put in the work to get to the level they want to be.
Louis: For listeners who might be interested in the role, how would you define the role of the VP of Marketing?
Patrick: It depends on what you mean because there are some worlds where that’s what I was talking about, the distinction between marketing and growth. I don’t think I am the authority to even really properly label or describe that distinction.
Louis: Nobody is. Don’t worry about it.
Patrick: That’s good, nobody is. I like it.
Growth’s too early. When I think of someone in a VP role for marketing or for growth, I’m really thinking about folks like Sean Ellis, Jeanne Hopkins, Brian Balfour. You might not have the experience those three people have. All of those people have decade or longer careers, they’ve all created very multidisciplinary approaches to growth, to marketing, to demand generation. But overall, those are people who are really, really good at testing different channels, making sure those channels are evaluated, shutting down the ones that don’t work, expanding and going all in on the ones that do work and being very, very thoughtful on how they do their marketing. Maybe besides describing actual skills, it’s probably best to just hear the archetypes these three people, you should learn as much as you can from, essentially.
Louis: Sean Ellis from Growth Hackers who wrote a book recently about growth hacking. Again, I haven’t read it yet because I have an issue with Growth Hacking as a term. I shouldn’t have. The idea behind it is quite good. I think it’s the way marketing should be done. I haven’t read it. The two other people you mentioned are?
Patrick: Yeah. You should read Sean’s book. It is really good. He came up with the term growth hacking or growth hacker with [00:16:48] and I think he got a little bit away from him but not because of his fault at all but I think that book is like be comprehensive. Him and Morgan Brown, and Morgan is a phenomenal growth guy as well. They really put together a solid look at what that actually means.
But Jeanne Hopkins is someone that if you’re a little bit of an older school marketer, you know exactly who she is. But she is someone who’s got 30 years of experience, I think. She used to work from Mattel and Lego and then for the past decade or so, she’s been working in tech. She is one of the original VPs in marketing at HubSpot and then she’s a CMO for a couple different companies here in Boston. She is just a badass. I can’t describe it anything else.
Brian Balfour is the former Head of Growth at HubSpot, also have a number of other companies that he founded and then he is now the CEO of the company called Reforge, which actually teaches growth and teaches marketing in a very, very deliberate and strategic way.
Louis: Interesting. You know what, full disclosure, I have never heard of the last two you mentioned.
Patrick: You know what’s funny? That’s the problem. The people you’ve heard of, now I don’t want to make a generalization, but the people you heard of typically don’t have the actual experience. They’re just really good at marketing themselves. Which is fine, that’s an actual skill that maybe they can use for company but a lot of a hardcore folks, they’re just not loud in terms of their personal brands.
Louis: Hey, this is why we’re doing the podcast, you know. Trying to learn every episode, trying to learn new things. That’s good, I’m definitely going to check them out right after this call for sure. I’m curious about the one thing you mentioned, so you said that you’re a definitely trying or at least you defined them as shady marketing tactics in the business. Would you mind describing a few where you felt like it wasn’t really ethical or it didn’t feel like it was necessarily the right thing to do?
Patrick: I don’t think we’ve ever done anything that was unethical. I would not describe anything like that. What I would describe it as for instance, maybe this is a different definition but something that’s a little bit more click baity in terms of a title.
For example, we have a post that we have now published once a year called The Saddest SaaS Pricing Pages of the Year. Basically, that’s very click baity title and it’s a little bit high impact. Whereas when you actually read the post, we do call out, hey here’s a number of companies but we’re very, very fair and very, very constructive. So we’re like, “Hey this is what’s happening with this pricing page. This is normally an indication of this. We recommend that you do something like this.” And then we do a very hard preface where we’re like, “Hey, we don’t necessarily know what’s going on internally.”
This might be working beautifully but we’re acting basically as a customer coming to that page and we’re super confused, they should fix this. That kind of a thing. That’s kind of an example like it’s a little bit of a more click baity headline. I wouldn’t say it’s unethical but it’s definitely meant to get you intrigued and I would say that’s kind of the definition of a good headline but it’s a little bit more of a punch headline than others. I don’t know if I have any hardcore examples, other stuff that we’ve done that was too far down.
I think one other thing we did, when we launched Profit Well, our whole mission is to empower people to get the most out of their SaaS unit economics. We’ve been working with SaaS companies for five years now, a lot of them at that. When we launched Profit Well, we had a separate domain but we wanted to use the whole message of hey, we’ve been working with a lot people. It’s not just like we’re launching this as Johnny or Jane startup out of our basement.
We used the logos from both sites and we said hey, we’re behind the team who has worked with X, these companies, and it was a little unethical in the sense that it made it look like oh, these people are using Profit Well even though that’s not what we were saying but it was definitely something that’s absolutely gray and maybe a little too dark.
We ended up taking it down relatively quickly because we had a couple of people who wrote in and were like, “Are you saying you’re working with these folks?” We stayed as honest with them and we’re like, “No, no, no. We’re saying we worked with them.” And then they were like, “Yeah, but it makes it seem.” We’re like, “Okay, this is a bit of a problem.” So we changed it as quickly as we could. Those are some things that were more out there. I don’t have any good stories of hey, we completely lied and we were driving down the street and just started hitting cars or something crazy like that, for better or for worse.
Louis: I appreciate you sharing all of that but I can guarantee that those are not what I would call shady or manipulative tactics.
Patrick: But that’s what’s funny, you’d be super surprised because there are some people who are like very, very high horse about it. Very, very oh my god, how dare you use a title that’s even a little bit off. It’s hard because some of those people have wide megaphones. It’s one of those things where you look at an example like the stuff that Web Summit was doing. Do you remember those guys?
Louis: Oh I do.
Patrick: I have strong opinions which may be we don’t get into except I don’t know if we have three hours to talk about it. They do use some of what I would consider unethical but I understand that I’m not necessarily the arbiter of ethics in terms of their marketing. And then you have someone like Jason Calacanis who rails against them. What’s funny is I get an email from the launch festival kind of using the same tactics and so I asked Jason like, “Hey, isn’t this the same tactic you’re just railing against?” He’s like, “Oh no, no, no. It’s different because of this.”
Louis: That’s my stuff…
Patrick: Well, he didn’t say that. There was a distinction but it’s one of those things where it’s like who was to say unless you’re like straight up stealing from someone or doing something really shady. It’s one of those things where it’s hard to say who’s right, who’s wrong. You should interview some affiliate marketers though because affiliate marketers are brilliant at getting traffic and they probably have some good stories of they kept it in the gray until it turned illegal and then they stopped doing it essentially.
Louis: That’s the plan. I’m planning to interview a little bit more people who are more in the dark side of the force. Just to go back to the website in example, can you give us one example of what you mean by what you would qualify to be unethical?
Patrick: We got sucked into going to Web Summit. I’d never done this before and I’m not saying it wasn’t necessarily worth the money but it was one of those things where we’re like we are promising this and this and this and like just when they actually delivered, it was very different than the marketing, if you will.
They make you feel like you actually got into a program and like you really didn’t get into a program, they accepted everyone, maybe they are actually rejecting people but it’s just one of those things where it felt like a bait and switch and we made the most of it just because we did the leg work. It was just one of those things. That was four years ago, they’ve gotten even bigger and even crazier since then for better or for worse.
Louis: I think there is something to discuss here. You’re mentioning about clickbaity articles and headlines. I believe there’s a very thin line between the right and wrong but I think the true differentiator between what I would classify as unethical and what I would classify as ethical is whether it’s true or whether it’s not. I know that in this day and age, there is post truth and fake news and all these kind of stuff.
If a headline describes somehow the content of the blogpost, even if it’s using hyperbolic adjectives or whatever, like what you mentioned, the Saddest SaaS Pricing Page of 2017 or whatever, to me that describes what you’re going to say.
Patrick: Sure, sure, sure.
Louis: But if you compare that to what’s happening with the Web Summit under the companies every single day, is that they actually lie about what is in there because there’s a limit between the way you describe things and making up things and features and benefits and actually the truth of the matter. I think this is why I want to call out on those behaviors most of the time because people are sick of it, they want the truth and they are sick of being manipulated and those tactics are not going to work for the long term.
Patrick: It’s funny, I have a phrase that I like to use and I think it’s the whole the community polices itself. Especially, there’s a long conversation between capitalism versus anything alternative. But I think that Web Summit is definitely one, the actual conference, or I don’t know if you could even call it that, has turned into just insanity. 70,000 people, there’s all the stuff that’s going on.
I think what’s fascinating about it is we’re talking about it and we’re not talking about it in a very positive way. We’re not going super negative. We’re definitely like if I was listening to this four years ago, I would have been like probably shouldn’t done that particular offer that they were offering us.
What’s interesting is we can debate the ethics of it but I think you’re absolutely right in the sense that they’re just not going to survive. Or they’re going to have to survive on a much lower growth rate potentially than what makes sense.
Louis: That’s a very long debate to have, I think we can talk about that for hours. A lot of the people have been making this point and I tend to agree with it but I think I need to research a little bit more because even though things kind of regulate themselves and those companies will die ultimately because they are not selling the product they’re saying they’re selling or at least it’s not good enough or whatever it is. I still think that there’s a long buffer between the time to start and the time it ends and there’s always new companies coming up with those shady stuff.
I have to think about it a little bit more. I need to invite people on the show that research that type of behavior and whether or not it’s true that the market regulates itself. I think DHH from Basecamp had talked about it too for Bethany to research for this but he’s making a point of the fact that it’s not necessarily true, that the market doesn’t necessarily regulate itself.
Patrick: I think that reputation and brand are something that as we go further, because remember when we start talking, acquisition is dying. Retention and monetization and those things are taking over and are more higher impact. An enormous factor in two of those things is brand. While DHH in your respect, obviously what Basecamp has done, and there’s a big geopolitical debate about this topic.
But what’s fascinating is that they have a good brand. I’ve never heard anyone say anything bad about Basecamp. I’m sure you can find it, I know some people who are like, oh it didn’t have this one thing I wanted or something like that but there’s an enormous amount of brand equity there given those two founders’ status in the community as well as their customers that come on board and things like that and they do stuff like all the refunds come out of the CEO’s pocket and that kind of thing.
I think that that is going to impact, this brand is going to impact more and more companies going forward. They’re going to die. Die is a loose definition but they’re not going to grow, they’re not going to win the market without that particular brand and without that culture. Look what’s happening with Lyft and Uber. That’s the first true test. That is the first true test of will a culture succeed over a company that from all outside perspective doesn’t necessarily have a great culture, right? And Uber is so far ahead.
If all of a sudden we start reading stories in the next 18 months or 2 years that Lyft is overtaking Uber in certain cities, then it’s like crap, maybe brand and culture can actually matter. There are some lurking variables there because I’m sure Uber is going to spend a lot of money to get themselves out of this PR hole. But I think that what’s fascinating is that’s going to be a really, really good test to see if this concept is true or not.
Louis: That’s a fantastic point. I think DHH is definitely planning for Uber to die pretty soon. He literally can’t stand them for the exact reason you mentioned.
Patrick: Just for an example, when that stuff happened, we moved the entire company over to Lyft. What was said is one of our Head of Product goes, you know what, it’s not as good of a product but we’re going to vote with our wallets because in Boston, Lyft doesn’t have as much penetration. I’m sure there’s a lot of companies out there that have done that, bigger companies than us that have done it but I think it’s going to be super fascinating how that all plays out.
Louis: I guess the main objective of this podcast and what I’m trying to make my life work about is trying to convince people that the only way to succeed long term is to build a good brand, to have a good reputation, to create great, good products and services and the other things will follow.
But if you try to hack your way into that and try to copy competitors instead of innovating yourself, then you’re going to end up into this situation where you will just look up to this competitor who’s way better than you, has a bigger brand and you’ll never be able to reach them.
Patrick: Yeah. There are two guys that you got to talk to, two buddies, David Cancel and [00:32:07]. Both of these guys, we have had dinners, coffees that all we talk about is the importance of brand even though the three of us are more data focused people, which is just ironic given that now, brand can be data influenced basically. You got to get those guys on to chat through this as well.
Louis: They are actually. I talked to both of them. Heaton is going to be on the show and hopefully David as well. I would consider myself a data driven marketer and I will also consider brand to be one of the most important thing a marketer could work on but I think the two work together, the long term data, the long term shows that the brand is what matters for everything.
I wanted to talk a little bit more tactical with you. We started the show about acquisition, so you mentioned that acquisition is dying basically which is baity title, isn’t it? Acquisition shouldn’t be really the primary focus you believe, especially for SaaS businesses that are established and are trained to grow beyond product market fit.
I’d like to go into a step by step methodology about what should they do instead, so they know that they shouldn’t necessarily focus entirely on acquisition and maybe they should focus on monetization, which is what you guys focus on the most. If you had to explain to the listeners how to go about this and how to go about focusing on monetization and get the most out of it, what will you tell them step by step?
Patrick: Even if you’re an established company, like someone who’s hundreds of people, or thousands of people, or tens of thousands of people, or if you’re just starting out, I think that you’re going to need to do all three. Acquisition, retention, monetization. It’s just at what level do you do all three.
When you’re just starting out, you might do a lot more acquisition, and then when you grow, you might start focusing more on monetization or retention. I think what ends up happening is people don’t do any retention or monetization focus in the beginning and then they don’t do any when they grow because they’re so focused on acquisition.
For me, if you’re just starting out and if you’re larger, I’ll do two scenarios here. If you’re just starting out, what I would do is, it’s a bit of David Cancel, the [00:34:38] Shaw way of building product which is I would focus on 10 customers first or users even, make them as happy as possible and then go find and try to make 100 as happy as possible. Happiness is measured through retention, some sort of engagement metric, etc. don’t necessarily think about going for broke in terms of acquisition quite yet.
That’s the first thing I would do if I was growing and it’s not even having anything to do with monetization, nothing to do with acquisition, just really making sure that you’re building something that people want, and there’s different metrics that you can measure. And then once you have that found out, I would do a bit of pricing, a bit of monetization and the steps there are really quantifying your buyer personas which is something that we could talk for hours about but it really just means collecting market data from your target customers.
Going and using things like Ask Your Target Market or Lucid or some of these other market panel providers who can get you access to anyone to answer your survey for relatively cheap, going to the current users that you have, collecting a bunch of data and then figuring out of your market who you’re going to target and then setting up your baseline pricing based on that.
Louis: Let’s limit more into those buyer personas. I know you talk about that a lot and you’re quite familiar with it but to all the listeners who haven’t necessarily heard of that before, you would say that they need to survey people outside of their customer base, just people that they can reach that feed the same kind of profile but what type of information would you typically ask those people?
Patrick: Yeah. It’s a great question. What I would focus on very early on and then you can get complicated as you get bigger is I would focus on what are the most valued features, what are the least valued features from a perception standpoint, not from a usage standpoint.
I can name hundreds of products where the usage and the perception are completely opposite. The other pieces are willingness to pay and I’ll share an article that’ll allow you to go through that. It’s relatively straightforward but it’s a little complicated to explain via audio but basically you’re collecting data on what their willingness to pay looks like and getting what’s called the price elasticity curve which is basically a measure of if you change the price, what’s going to be the relative impact on acquisition or the number of sales you’re going to get.
And then just as much segmentable demographic information you can, what’s the size of their chain, what’s the revenue, what tools did they use. All of these different things that can then be segmented down in a way that you can point to startup Steve, he really cares about this feature we don’t have and aren’t going to build, he or she really cares about the price and he or she is only willing to pay $50 a month. We’re not going to target this person. Any of our ads, any of our acquisitions, any of the features we build, we’re not going to build it for that particular profile.
Versus midmarket Mary, he or she is willing to pay $500 a month, he or she really wants this feature that’s on our roadmap and really cares about this thing that we care about. Okay, we’re going to go after that person.
The reason that this is so important is not only from a pricing perspective because then you’re going to price $500 a month versus that $50 a month. But it’s also to make sure because when you go to acquire users, you’re not just throwing a bunch of stuff against the wall to see what sticks. All of your content, all of your ads, all of your targeting, everything’s going to be focused on those particular users that fit that profile.
That’s a basic understanding of buyer personas and whether you’re small or big, what we typically recommend doing is that you’re collecting data on some level every single quarter. It really should be every week or every month. It doesn’t have to be huge but most people, they’re not doing customer development, even the basics, we recommend just getting the cadence that you can do every single quarter to get that data inputted as much as possible.
Louis: I’m curious about one particular aspect you just mentioned. I’ve always heard and learned that behavior is more important than people saying stuff. That usually when you’re watching somebody doing things, they might actually contradict themselves. Why would you advise to ask what features they prefer the most instead of just trying to see what features they use the most?
Patrick: Here’s the thing, you’re trying to mitigate risk. The beauty of software is you can build anything. You’re not going to build anything because you have some context to where the market’s going or you think you know your users. The problem is that we lull ourselves into a false sense of security thinking oh I know what this user wants, I can read that behavior, I can look at the behavior.
In reality, you look at two users, you’re not doing your customer development calls and all of sudden, you think you’re Steve Jobs and can just create the next big thing because you know how to put together a dev team who can build anything. It used to be okay to do that because you could build really, really quickly, you could launch a feature with some intuition, you could see if it failed or succeeded and then you can amplify or shut it down depending on that reaction because it was easy to acquire customers.
But now, it’s so cheap to get access to information from users and if you properly set up the surveys and it’s not just your grandmother’s survey that you’re sending out. You’re sending out something that is very, very well tested, I’ll share the questions, you can do this for free, ask these particular questions, you’re asking them the right way, you’re forcing them to make decisions, you’re asking them in range questions for the pricing and you actually short circuit a lot of that risk and short circuit a lot of those question to get to the center of who that user is.
I think what’s funny is there’s so many people out there who want to look at usage and want to look at behavior and if you can do that at scale properly, it’s great. But really you need to be doing that and collecting market data because it’s going to validate some of those hypotheses you have and what’s interesting is like I alluded to before, there are so many products where behavior and value are not necessarily aligned.
The accounting suites of software out there. The number one used feature in almost every single accounting software product out there, at least the ones that we work with is invoicing. Number one used feature. It is the least valued feature when you actually talk to the users, they don’t want to hear about it, they don’t care about it, the reason is because they just expect it. They just expect it to be used because it’s an accounting suite software. So if you’re like, oh yeah, we’re watching usage and everyone uses invoices, you’re just going to put that at the top of the page but in reality they’re okay if it’s off to the side because they really, really care about analytics, they really, really care about their income statements or things like that.
It’s the nature of you’re not omnipotent and you can’t afford to spend too many dev cycles building stuff that people don’t want, so you have to do all of these things and use them as inputs to guide your roadmap, you’re targeting, all that kind of stuff.
Louis: We are not God. Not yet, anyway. One day, God would be a marketer. I’m thinking about a scenario particularly where let’s say you have a software, you have three features and there is one that is being used way more in terms of time using this feature. But perhaps the reason this feature is used that much is because it’s so clunky, people have to spend a lot of time on it but it doesn’t necessarily mean that they value or like this feature that much.
I like what you’re saying, I guess I’d never heard this way of thinking before and for this particular aspect so that’s quite interesting. Let’s go back to the step by step. You say to quantify your buyer’s persona, making sure that you do your market research and then implementing a pricing process, right?
Patrick: Yeah, essentially, yup.
Louis: That was for the small businesses or businesses starting out, right?
Patrick: Yup. It’s a similar process for the larger companies, it’s just a different scale. Just to finish that thought, smaller businesses really, really focus on retention engagement to a baseline level of monetization research, set up your pricing, don’t overthink it and the reason is that no matter your size, you should be making changes to your pricing every six to nine months. It’s not something where you can just set it and forget it, you got to be making constant changes. That doesn’t mean just raising the actual price, it means adjusting your value metric, adding a feature, subtracting a feature, all kinds of fun stuff.
And then yeah, you’re going to focus on acquisition as a smaller company because you got to make sure that you could figure out how to distribute your product. But the thing is you should have different campaigns or different things focusing on retention and different pieces of a framework focused on monetization as well. It really just comes down to discipline of hey, we’re going to spend 80% of our time focused on acquisition but we need to spend 10% on retention and monetization and ideally it’s not like that at all. It means you have someone dedicated to each of those, at least one person.
If you’re a larger company, it’s a very similar thing but the proportions are probably different. Acquisition probably is on its legs, it’s probably bringing a good number of folks in. It’s really, really important to go deeper on monetization and deeper on retention mainly because you’re going to continue to have that machine, that marketing machine going but you need to make sure obviously you’re making inroads into not losing that leaky bucket, getting good expansion revenue, and then also making sure that really you pricing is set up for growth because you’re not going to acquire as many users.
There’s a lot of companies out there that might have 30%, 40%, 60% market share and with that much market share, acquiring the rest of it is going to be infinitely harder and it’s probably not going to give you the growth that you need or that high level of growth. You need to focus on retention and expansion revenue and also that you’re charging enough. It doesn’t change too much. Just focuses on a similar concept.
Louis: How would you go about it? I know it’s very difficult to create a step by step guide over a podcast episode. We don’t have a lot of minutes left but would you argue that you would have to do this market research and discuss some development stuff every month like almost on an ongoing project and then updating things when you think there are too many things that need to be changed? What would be the process for a big company that has more processes in place and more employees?
Patrick: Totally. Whether you’re a small company or a large company, and what’s really funny about this as well is we’re coming out, we’ve written a lot about this in the past five years. We actually wrote a legit book. It’s going to be released as an ebook but it’s free. It’s one of those things where it’s complete, I don’t know what we’re calling it, probably something click baity as people will say. I’ll make sure that you have a link and I’ll make sure we’d launch before this goes live but it basically is a step by step guide for all of the stuff. It’s free and I promise you if you read it, and you actually go through it, there’s enough there to take you to where you need.
But to answer your question directly, what I recommend doing is assigning someone to this role. Particularly for pricing or for market research and so you give it to, it might be 20% of someone’s time really early on, so one day a week. You might have people meet once every couple of weeks to really find out what that person has found but you’re definitely having someone think about this at least 20% of their time.
Then as you get bigger and ideally, you should be a single person either in product or marketing or even more if you’re the large company who thinks about this stuff all the time because the stakes are just getting that high and there needs to be a lot more work done on customer researches as well as on pricing in general.
Louis: Fantastic. That sounds very good. I like the fact that you mentioned it’s the actual book to make sure people don’t read an ebook that is just 10 pages. You know those so called books online that you download, they are like 15 pages long and the font size is like 24 and there are three paragraphs per page. This is not the type of book that you’re talking about, right?
Patrick: No. I think it clocked in like 150 pages. Keep in mind, it’s designed. It’s not 150 pages of 12 point font. There’s a design there but it goes pretty well into depth. I almost guarantee you, anyone who is listening and this is going to get me in trouble, but I almost guarantee you that it’s deeper than most of the folks listening have gone on pricing. And if it’s not, I will share resources with that individual who contacts me and says they knew everything that we wrote and give them something a little bit deeper that they can chew on.
Louis: I think it’s fairly safe to make this statement, given the knowledge you guys have on pricing which is a very in depth subject, it’s a very precise subject. You’ve been really helpful on this. I’ve learned quite a lot on this episode. Before you go, what do you think marketers should learn today that will help them in the next 10 years, 20 years, 50 years?
Patrick: Oh, wow. That’s a deep question. I really think it’s some of the growth stuff that we talked about earlier in the show. Because think about it, most of the people who are going to read this know what growth is or at least a basic idea of it but the vast majority of marketers probably, they’re not up there yet. My mom was a marketer but my mom, growth hacking, no idea what that means. She did event marketing. She’d have no idea about growth frameworks or high tempo testing or data driven, that kind of stuff just because it’s a very different world and she just retired. It was a very different world back when she was starting her job as a marketer.
I would really say figuring out how to do high tempo testing, figuring out how to really run a growth framework and ultimately, making sure that you’re doing as much customer research as much as possible even if you’re running a marketing department because that’s going to guide and influence your customer acquisition cost for lifetime value and all of those different things.
That’s where the world’s going. You’re not going to be able to be what they used to call an arts and crafts marketer because it’s just not going to work anymore, you’re not going to get any lift, you really, really need to go to this new world.
Louis: I agree. What would be the top three resources that listeners should read or listen to or look at?
Patrick: Great question. I would check out Hacking Growth by Morgan Brown and Sean Ellis. It’s the new book. Notice how they flipped growth hacking to hacking growth. Check that out mainly because it’s going to give you framework. It’s really, really going to give you a really good understanding of how to approach things.
The second piece that I would look at is Brian Balfour’s blog called Coelevate. Brian is brilliant and probably the least promotional person in the space and that’s because he’s extremely thoughtful and just focuses a lot of his talent and energy on actually doing the job. His blog, every blogpost is nuggets of gold and I think he only does one once a month and so it’s a really good breakdown.
I would recommend checking out the PriceIntelligently eBook that I’m going to share, it is a plug but I think that I could pretty objectively say that we’re the only folks talking about the process with pricing or the framework for pricing. Most people who are in our space, they’re very, very old school enterprise and so they don’t share a lot of the learnings and a lot of the education because that’s what they sell but it’s one of those things where I’m not going to say it’s the most comprehensive because there’s definitely textbooks that are really good but it’s one of the most approachable ways that you can learn the pricing process, we’ll say. Those are the three that I really, really focus on to learn a lot about the stuff that we talked about.
Louis: But it’s like a good cook, like this is the reason why chefs are writing books. They know very well that you can try to copy what they do, you’ll never be as good as them. Fair play for sharing all of those stuff. Thanks so much for your time on this episode. Do you have anything to add?
Patrick: No. This has been fun. I think I always enjoy conversations where I’m forced to think about things that I haven’t really thought about so I appreciate the great questions.
Louis: Great. Thank you so much. Talk to you soon.
Patrick: Awesome, brother. See you.