💎 Growth Gems #112 - Subscription Monetization and Benchmarks
Fellow growth practitioners!
I’ve dug up more gems 💎 during my last shift in the growth mine. This week, I’m bringing you back insights on:
Mined from the depths, I hope these hard-dug insights from Dan Layfield, Pablo Perez, and Thomas Petit bring you value.
Sylvain - Chief Insights Miner ⛏️
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I first met the AppTweak team at the App Promotion Summit London 2013…And I still use their tool!
They’ve since added a Search Ads Manager to their suite of products and have been offering ASO/ASA consulting services for several years already.
Now, they are sharing the strategies and step-by-step approach they used to scale SoundCloud's ASA campaigns. SoundCloud relies heavily on search and was struggling to scale its ASA campaigns, with spending barely hitting 56% of its daily budget.
The results they managed to bring to SoundCloud’s account are impressive, and the case study they’ve built out of it is actually insightful.
Below is a quick overview. Go download their ASA playbook for details on each step!
Struggling to scale ASA is pretty common, and this formula combines several different tactics and concepts that work well together.
It also illustrates how relying on Apple’s algorithm to find keyword ideas is not enough and how an AI model like Atlas AI, trained on app store data, can help.
Monetization: annual plans
Gems from Dan Layfield (Founder of Subscription Index) in Maximizing LTV with Annual Plans: Pricing, Tactics & Strategies
I’ve explored many growth mines to find insights about subscription app growth, and I spend a decent amount of time online…So, unearthing Dan’s content a few months ago was a great surprise.
Do I agree with everything he shares?
No, but he shares quality content that helps me think further about things few people discuss in detail.
In this webinar, I loved that he focused on a specific topic: optimizing for annual plans.
I might have just made you money. You’re welcome.
💎 For shorter lifecycle products, annual plans are the subscription equivalent of AOV in eCommerce. It’s one of those things you want as high as possible and fixes/mitigates the issues you might get in many other areas:
Enables higher acquisition costs
Lowers churns
Simplifies payment processing
Activates better
(01:08)
Why are annual plans important?
💎 Annual plans can extend you past your product's “natural” retention. Most B2C apps solve a problem that lasts under 12 months, so figure out how long a user should stay on your product (e.g., most edtech/fitness/dating products retain for 3-4 months).
(06:14)
💎 The best retaining products do not offer annual plans. Instead, they provide different packages/tiers to drive up the LTV by attracting different users. Examples: Netflix, Spotify, AT&T, and Insurances.
(07:38)
💎 Most products with under 12 months' retention heavily discount their annual plan. Eventually, everybody deploys this tactic of pricing annual plans to be 1 to 2 months more than usage retention.
(08:15)
Remember that customers who plan to stick around are likely to choose the yearly plan, so basing it on monthly subscription retention already comes with a bias. While interesting, it’s highly simplified:
💎 Knowing your LTV in the early stages of a company is hard because you’re constantly releasing new features, adding new channels, and changing prices, and it takes time for cohorts to mature. It’s a continually rolling problem. Annual plans solve that.
(09:55)
💎 The most common cause of death for subscription companies is overspending on acquisition. When you launch a new channel, do not assume that the LTV of those users will be similar.
(12:40)
This is why companies that rely heavily on ads sell only annual plans to circumvent this problem. Masterclass is one example, but there are many.
Of course, this doesn’t solve the renewal part; it’s a mitigation technique.
Pricing annual plans
💎 When you think about pricing yearly vs. monthly, consider how your payment processing works and factor in how much more discounting you can “afford” on the annual plan based on your payment failing rates.
(15:40)
The table below shows the impact of failure rates on monthly plans over time. If you look at the 11% column, you can see that over 12 months, 77% of users would churn due to payment failures! This decreases if you sell an annual plan from the get-go.
💎 Payment fail rates are a hidden cost of churn that most companies don’t monitor. Don’t accept them; try to solve this!
(16:45)
Subscriptions through the app stores will most likely have lower payment rates, but Dan mentioned that the best companies at handling this are the ones that focus only on payment failure rates.
💎 If you haven’t raised your annual prices in a while, a great tactic is to increase your monthly plan instead of decreasing the annual plan.
(19:55)
You should still run an a/b test, but it’s most likely to work!
💎 B2B and consumption-based companies have added more plans over time, but consumer apps tend to simplify and have fewer plans.
(21:10)
How to run A/B tests for pricing
💎 KPIs for your pricing test:
Primary KPI: revenue per allocated user
Secondary KPIs: revenue, month 1 churn, plan mix, conversion rates.
Guardrails: lots!
(23:10)
Dan chooses Revenue per allocated user as the primary KPI because that’s what allows him to be the most confident in what monetizes the most effectively.
💎 If you’re not familiar with testing, take a look at an a/b test calculator to make sure you know for how long you should run it for the level of detectable effect you want to see.
(24:03)
💎 A few effective logistical tips when a/b testing pricing:
Monitor metrics daily to ensure something isn’t breaking
Don’t announce this as a price raise yet; you don’t know if it will work
Have a pre-approved answer for customer service if users reach out
Try to limit the places where users can “find” other prices (FAQ articles, etc.)
(24:53)
If you change from a monthly plan to an annual one, remember that acquisition costs might increase because the conversion rate will decrease. You must include this in the test design (and let your UA team know!).
How to raise/change plans
💎 When you’ve defined the price raise:
Announce that it is happening in the future and why
Run a “last call” marketing email campaign to get a bump in revenue
Ship the new prices (be very cautious about raising prices on existing and dormant users)
Communicate widely in the company and update prices in all locations (customer service template responses, FAQ pages, ad copy, etc.)
(27:15)
Dan recommends not displaying the price on the FAQ page but instead linking from the FAQ page to the price page so that it’s always accurate.
💎 For users with legacy prices, let them know during cancellation that their price is no longer available. Some will stay with the product to keep the lower price. You can also have a “pause” feature to allow them to stay on.
(28:20)
💎 Make sure that whatever tool you use can track all the important metrics (conversion rate, retention, first-month revenue, MRR, user activation levels, etc.), like a server-side A/B testing tool. This will also ensure that the user experience is consistent.
(29:34)
💎 You can try to upgrade monthly users to a yearly plan, but it’s more effective to use every trick in the book (calling out best value or savings, highlighting, etc.) to convert users on the higher plan to begin with.
(33:15)
Subscription Growth: benchmarks, monetization, and retention
Gems from Pablo Pérez (Performance Marketing Director at Admiral) and Thomas Petit (Growth Consultant) in Let's Talk Apps - MasterClass by Admiral Media - Episode 1
Not all trips to the growth mine are equal: the days when I descend to explore Thomas’ content, I know I won’t come back up empty-handed.
Do I have an “expert crush” on Thomas?
Maybe.
Whatever.
Along with my boss, he shaped a lot of how I approach mobile growth.
In this webinar, he shows some benchmarks but, more importantly, shares crucial context and interesting perspectives.
💎 Diversifying your channel mix also means diluting your budget. You risk not investing enough in each channel to give them a fair shot (and reach conversion thresholds).
(09:40) by Pablo
Pablo recommends that you first “crack” the channels you’re currently running on (or prove that they’re not good for you) before you expand to new ones.
💎 If most users don't see the paywall, they can’t access your trial. Aim to have 80%+ of users see the paywall. However, this doesn’t mean y’ doesn’t mean you should put your paywall on the first screen!
(38:20) by Thomas
💎 You can’t just look at the benchmarks' averages; you need to understand to which platform and geo they might apply. Example: US/t1 iOS vs. WW/Android ranges.
(40:05)
💎 Benchmarks for renewals have the highest variance because rates vary depending on what you’re selling: monthly vs. yearly, low price vs. high price, etc.
But if you have around 40% renewals like Duolingo, it’s decent, and you might want to focus your efforts elsewhere.
(41:35)
💎 There are always more steps to a user subscribing than it looks like. Track each step in the funnel (e.g., track open checkout separately from start trial)
(46:10) by Thomas
💎 There are so many variables (segments, attributes, etc.) that comparing yourself to benchmarks is very hard. It’s much more important to improve what you had six months ago rather than measuring yourself to a benchmark. Just try to be better than yesterday.
(51:40) by Thomas
💎 There is a natural tension between monetization and retention and between retention and organic acquisition. The more you monetize, the less you retain not only the paying users but also the free users. You need to decide where you put yourself on the spectrum of freemium strategies.
(52:40) by Thomas
💎 Play the long game, and think holistically: don’t look at metrics in isolation. Think about the impact on your retention and the consequences on your brand when playing with monetization.
(55:25) by Thomas
💎 There is a cohort of users who will renew regardless of their usage retention, so split retention in two: Always specify if you’re talking about payment retention (renewal) or usage retention (actually using the app).
(59:50) by Thomas
💎 Funnel metrics are very different per acquisition channel (e.g., paid social vs. ad networks, sometimes even on the same channel based on optimization events and placement). Some of this is due to differences in measurement, but there are also different contexts. If you’re at scale, you might want to have a strategy where you both:
Go for a more expensive audience that converts more
Go for cheaper inventory that converts less so you can expand your audience
(1:07:10) by Thomas
Thomas shared additional data and recommendations in his talks at AGS and Organic Party. You can check out his slides here.
Before I leave, here is a quote from me (no shame!) on onboarding vs. paywall optimization, inspired by a post from Marcus:
“The paywall is just the ask of the sale.” - Me
See you next time.
Stay curious!
⛏️ Sylvain
🔗 Sources: