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What’s the first thing you should do to focus more on expansion growth?

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Patticus's avatar
a year ago

"First thing" is the tricky piece of this question, because in reality the first thing you should do is really evaluate where your value resides for different segments and customer profiles you're selling into. You can use JTBD, personas, pricing profiles, or any other framework, but you need something to understand where value resides.

From there, there's a few tactical pieces that have different levels of impact:

VALUE METRICS
Make sure you're using some sort of value metric - charging per user, per 100 visits, per $100 spent, etc. This'll take you back to econ class where your professor told you about the demand curve and basically that optimizing revenue has to do with having multiple price points.

Value metrics make sure you're not charging Disney and a johnny or jane startup the same amount for different usages and it bakes expansion right into how you make money. As the user uses/consumes more s/he then ends up paying you more. Lots of pieces to be careful about here when you actually do this, but there isn't a single other growth lever that has the power of value metrics.

ADD-ONS
One of the most underutilized monetization levers in the world of subscriptions right now is the lack of add-ons. We just kind of assume we should put all the features inside our tiers, which stems from the first 20 years of SaaS not really having a lot of features, which therein caused us to bundle everything in the hopes of providing enough value. The problem is that most of our features aren't utilized or valued by everyone.

A good heuristic for a lot of companies is that if you have a feature that's used by less than 40% of a particular group (your entire base if you don't differentiate features or the people in a tier), you probably have a good candidate for an add-on that can not only be sold to folks in that group, but the wider customer or user base.

We've seen that customers with at least one add-on typically have LTVs that are 18-54% higher than those with no add-ons, because they're typically paying more for the add-on (increase in ARPU) and they're more bought in (increase in retention).

The reason I started with - you need to understand your value is that knowing where your value comes from allows you to even start to do either of the above.

4 points
sarah's avatar
@sarah (replying to @Patticus )
a year ago

Netlify does a good job of laying out both value metrics and add-ons in an easily digestible way

2 points
Patticus's avatar
@Patticus (replying to @sarah )
a year ago

Yea - agreed. Although there's a lot on that pricing page, so I'd assume people aren't necessarily converting aggressively from that page, but are rather converting more on add-ons as they use the product and come up against upgrade paths. Good find. Thanks for sharing.

2 points
maguay's avatar
@maguay (replying to @Patticus )
a year ago

With add-ons, do you advise tying them to plan tiers too, e.g. where only people on your Professional or higher plan can buy add-ons (so the ability to buy add-ons is a feature to a degree)? Or use add-ons as a way to make features more broadly available at every tier?

1 point
Patticus's avatar
@Patticus (replying to @maguay )
a year ago

Depends on the add-on. Typically if you tie it to only one tier you get into the world of being too pushy with your pricing (salesforce model), which you can't really do unless your product has few competitors or is the king/queen of the market.

2 points
maguay's avatar
@maguay (replying to @Patticus )
a year ago

Interesting, great point—thanks!

1 point

This question is part of an AMA with Patrick Campbell.

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