Chief Marketing Officer
00:00 - Ray Rike
Welcome to this next session of SaaS Metrics Palooza 23. It's actually brought to you by one of our platinum sponsors, Paddle, and their chief marketing officer, Andrew Davies, who's going to be talking about PLG monetization. So with that, Andrew, I'm handing over this stage to yours, and thank you so much for being a sponsor and a speaker.
00:26 - Andrew Davies
Thanks so much, Ray. Really appreciate the welcome here. It's great to be with you all. Yes, I'm Andrew. I'm from Paddle. And today, we're going to be talking about product-led growth, and particularly the monetization of product-led growth. We help 4,000 businesses who have some form of product-led growth in their mix. Some of them are hybrid. Some of them are pure PLG. And so we see thousands of data points across the globe and across different sectors as to how people monetize. So today, we're going to be diving in. We're going to make this as helpful as possible. Going to quickly touch on why we're here, what's different with PLG versus sales-led monetization, and then how do you monetize? We're going to cover three P's today, packaging, pricing, and payments. And after every single one of those, there's going to be a few actionable takeaways for you to take back to your boardrooms, take back to your working groups. And we would love to help in any way we possibly can with any of your packaging, any of your pricing, and any of your payments. We believe these things will help you grow faster and more efficiently. So with no further ado, let's just dive right in from the top. So why are we here? Why am I here? Well, Paddle, and we acquired ProfitWell a year or so ago, has a really interesting view on the SaaS market. We see about 34,000 subscription businesses in our data set, in our free metrics data set. We also do loads of research around pricing because we've got a division called Price Intelligently to help the leading SaaS businesses across the world monetize their products more effectively, packaging and pricing consulting. And we do a whole bunch of other partnerships with Ray, with OpenView, with others on how we derive insights and benchmarking from the metrics that we and others see. So really interesting view on the market. And we're talking particularly about PLG here. Some of what we're talking about is applicable across sales-led and hybrid growth as well as product-led. But what's fundamentally different about PLG? Well, for me, there are two things. The first one is that we have taken the responsibility from monetization away from a salesperson, away from a human, and productized it. So product-led growth is looking through the lens of the product when you consider acquisition, monetization, retention, expansion. All of those things are seen through the lens of the product first. So we've got a standard pricing page in front of us. That is now the key point of monetization rather than in a sales-led world where we're able to have those conversations in a much more synchronous environment. The other thing that's different about product-led is that it goes international much faster. I love this little memo on the left-hand side. This was from an Atlassian talk, Scaling Atlassian that was given, I think, in 2008. So a long time ago now, 15 years ago. And they said, we've got no dollars for sales teams, therefore the product must sell itself. If it must sell itself, it's got to be a low price. If it's a low price, we must sell thousands. If there's thousands, it must sell globally. And the customer must buy, we can't sell. And so one of the inconvenient truths of product-led growth is we face internationalization challenges much, much earlier. And we're going to talk about that across pricing and payments and packaging as well in a minute. So we face those issues much earlier when the business isn't as mature to deal with them. And what's also really important is that internationalization is a source of advantage. Because as we can see here with the graph on the right-hand side, when we look across our entire dataset, we're seeing economies that perhaps normally wouldn't be the first priority for most SaaS companies. We're seeing them growing faster than the main dominant economies in the United States, the UK, and Northern Europe. So we're going to dive into a bunch of the complexity that comes from this internationalization first, but it's something that often sits as a champagne problem behind PLG businesses. Once they start picking up customers all over the world, then they suddenly realize there's a challenge over monetization and overtaking payments. So going to talk about packaging, going to talk about pricing, we're going to talk about payments. Let's start right off with packaging. Firstly, when we think about product-led, there's normally two primary ways that people start off getting customer relationships. It's either through freemium or a free trial. So freemium is where you have access to part of a product, but there's no time limit. Whereas free trial is where you get access to all of the product or most of the product, but there's a time limit on getting that value for free before you hit that paywall, or you might have to give a credit card up front. And then once you've hit that seven days or 30 days, then you trip into a sales relationship. Now, freemium models, they tend to drive more acquisition and more signups to the product, whereas free trials, they tend to have fewer signups, but they've got a higher conversion rate from free through to paid. So when we did this research recently, we saw that still the most common free offering is this premium free trial. So it's most of your product offered for free with a time limit on it. That's still how most people are monetizing. I want to call that reverse trial because that's super interesting. That plays on loss aversion. It's where you give a lot of the product or all of the product up front, and then take it away if people don't convert from free to paid. Well, one thing to call out as a double click on this is that if you've got a sales intervention, then as in you've got the ability to output a sales rep or a CS rep onto that customer relationship, then it's easier to execute on that premium free trial. Right, so first thing is figure out your package, figure out how you are getting that first customer relationship and what that contract is, what that exchange of value is. Now let's dive into other forms of monetization in your packaging. We see in our data that lifetime value is significantly higher when customers are choosing at least one add-on, and yet add-ons are one of the least utilized features in particularly early and mid-stage product-led businesses. So here's a whole bunch of different add-ons you can think about, priority support, API access, specific niche integrations. And one of the ways that we think about add-ons is finding features or parts of your product that are used by less than 40% of your users, because what you're looking for is low usage, but high willingness to pay. We'll come back to willingness to pay when we talk about pricing in a minute. So you wanna find some add-ons that have a lower usage, but a higher willingness to pay. And that gives you the ability to package your product offering in different ways in order to map your value to the willingness to pay, and therefore increase your monetization. So here's some popular examples. You might already be thinking about other examples in your context. And before we go on, I'd also say that we see a very, very strong correlation with mid-stage and late-stage growth in PLG when you not just add an add-on, but you also are multi-product. So you always need to be thinking in the future, what is your multi-product strategy? Because when you've got multiple products, as well as add-ons, then you've got multiple different vectors of account growth, and that's when you can really drive outsized monetization. So packaging, three quick takeaways. Firstly, define your starter package. Choose something that you've got to commit to so you can actually learn something and test. Decide kind of what you're optimizing based on so you can do that well. Then secondly, measure, learn, iterate on that. And then thirdly, think about add-ons. Think about what the route is to a multi-product strategy. We often see in our dataset, there's kind of three primary phases. The first phase is, say, zero to 10 million ARR when there's a single product. Then you go through this kind of difficult phase of, say, 10 to 100 million ARR, where you're experimenting with add-ons and multiple products. But then by the time you get to 100 million ARR, almost every product offering has multiple products, as well as add-ons. So there's a lot of different SKUs that you can use in order to drive that monetization. Right, there's the packaging takeaways. Now, let's dive into pricing. Let's sit and talk for a moment about value metrics. So value metrics, this is the measure of an exchange of value. It's the unit by which you charge. So this could be storage. It could be users. It could be seats. It could be videos. It could be views. And they generally split into two types. They're either outcome-based, so you get some revenue, so you price based on the revenue you drive or the cost you save or the clicks that you get, or they're functional or usage-based, so the amount of seats you consume, the amount of time you have in the product. So from both a user and from a business perspective, the optimal pricing model is one where the scale of value scales with the scale of price. So what you want to do is make sure that as price increases or decreases, the value the user receives also increases and decreases. And this works. We see in our data time and time again that value metrics drive greater growth, and they also usually drive greater customer satisfaction because what you're doing is making sure when there's more value you're delivering, then the customer pays more. What's really interesting about this data when you look at it across multiple years is the gap is widening. So if you're still stuck on feature differentiation, you know, charging for this feature, but not for that feature, or charging more for this feature, less for that feature, then the gap of your ability to increase your growth is significant. You need to close that delta by moving to a metrics-based model. Let me bring this to life for you in a second. So this is hard, and so there's a challenge here because it's really easy just to think about a single, maybe a per seat price, slap a price on it and never come back to it. It's easy to do that. But let me just bring this to life with an example of how powerful it can be when you properly dig under the hood and don't just default to competitive analysis to drive your pricing, but actually go and ask your customers. So this is a recent customer of ours. They had a customer support tool, and they were wondering whether the price based on number of support agents, customers, customers supported, tickets handled. And so we went and did this willingness to pay studies. We go and collect data from the market, their current customers and prospective customers, and that we found, and you might not be able to see these, but the arrows should be good enough for you. We found that those who have a small amount of support employees and those who have a total customer contacts have nearly the same willingness to pay as those who have a large amount of both of those things. So these lines are flat. As your number of support employees grows, actually the price sensitivity, the willingness to pay doesn't go up much and the same with the total customers. So that's really interesting. This is not what you want from a pricing model. Then we went and researched number of support tickets and support customers. And you see here a much more exciting story because as the number of support tickets grows in this company's sector, in their industry, then the willingness to pay grew in a linear way. So that's really exciting. Willingness to pay increases as these value metrics increase, and therefore you can build a very, very powerful monetization model off the back of this. So think about your value metric. Secondly, think about changing your prices more often. We've been measuring this for a decade. And what we see is those that do change their prices every quarter will drive 103% higher ARPU than those who never changed them, or even a 60% higher ARPU than those who merely change them annually. And I think this is really interesting because actually this isn't even deciding or discerning whether they're good price changes. It's merely saying that they are changing their price. They're experimenting. And when you're in that process of experimentation, you are on the process of learning. So definitely make sure you've got some form of pricing muscle in your business and you're experimenting with changing prices. The good news here for product-led is that product-led businesses are much more likely to use value-based pricing than other forms of go-to-market. One thing I think that's really interesting is even if you start off with competitor pricing, looking at what other people do, or cost plus pricing, which is how much it costs to deliver what you're doing and then charging kind of an extra on top of that, even if you start there, because they're easy, over time it's really value-based pricing that ends up being the default tool for companies that are ending up managing to drive massive monetization at scale. Finally, on pricing. As you think about pricing and appointing someone in your business or a committee in your business to consider pricing, think about what you're measuring on. It's very easy to stop with ARPU or ARR, so average revenue per user or average revenue per account or your overall ARR, but think about efficiency measures. And when we look across this base in this survey, we start to see more people measuring on LTV to CAC and other forms of efficiency metrics. So third point on pricing before we move on to payments. This is really vital because it's, again, one of those underutilized levers. If you're product-led, you're probably selling everywhere in the world or in many different regions and willingness to pay changes dramatically by region. This is just an aggregate of a whole bunch of our studies. Zero is the US willingness to pay. Now you can see down in Southeast Asia, much less willing to pay. In the Nordics, much more willing to pay. And yet many of us, for simplicity, just charge the same price, often in the same currency everywhere in the world. And that means we are leaving significant money on the table. And we also have the data recently from the survey we were doing with OpenView. And it basically is showing that very few SaaS businesses are localizing pricing based on willingness to pay, based on foreign exchange rates, based on operating costs and based on tax rates. Very few people localizing prices based on those things. And yet those are the things that define the reality of your customer in every one of those regions. So pricing, research the willingness to pay with customers. You can do this cheap and easily. You can do this by a bunch of your own customer calls. Obviously we do it for larger customers already as a consulting service, but you need to go and do some willingness to pay research. And we can talk about that. Grab me afterwards. We can talk about the questions you need to ask to get that data yourself. Secondly, find that value metric. Thirdly, experiment with your pricing regularly. And finally, localize your pricing across the world. Right, payments. Let's jump in now and think about payments. One thing I think is really, really interesting before we move on is that in a product-led world, your product is your salesperson. And so payments are a fundamental part of your product because that's how you're monetizing that user exchange of value. And often we do not think early enough about the friction the payments are giving into the product adoption. If there's any challenge over taking that credit card or a local payment method or a currency that looks odd to them, then you're gonna have friction in your onboarding. And product-led is all about having a frictionless process of product adoption. So different countries have different preferences. If you go around the world, we see this in our data because we solve this for thousands of companies globally. We see that different regions have very different preferences. And yet, particularly in the U.S., and I know I'm mostly speaking to a U.S. audience here, particularly in the U.S., most U.S. businesses do not go beyond the basic standards. And so they do not serve the international communities with the payment methods that they want. And I just wanna drive home this point before we move on. Localization really matters. When we look into our datasets, this first one here, we see a 21.8% faster growth when you're offering more than one payment method. We see 12 or 13% faster growth when you've got two currencies on offer. We see a 25% faster growth when you've got lots of currencies, 25 plus currencies on offer. And going back to that price sensitivity by region stat earlier, we see a 30% correlation, increase in revenue when adjusting for price sensitivity in each region. So these are not small numbers, and they are numbers that it is not complex to overcome if you put the right systems and the right process in place. But localization really, really matters. So takeaways from payments. We've got to recognize that we need to combat friction in our onboarding and in our product adoption. We've got to offer more payment methods. We've got to show local currencies. We've got to localize our payment methods. If we do all of those, now we're starting to reduce friction within our product onboarding and making sure that we're converting more and more of our free users or freemium users into paying customers because we're actually thinking about the local scenarios that they are in. So that's really all we've got time for today. I wanted to go through a whole bunch of data to try and give you some helpful takeaways. We have got hundreds of paddlers that are waking up every day to research all of these different topics and solve these problems. And we've seen these mistakes time and time again. In fact, we call them champagne problems because when you start a PLG SaaS business, you don't want to think about calculating the correct tax in a random region around the world you've never been to. You don't want to think about pricing localization or willingness to pay. You want to build your product, hire your team, and learn from your customers. And so we see these problems thousands of times every year and we solve them for thousands of customers. And so I think it's really important that your growth strategy, whether you choose product-led or sales-led, how you're thinking about where you play and why you win, that's your responsibility as a company founder, as a company leader. But there are vendors like ourselves and many on this call and other partners of Ray's who are willing to take part of that burden from you so you can reduce the complexity and focus on growth. Hopefully that's been helpful. Please grab me on LinkedIn afterwards. I would love to connect and give you any help I possibly can. Doesn't have to be a paddle pitch at all. I will dive into the data and give you everything we possibly can to help you grow better and faster. Thank you so much, Ray.
18:51 - Ray Rike
Andrew, thank you so much. Man, you packed a lot of information in a very compressed amount of time. I have a couple of questions I'd like to ask you. First, a couple which were stimulated by this presentation. You mentioned with PLG, some of the growth statistics. Did you research, or do you find that PLG companies go international much quicker? And we're sales-led, maybe it's five, 10, even 20 million. It's like, oh, we got to expand our TAM. So we're going to go to another country, another region of the world. Do you find this almost built in up front for most PLG companies?
19:30 - Andrew Davies
Yeah, it's built in as default. We call it default born global. And it's almost accidental, even if the founder isn't thinking about it. I also see a very clear difference between U.S. businesses that are predominantly sales-led and their growth mechanic is to go up market in the U.S. market. Whereas international businesses, yesterday I was in Bucharest in Romania, over the last couple of weeks, I've been in Tel Aviv, I've been over in France, where economies that are smaller, generally they look abroad much faster. And it's only after they've done that that they start to go up market. So we see that difference as well.
20:06 - Ray Rike
It's interesting, because for U.S.-based SaaS companies, they say, we're going to go global, then they maybe start in the UK, or they go to Australia or other English-speaking countries. And they quickly realize if they've never done it before, oh, France is very different than the UK, and Italy is very different than France and the UK. So is that part of the, and I know these are supposed to be non-promotional, but part of the paddle kind of advantage is you understand all the country by country, not only currency and payment infrastructures, but the compliance and governmental regulation requirements.
20:38 - Andrew Davies
Yeah, so we make going to a new company compliantly a tick in a box of a dashboard. So if you now want to sell in Lithuania compliantly, one tick, and we're remitting local language Lithuanian tax returns on your behalf and choosing the best payment method on your behalf. So absolutely, that's exactly what we're doing. And really the mission we've got is to try and let founders just focus on building great products. Because all of this complexity adds significant operational burden. And in a PLG world, that burden is felt so early when there's not the CFO and FC and financial reporting structures to go and deal with the complexity that's seen.
21:15 - Ray Rike
Last question. We did some similar research of PLG companies. Are they using the free trial? Are they using the freemium product? Are they using the reverse trial? Do you have any data or ideas for the audience about which leads to higher conversion rates and faster revenue growth?
21:35 - Andrew Davies
I think we get this question all the time, but I need to do some proper research into it. So we do, but it's more anecdata than data because we haven't done the hard research on it in terms of actually going and serving people. Basically, we're seeing the freemium models have more signups, but less conversion. And then if you've got a free trial, you have fewer signups, but then more conversion. That's the way around we see. But I think it's something we need to dive into more, but it really depends on what you're trying to optimize for. Like I know founders right now who are just desperate to make sure they've got the initial learning from their customers. And so they don't want to put any time limit on it. They don't want to have any kind of free trial cut and paywall because they just want people to use it. And it's really exciting to see kind of the rise of that philosophy where people are much more interested in the learning than the revenue at the early days because that's what can build a really scalable business.
22:28 - Ray Rike
Now I'm going to make a pivot. And Patrick Campbell, who's the founder of ProfitWell, which you acquired, is also going to be talking a little bit about his media-led growth. But the question for you is, Paddle recently introduced Paddle Studios. And I just noticed this major investment in I'll call it media and content-led growth. So can you tell, we have 50% of our audience here are CFOs or VPs of finance. 25% are CEOs. If they're the marketing leaders coming to them and saying, we need to invest more in compelling media, another podcast, et cetera. How do you go about determining the long-term ROI? How did you work with your CEO and CFO to get Paddle Studios invested in?
23:18 - Andrew Davies
Yeah, so a few thoughts on that. The first one is many marketing leaders create this false dichotomy of brand versus demand. And as a marketing leader, I'm constantly operating on two timeframes, next quarter and sometime in the dim and distant future. And that's a really hard two timeframes, but it is a false dichotomy because I truly believe that if you don't invest in brand, you pay the price in higher customer acquisition cost for every quarter now and into the future. And so that's really one way I justify it. So that's the first thing to think about. The second thing to think about is that the tests of this, if we're thinking about ROI, if the I is very small, the R doesn't really matter. And so it's making sure the tests, the investments are small. So when we did the documentary about acquiring ProfitWell, that was probably the same cost as some people spend on an e-book book, way more creative, delivered way more reach and way more results, but we kept the I really small. The third thing, and I challenge marketing leaders on this all the time, and I think CFOs should too, because we shouldn't divorce brand and demand, we should see every interaction as something that does both. Brand, it changes thoughts, affinity, mindsets, and demand, it changes actions and encourages triggers to go and do something. So as a silly example, we sent a device into space a bunch of months ago, six months ago, and filmed a payment, the first SaaS payment in space. Now that feels like a really brandy thing, right? We had to send something up there, we had some 4K cameras videoing it, and we had made a funny mockumentary video out of it. But behind the scenes, we had our whole ABM process of reaching out to all of our target accounts with custom videos, taking their payment to space, taking their company to space, and asking them to engage in a discussion on how we can solve tax compliance, payments and subscriptions globally, and in the US. So I really like working on projects which have a brand and a demand element. It's not just about the funny little video at the top, it's not just about the episodic media, it locks down into something that delivers stake on the plate for the sales leader, and Patrick's a master at this. Many of the projects he's been working on, if you think about pricing page teardown and churning point, they are things, they're topics that are fundamentally related to the products he was building.
25:30 - Ray Rike
Okay, one last question about that. So you've got your podcasts, your documentaries, et cetera. I've talked to several CEOs and CFOs over the last three months who are like, well, we wanna be able to measure the clicks that come to the top of the funnel, right? Kind of using this traditional, I'm gonna gate them, I'm gonna do a lead form, I'm gonna show my CFO, how we generated a thousand qualified leads from that episode. Is that part of the equation, Andrew, or is that missing the mark?
26:00 - Andrew Davies
I just don't believe it. I don't buy in that way. I'm sure you don't buy in that way. To pretend our prospects buy in that way just doesn't work. So I think the first thing to do is to put some form of self-reported attribution within your lower funnel. So how did you hear about us? And we see people every day say, we heard about Protect the Hustle podcast, or I watched an episode of Pricing Page Teardown, or I saw your documentary or whatever it might be. So allow your customers to tell you. And then I'm a big believer that if you've got a proper detailed understanding of your ideal customer, then you should ungate everything possible so that you can engage them and give them as much value as possible. And what you'll see then is when they come inbound, they convert much faster and they convert with a higher basket size than they would otherwise.
26:43 - Ray Rike
Yeah, I tell you, we got a two for one with this session. We got monetizing PLG. Now we're talking about how you invest in the return on investment on media-led growth. Andrew Davies, Chief Marketing Officer at Paddle. Thank you so much for both Paddle being a platinum sponsor and for your session today. Really appreciate it.
27:03 - Andrew Davies
Thanks so much, Ray.