The article below is taken from SaaS Mag Issue 1. To order your free copy, click here.
What would you do with the largest database of SaaS user data at your fingertips? Patrick Campbell, SaaS founder and strategic-value connoisseur, spotted an issue with the way SaaS businesses were pricing their product: they were guessing. Campbell founded ProfitWell, a subscription and financial metrics management company, to help SaaS businesses retain visibility into the data relevant to their own growth. The insights provided by ProfitWell’s database led to the creation of Price Intelligently, a pricing audit and consulting platform to help SaaS businesses improve their pricing structure. ProfitWell came from Campbell’s own desire to find and leverage opportunities for increased growth and the search for an alternative to using brute force to scale a SaaS business —which he says there is currently too much of. Campbell is on a mission to find a unified formula for SaaS growth. But for someone whose business is centered around building the largest database of SaaS metrics, his answer to key KPIs is rather surprising.
When I asked him what KPIs SaaS startups should absolutely focus on in those early days, his answer was not numbers at all.
“There are real numbers, don’t get me wrong, but I think that the biggest thing is focusing on the quickest path to learning. I think what ends up happening with a lot of founders is that we get fascinated by the creation of things because we have the ability to work hard and put together a landing page or build a feature, or put together a campaign—when in reality what’s going to allow you to build those things in the right, quicker manner is going to come from learning. So I think one thing that I struggled with, because I was also infatuated with that creation, was making sure that I was learning as quickly as possible about my customer. I don’t know how you quantify that. Maybe it’s number of customer development calls you’re doing or something of the like, but I think at all stages, that’s the number one “KPI” (if you will) to focus on. To give you some real numbers, I think that in the early days, it is all about retention- based growth—the week-over-week or the month-over-month. That means growing your business from a new perspective but making sure your retention’s in order. If your retention is bad, you don’t focus on the acquisition until your retention is fixed. It’s a little bit of the chicken or the egg problem because you need new customers to know if your retention works, but I think there are a lot of companies that end up focusing just on acquisition in the early days, and they move the product and they get their hundred customers and they’re excited, but all of their hundred customers are unhappy. And as you continue to mature, I think then it becomes about just hard-core month-over-month, week-over-week or quarter-over-quarter growth. That’s what I would focus on—and that comes from obvious acquisition but also your monetization and your retention.”
Given his insight into such comprehensive quantities of SaaS data, I asked Campbell to share whether there was a number one pricing mistake B2B SaaS companies make that he’s observed, either in working with companies or tracking it.
“What’s cool is that we’ve collected so much data that we understand exactly the answer to your question. The number one thing is actually people just not spending time on it. I know that doesn’t feel profound, but most of the time, pricing isn’t extremely complicated. It’s not an insurmountable problem, but it does require time and having some sort of a framework and a process to approach that particular problem of pricing. Normally when businesses just spend time on pricing to learn what’s going on with their customers, and what their customers think about, that makes it infinitely easier to solve the problem. There are some tactical things that I can advise you do as well. For instance, a lot of people discount too heavily growth from both a retention perspective and also just a straight-up user growth perspective. People also aren’t using their value metrics enough—this means making sure your product is priced based on users, priced based on a hundred visits, etc. Normally companies that are using value metrics are growing at some crazy percentage— double or so—faster than the companies that are not using value metrics.”
That, of course, makes sense, so I had to ask him how SaaS companies know when it’s time to adjust pricing rather than fix another issue or looking for the issue in another area?
“Because pricing is an ongoing process, there’s always optimization to be had. But when you think about growth, you think about how a company makes and continues to make money, right? It’s a function of the number of customers they acquire in the most recent given time period, the price those customers pay, and the time that those customers stick around—meaning the retention of those particular users. And I think what happens is—and we have the data on this—the majority of time that a company will spend is on acquisition. They don’t spend that much time on, pricing, retention, and the thing is that those are huge levers within growth. So it’s not necessarily about when, it’s about how much time should you be spending on this on an ongoing basis. And so in the early days, you might not spend that much time because you’re just figuring out who that customer even is. But as you get into the mid-to-late stage, that’s when you should have at least 20% of one product manager or someone on your team dedicated to retention, researching pricing and issues around monetization.”
With all the talk about the importance of customer feedback Campbell has made sure that his customers have several ways of getting in touch with him. I was curious about how ProfitWell’s customer relations strategy came about and whether there was a philosophy around it.
“Customer research sits in marketing and product. And then customer-centricity is something that’s more permeated throughout the company. It’s at different levels, so in finance, it’s harder to create a direct path to customer-centricity. But I think it really comes down to the culture. And it really comes down to the philosophy of a company.”
Given the amount of data ProfitWell has access to, I checked with Campbell to see if he noticed any emerging trends in the way SaaS businesses are setting pricing. Turned out, there is.
“Definitely. I think more and more companies are (thankfully) using value metrics as I mentioned before. There are more and more companies that are taking care of pricing, which is good. And dedicating some time to it. I think some other trends that are a little bit more negative is that there’s a lot of companies that are essentially heading into harder times. And it’s just because there’s a lot more competition. Competition has grown exponentially in the past number of years. Customer acquisition cost is up pretty substantially. And then willingness to pay for products is actually going down because most of us are running into situations where we’re getting used to the magic of software. And because of that magic, we’re seeing people getting a little jaded around different products and things like that.
Finally, I wanted to know the one step B2B SaaS companies could take this month to audit their pricing strategy.
“I think the one thing that I would do if I was just starting out and I hadn’t done a lot of pricing is just do everything I could to quantify my buyer personas. This means basically answering the question, “who are we selling to? Who is the person? What’s the profile of that particular type of user that we’re going to sell our product to?” A lot of people build a cool product and they’re trying to find that market, and the market is what is important to figure out first rather than second.