Monetization strategy

Question 1

What are the three key parts of the growth system?

Answer 1

Acquisition, retention, and monetization.

Question 2

Why is it important to understand how acquisition, retention, and monetization influence each other?

Answer 2

Because changing one part will affect the rest of the pieces in the system.

Question 3

Why do teams often hesitate to experiment with monetization?

Answer 3

Because it can feel difficult to improve monetization meaningfully and may lead to pushback or fear of customer revolt.

Question 4

How does an effective monetization model impact the overall growth strategy?

Answer 4

It can drive acquisition and retention strategies, while an ineffective model can derail them.

Question 5

What is monetization strategically about?

Answer 5

Strategically placing friction in acquisition or engagement loops.

Question 6

What can happen if the friction in monetization is too high or placed incorrectly?

Answer 6

It can slow down or stop growth loops altogether.

Question 7

How did ClassPass reduce friction in their viral acquisition loop?

Answer 7

By offering a free trial to invited members to reduce friction from their paid service model.

Question 8

What should product leaders understand to maximize value capture while minimizing disruption?

Answer 8

The levers they can change to create the right amount of friction in the right places within the retention and acquisition loops.

Question 9

What are the key questions to consider in monetization?

Answer 9

Who gets charged? What are they charged for? When are they charged? How much are they charged?

Question 10

What makes monetization difficult to execute for teams?

Answer 10

Sacred cows, fear of customer revolt, ripple effects on the growth engine, multiple stakeholders, and the need for proper infrastructure.

Question 11

What can be a competitive advantage when it comes to monetization?

Answer 11

Many competitors may not prioritize monetization efforts due to similar barriers and misconceptions.

Question 12

How impactful can improvements in monetization be according to ProfitWell’s study?

Answer 12

They can yield 2 to 4 times greater impact on the bottom line than improvements to acquisition and retention.

Question 13

Why is it important to start with foundational questions before diving into a monetization strategy?

Answer 13

To avoid designing monetization models that have large disconnects from users.

Question 14

What are the two components of the business hypothesis?

Answer 14

The problem being solved and the monetization strategy tied to that use case.

Question 15

What are the five key elements of a use case map?

Answer 15

The problem, the persona, why, alternative, and frequency.

Question 16

What are the four components of the monetization model?

Answer 16

Scale, what, amount, and when.

Question 17

What are the three different ways price can scale in a monetization model?

Answer 17

Feature differentiated, usage value metric, and outcome value metric.

Question 18

What is an example of a feature differentiated pricing model?

Answer 18

Figma’s pro and organizational plans.

Question 19

What is an example of a usage value metric pricing model?

Answer 19

Slack charging based on the number of active users.

Question 20

What is an example of an outcome value metric pricing model?

Answer 20

Thumbtack charging per lead.

Question 21

What do the “what” components of the monetization model define?

Answer 21

The features or attributes customers get within each use case.

Question 22

How does Figma’s pricing scale for their different plans?

Answer 22

Starter plan is free, professional tier charges $15 per editor, and the organization tier averages $8,000 per year per customer.

Question 23

How does Thumbtack charge professionals in their marketplace?

Answer 23

They charge per lead, with an average annual revenue per customer of $2,000.

Question 24

How does the amount charged affect friction in a monetization model?

Answer 24

Less charge leads to lower friction, and more charge leads to higher friction.

Question 25

When does friction in the growth loop become a challenge?

Answer 25

When value metrics are hard to measure, features are unfamiliar, charges are high, or timing of charges is frequent or unclear.

Question 26

Monetization Model Challenges

Answer 26

Monetization is both a challenge and an opportunity. We first define our business hypothesis based on use cases and then map out how our monetization model aligns with these use cases.

Question 27

Monetization Model Strategies

Answer 27

There are two types of strategies: changing underlying components of the existing model or introducing new use cases to monetize.

Question 28

Monetization Triad

Answer 28

The triad consists of consumer view, growth loops, and cost of revenue. Aligning the monetization model with these three generates maximum revenue.

Question 29

Consumer View Gap

Answer 29

The gap between consumer view and business hypothesis is critical. If consumers don’t see value, they won’t transact. This gap requires evaluating the levers of the monetization model from the audience’s perspective.

Question 30

Scale Gap

Answer 30

The price must scale with the perceived value by the customer. Tools like Max-Diff Survey help in understanding how value scales for customers.

Question 31

Max-Diff Survey

Answer 31

A survey method that asks users to choose the most and least valuable options, providing insights into what features or value metrics are prioritized by customers.

Question 32

“What” Gap

Answer 32

The gap between what a business charges for and what features/benefits customers value. If they differ, customers won’t be interested in transacting.

Question 33

Amount Gap

Answer 33

This gap arises when there is a mismatch between the price charged and the customer’s willingness to pay. Tools like Van Westendorp Survey help gauge this willingness.

Question 34

Van Westendorp Survey

Answer 34

A survey method with four questions to determine price points: too expensive, too cheap, not a bargain, and a great buy. It helps in understanding the range of acceptable prices.

Question 35

“When” Gap

Answer 35

This gap occurs when there’s a misalignment between when a business wants to charge and when a customer wants to pay, potentially causing friction in transactions.

Question 36

Understanding “When”

Answer 36

It involves assessing whether customers want to pay, prefer recurring payments, and determining the correct recurrence term for payments based on usage and adoption frequency.

Question 37

Bridging Monetization Gaps

Answer 37

By changing the components of the monetization model, businesses can bridge the gaps and align their hypothesis with the monetization triad.

Question 38

How can we address gaps between our business view of monetization and the consumer view?

Answer 38

By understanding the consumer view of monetization to address key questions regarding scale, what, amount, and timing, and to identify gaps between how we view monetization as a business and how consumers view it.

Question 39

What are the two types of model strategies to improve monetization?

Answer 39

1. Changing an existing use case by modifying the monetization model (e.g., adjusting prices or adding features).
2. Adding a new use case that requires creating every element of the monetization model (e.g., introducing a new tier or add-on).

Question 40

What does changing the monetization model on an existing use case involve?

Answer 40

Each piece of the monetization model presents an opportunity for improvement, such as adjusting value metrics, packaging, pricing, or the timing of charges.

Question 41

What is a value metric strategy?

Answer 41

A value metric strategy involves changing the value metric of the model on an existing use case. For example, Mixpanel switched from charging for analytics events to charging for monthly tracked users.

Question 42

How did Dropbox use a packaging strategy to improve monetization?

Answer 42

Dropbox changed what they offered for individual users by increasing storage limits from 1 TB to 2 TB and introducing new features like Smart Sync.

Question 43

What is a pricing strategy in monetization?

Answer 43

A pricing strategy involves changing the price itself, either as a standalone adjustment or in conjunction with changes to other elements of the monetization model, such as features or value metrics.

Question 44

When might we change the price of a product?

Answer 44

Prices may be adjusted based on a better understanding of consumers’ willingness to pay over time, or in response to changes in other elements of the model, like features or value metrics.

Question 45

How did Eventbrite adjust their pricing strategy?

Answer 45

Eventbrite changed their price for the essential use case from 1% of the ticket price and 99 cents per ticket to 2% of the ticket price and 79 cents per ticket, without updating features or other elements of the model.

Question 46

What is a timing strategy in monetization?

Answer 46

A timing strategy involves changing when customers are charged. This is less common and can be difficult to implement, but examples include switching from transactional to subscription models or changing from monthly to annual subscriptions.

Question 47

What is the primary reason to change an element of the monetization model?

Answer 47

The most common reason is when the consumer view of an element doesn’t align with the current model, which may be identified through analysis. Other reasons include when the current model doesn’t support desired growth loops or when the cost of revenue doesn’t align with the revenue generated.

Question 48

What is a vertical strategy for adding a new use case?

Answer 48

A vertical strategy involves adding a new use case that customers can choose instead of an existing one. It adds a new option to the pricing page, such as Figma’s organization plan, which customers choose between, but can’t use multiple options simultaneously.

Question 49

What is a horizontal strategy for adding a new use case?

Answer 49

A horizontal strategy involves adding a new use case that customers can adopt in addition to an existing one. For example, Peerspace allows customers to rent a space and then add on services like catering, which can only be purchased in addition to the core use case of renting a space.

Question 50

When should we introduce a new use case?

Answer 50

New use cases should be introduced when segments of customers have different needs or willingness to pay, when different growth loops are needed, when the cost of serving a segment is higher than the revenue generated, or when expanding to a completely new target audience.

Question 51

How can segmentation inform the introduction of a new use case?

Answer 51

Segmentation can reveal different customer needs or willingness to pay that aren’t addressed by current use cases, leading to the introduction of new use cases that better align with these segments and capture more value.

Question 52

What is an example of a company introducing a new use case based on segmentation?

Answer 52

SurveyMonkey introduced a new use case for students after realizing that this segment had a lower willingness to pay for similar features compared to their core business users, leading to the creation of a use case specifically targeting students.

Question 53

What are optimization strategies?

Answer 53

Optimization strategies focus on improving conversion without necessarily changing one of the elements of the monetization model.

Question 54

What are the two key questions to address with optimization strategies?

Answer 54

The two key questions are: 1) Who are we targeting with our optimization strategies? 2) What will drive revenue growth from these customers?

Question 55

Why is it important to understand the state of users within a product for optimization strategies?

Answer 55

Understanding the state of users is crucial because their mindset and engagement level affect how optimization strategies are applied. Tailoring strategies based on whether users are potential, healthy, at-risk, or churned helps in driving effective revenue growth.

Question 56

What are the four key customer states relevant for monetization optimization strategies?

Answer 56

The four key customer states are: 1) Potential Customers – individuals who haven’t transacted yet but are good candidates. 2) Existing Healthy Customers – paying customers with healthy engagement. 3) At-Risk Customers – previously healthy customers now at risk of churning. 4) Churned Customers – former customers who have stopped transacting.

Question 57

How can we drive revenue growth for potential customers?

Answer 57

To drive revenue growth for potential customers, we aim to convert them into existing healthy customers. This involves encouraging regular use or moving them from a free to a paid plan.

Question 58

What strategies can be used to expand revenue from existing healthy customers?

Answer 58

Strategies include increasing their average revenue per customer (ARPC), encouraging upgrades to higher plans, or adding new use cases. For example, upselling to premium plans or offering additional features.

Question 59

How can we retain at-risk customers and prevent them from churning?

Answer 59

Retaining at-risk customers involves re-engaging them by identifying signs of disengagement and addressing them through incentives or personalized communication to restore interest and engagement.

Question 60

What is the goal when dealing with churned customers, and how can it be achieved?

Answer 60

The goal with churned customers is to bring them back to a healthy state. This can be achieved by re-establishing their habit of using the product through targeted promotions, highlighting new features, or providing personalized offers.