Most of us automatically assume that monetization or profitability is at odds with growth. A lot of today's startups and scale-ups are focusing on rapid user growth and try to worry about designing a profitable business model later on top of their user base.
The creators of the Reforge Monetization + Pricing course, argue that instead "it's about how monetization feeds growth as part of a holistic system". As part of their research they came to the following conclusions:
- Acquisition costs continue to increase due to limited channels, increased competition, and disappearing data tailwinds.
- This means that Monetization will become a more important lever in our Growth Model. There is a false belief that Monetization comes at the expense of growth, this is incorrect.
- Despite this, Monetization doesn't get put on equal footing as Acquisition and Retention due to a number of internal company issues that create friction.
- These factors create a growth opportunity for teams that are willing to embrace the inherent challenges and put Monetization on an equal footing with Acquisition and Retention.
When was the last time the price changed for your product? Or a component of your monetization model? Or even an element on your pricing page? Compare that to how long ago and how frequently you changed something with acquisition or retention, and my guess is you'll find a stark difference.
We rarely touch the monetization aspects of our business, because:
- False-positive feedback loop occur: When you guess a price early on at the launch of the product and then that product grows, we fall into the trap that that means our pricing decisions were justified as well. So why change it?
- We fear the rage of our customers. The writers of the article argue: "People react more negatively to the size of the relative change and how you communicate that change vs the frequency of change". So the longer you wait, the bigger the hole you dig for yourself. Because eventually you need to change, and if you have never changed your monetization before, you got that customer rage you were so afraid of.
- Too many people are involved. Sales, customer success, marketing, product, everyone wants a seat at the table when it's about monetization.
Monetization does not equal price changes.
Your Monetization levers
Monetization is more than changing your pricing. Instead, you can think of the following levers:
- How much you charge (price)
- What you charge for
- How often you charge
- How your price scales
- How you combine and package all of the above
- How you communicate all of the above
"Not only is price given too much attention, it is the one lever that is almost purely zero sum - either the business or the customer keeps an incremental dollar in their pocket. But other levers can be positive sum - simply making it easier to transact or easier to understand what you're paying for can remove a lot of friction from the buying experience." - Dan Hockenmaier
Over to you
What changes to your monetization model could you make this year to fuel your growth?