Building a Framework for B2B Monetization in the New Economy
While COVID-19 began as a global health crisis, it quickly grew into an international economic phenomenon whose impact on the market is yet to be determined. Will the impact be paradigm-shifting? A blip on the radar? Or somewhere in between?
And — how can B2B SaaS organizations rethink their monetization practices today in a way that will ensure viability today and in the future?
To answer these questions, Mainsail Partners welcomed Patrick Campbell, CEO of ProfitWell, for a webinar on “Monetization in the New Economy.” Based in Boston, ProfitWell is a software platform for helping subscription companies with their monetization and retention strategies as well as their financial metrics.
Here are Mainsail’s primary take-aways from the webinar:
What the data tells us thus far
ProfitWell’s Subscription Market Index has analyzed over 15,000 subscription companies to learn how revenue growth and retention trends have shifted in this new economy from January to April 2020 when the webinar took place. According to Campbell, 20% of the subscription market uses one or more of Profitwell’s products, so their data is relatively representative.
The results showed that as of late April 2020, growth had flattened for the B2B SaaS sector, driven by increasing churn and decreased top-line growth. The market experienced its biggest hit in late March/early April and is now beginning to bounce back.
Compared to direct to consumer companies, the B2B side of the market did not experience as much loss due to the annual nature of most renewals. Campbell believes there may still be a second-order cascading effect to this side of the market, but the hardest hit is most likely behind us.
At this point, Campbell asserts that, “whoever can keep customers can win.” He advised that the primary goal for B2B companies should be to exit this period with as many customers as possible, even if that means getting creative with your monetization practices.
Said Campbell, “If you are challenging incumbents in the market and everyone is rethinking their companies, how can you take advantage of the shift in thinking and come out ahead?”
Modify your pricing structure more frequently
The average software company modifies its pricing structure once every three years. But ProfitWell’s research shows that companies that adjust their pricing more frequently are ultimately more successful at driving up Annual Contract Value (ACV) and growth rate.
Campbell suggests revisiting pricing models as frequently as once every three months and adjusting various pricing levers to optimize ARPU. Beyond a simple price point, he recommends looking at pricing plans, packages, adds-ons and discounts.
“Ultimately, Average Revenue per User (ARPU) is the game you are trying to win,” says Campbell. “And companies who change their pricing every quarter drive up their ARPU.” It’s important to note that this does not necessarily mean changing the dollar value that a customer pays you, but testing different packaging and other elements such as which tier of the product includes a given feature, or what existing functionality could you sell as a stand-alone add-on.
To make this succeed in a practical sense, Campbell recommends introducing a pricing committee comprised of team members from sales, marketing, finance and product. That team should have clear deadlines and decision-makers and be committed to introducing changes every three months.
Forget about acquisition for the time being
According to ProfitWell’s data, for years, the SaaS playbook has been centered around acquisition with 57% of sales and marketing budgets going toward acquiring new customers. In this market, says Campbell, “The average number of competitors has increased, Willingness to Pay (WTP) is down, Net Promoter Score (NPS) is down and Customer Acquisition Cost (CAC) is up. Acquisition is now table stakes.”
Given the new normal, Campbell recommends pivoting your focus to invest in monetization and retention instead of acquisition. ProfitWell’s research shows that marginal improvements in monetization and retention are four to six times more effective at increasing revenue compared to the same relative improvements in acquisition.
Learn how to play offense in the context of COVID
Campbell wrapped up by offering a slew of tactical advice for helping B2B SaaS companies weather these changes reinforcing, again, that the companies that retain customers will be the companies that win.
Top offensive pricing takeaways included:
- Adjust your value proposition to focus on saving money as opposed to making money. Right now, clients are being cost-conservative and looking for efficiency gains—a trend that will likely last for a while.
- Reassess your product roadmap to focus on features that have both a high relative preference and correlate with a willingness to pay. The market is doubling down on “need to have” features.
- In that feature analysis, identify functions that can be sold as “add-ons” and pull them out of your bundled product. Not all customers that need all features and add-ons are great cross-sell opportunities. Plus—ProfitWell’s data tells us that the average % lift in LTV from customers with just one add-on is 18-48%.
- If you’re not already applying value metric-based pricing, consider switching. It will help you bounce back faster.
- Double down on your freemium plan and/or consider turning your trial offering into a freemium product. Free products require lower activation energy to acquire new customers, which can help de-risk your future by building a bigger pool of users you can monetize later.
- If you have a balance sheet that is strong enough to bear the cost, consider buying out competitor contracts.
By focusing on offensive pricing strategies like these, Campbell asserts that your company will be able to economically weather this storm and even come out ahead when the economy gets back to normal.
In all cases, he reminds us that customer retention is king.
You can view the full recording below:
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