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Pricing for Bottom Line Growth

In this episode of the ProfitWell Report, Patrick addresses the significant impact of pricing strategies on a company's bottom line by analyzing data from nearly five thousand subscription companies, emphasizing that regular pricing updates can substantially increase average revenue per user (ARPU).

This episode might reference ProfitWell and ProfitWell Recur, which following the acquisition by Paddle is now Paddle Studios. Some information may be out of date.

Originally published: February 12th, 2018

Main Takeaways:

  • Updating pricing quarterly can result in 2-4X higher ARPU. 
  • Monetization has nearly 8X the impact of acquisition. 
  • Companies spend less than 10 hours per year on pricing. 
  • Companies using a value metric grow 2X faster. 
  • Localizing pricing results in 25-50% higher growth rates. 

Pricing remains one of the most important growth levers in business today, yet we still fail to spend the time and effort required to leverage monetization for growth.

On this episode of the ProfitWell Report, we set out to answer a question from Jeanne Hopkins, CMO at Ipswitch: How should you price to have the biggest impact on your bottom line?

Pricing is one of the most important growth levers in your business, so to answer Jeanne's questions, we're going to dig into the data from nearly five thousand companies and over one million transactions.

But first, if you like this kind of content and want to learn more, subscribe to get in the know when we release new episodes.

Pricing is a process of incremental gains

When comparing companies who regularly update their prices with those who don't, those companies updating their pricing at least once every 6 months are seeing nearly double the ARPU gain than those who upgrade their pricing only once per year or longer.

Your price is the exchange rate on the value you provide, so as your product and company improves, your price should be tracking alongside that improvement.

More Price Changes Correlate to Higher ARPU

Impact of monetization on your bottom line

Similarly, when isolating and normalizing the microeconomic impact of improving your main growth levers, you'll find that Monetization has nearly 8x the impact of improving something like your acquisition

Acquisition is the Weakest Growth Lever

Amount of time companies spend on pricing

Here's the rub though. We don't historically care about pricing. The average amount of time a company spends per year on pricing is less than 10 hours. There's a multitude of reasons why this is the case - pressures to grow at all cost, significant knowledge gaps on how to price, and countless others. 

Pricing is a considerably low amount of our time

Yet, there are some easy things you can focus on to ease yourself into high growth price optimization based on the data.

Unlocking growth by using a value metric

First, make sure you're using a value metric. A value metric is what you charge for - per seat, per 100 visits, per gigabyte, etc. Data indicates that those companies utilizing a value metric are growing at nearly double the rate of those who are merely feature differentiated, and the divide is widening. Plus, this bakes expansion revenue into your pricing model to make retention easier, as well.

Comparing Growth by Pricing Model

Leveraging price localization for growth

Further, another quick win is to utilize price localization and internationalization, which means both updating your pricing cosmetically to use the currency symbol of the buyer, as well as updating the relative price of the product for the market density. This is a relatively easy way to quickly gain 25-50% higher growth rates.

Localization correlates with more growth

We could go on for days - and we did in our 150 page book we wrote on pricing.

That's all for this week. Want to learn more? Check out our recent episode: 10,000 Blogs Show Content Marketing CAC is on the Rise and subscribe to the show to get new episodes.

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You've got the questions,

and we have the data.

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Each week,

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we dive deep on benchmarks

of the subscription economy that

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you just can't

get anywhere else.

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This is the profit well report.

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Hey, Patrick. I had

a quick question.

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What do you think about pricing when

you're trying to impact the bottom line?

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What's the best way to take

a look at great question.

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As some of you know,

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we can literally talk for

hours and probably days about this.

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Pricing is one of the most

important growth levers in your

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business. To answer

Jean's questions,

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we're going to dig into

the data from nearly five thousand

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different subscription

companies in over one million

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different trans patients.

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Pricing is a process

of incremental gains.

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So when we compare

companies who regularly update their

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prices, those who don't,

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those companies updating their pricing

at least once every six

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months are seeing nearly double

the ARPU gain than those who

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upgrade their pricing only

once per year or longer.

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Your price is the exchange rate

on the value that you provide.

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So as your product

and company improves,

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your price should be

tracking alongside that improvement.

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Similarly, when isolating

and normalizing the microeconomic

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of improving your

main growth levers,

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you'll find that monetization

has nearly eight times the

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impact of improving something

like your acquisition and it's

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only accelerating as time goes

on. Here's the rub though. We

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don't historically care as

a community about pricing.

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The average amount of time

a company spends per year on

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pricing is less than

ten hours in total.

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There's a lot of reasons

for this including things like

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pressures to grow at all costs,

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significant knowledge gaps

on how to price and just a

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multitude of others. But some easy

thing you can focus on to

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ease yourself into high growth

price optimization are based on

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the following data. First,

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make sure you're

using a value metric.

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Value metric is

what you charge for.

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It could be per seat, per

hundred visits, per gigabyte.

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And the data indicates

that those companies utilizing a

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value metric are growing at

nearly double the rate as those

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who are merely feature

differentiated,

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and the divide is widening

over time. Plus, this base expansion

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revenue right into your revenue

model to help with your overall

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retention as well. Further,

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another really quick win

is to utilize price localization,

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which means both updating your

price cosmetically to use the

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currency symbol of the buyer,

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as well as updating the

relative price of the product

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for the market density that

you're facing in that region.

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This is a relatively easy way

to quick gain twenty five to

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fifty percent higher growth

rates depending on your overall

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acquisition strategy.

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We could literally go on

for days about this data.

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And we actually did in our

hundred and fifty page book we

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wrote on pricing that's

in the show notes,

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but that's all for now.

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If you want us to dig further into

this data or any other data out there,

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ship me an email or video to

p c at profitable dot com.

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And let's also be sure to

thank Jean for sparking this research

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by clicking the tweet in the

link below to give her a shout

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out. We'll have more

data for you next week.

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This episode of the profitable

report is brought to you by

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Wistia. Better video hosting

that's built for business,

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wistia dot com.