💎 Growth Gems #125 - Monetization and Onboarding
Gems from Matt Long (Sr. Director of Product at Duolingo) in Pricing and packaging at Duolingo with Matt Long from a Maven Lightning lesson.
Hi, fellow growth practitioner!
This week, I’m bringing you insights on Monetization and Onboarding.
I hope these gems will be valuable!
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When you work in subscription apps, it’s hard to avoid the numerous references to Duolingo as one of the ultimate examples to follow.
Often, though, learning that a company like Duolingo runs 200 simultaneous experiments is not very valuable and hard to relate to (and YOU probably shouldn’t “A/B test everything”).
However, this discussion was different because it remained very practical. It also hit home because I’ve been involved with adding a higher tier in the past and learned some lessons the hard way.
A word of caution: if you’re early stage, be vary careful of the distraction pricing and monetization models bring.
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stage: growth / scaled
💎 When introducing a new tier, look at the percentage of users who choose the new tier versus the old tier. If you have a very high price for it, your actual conversions may go up, but your free trial conversion will go down (Duolingo experienced this with Duolingo Max).
(08:54)
stage: growth / scaled
💎 To make adding a higher tier worth it, you want anywhere between 10-30% of revenue coming from it. However, focus on the net incremental revenue (net of cannibalization of the existing “hero” tier) and test different price points to maximize ARPU.
(10:20)
The 10-30% guidance might be different for apps relying on AI/LLMs since costs increase with usage.
For other types of apps, I would be extremely cautious about launching a new tier without clear signal that > 10% of your paying users could choose it. To figure this out, use the below before building:
Fake-door tests
Other qualitative methods (see below)
stage: early / growth / scaled
💎 To figure out willingness to pay, you can do quantitative user research to do a willingness to pay assessment with surveys like MaxDiff, Conjoint Analysis, etc. This uncovers willingness to pay, but it is just an input because people may behave differently in real life, so you also need to run an actual experiment.
Super Duolingo -> go faster with fewer interruptions
Duolingo Max -> advanced learning that enables real-world practice. For people who are really serious about learning as quickly as possible and want speaking practice in a low-stress environment.
(12:10)
There are two things that I like about Duolingo’s implementation of a new tier:
They gather data and use it to upgrade to the higher tier (Max) based on it
They are very intentional with colors for each of their tier (see below for Max and here for Super), decreasing confusion and increasing upgrade potential
stage: growth / scaled
💎 There is a spectrum of sophistication when it comes to international pricing.
Less sophisticated (or not worth it): if getting the exact right price is worth a ton of effort, look at brands you admire in the space (e.g., Netflix, Spotify)
To validate further, you can talk to users and run experiments
You can also look at purchasing power parity and consider that to regionalize pricing per subscription
The most sophisticated is to have economists build out demand curves to identify the revenue-maximizing and profit-maximizing prices. You need to be at a big scale for this to even pay off (Duolingo doesn’t do this)
(15:18)
Jacob from retention.blog also shared his method for international pricing here, and mine is pretty similar: create a price index using a “basket of apps” (instead of copying Netflix).
Matt also mentioned the teams Involved in pricing x packaging decisions at Duolingo: Product, Finance, and Data science (i.e., not the Growth team - which focuses on engagement). At Twitch: Biz ops and Economists. In both cases, leadership provides approval.
stage: early / growth
💎 There are resources like Pageflows.com (mobile apps) or DoWhatWorks.io (web) that can help you understand how products are presented and priced.
(21:58)
For mobile apps, my personal favorite has been screendesigns because of the search capabilities, video recordings and revenue filters. I also worked with the DoWhatWorks team and they were great!
stage: early / growth / scaled
💎 Adding good friction to the purchase flow via more screens helps address user concerns systematically, like cancellations or trial forgetfulness. However, for users who have seen an in-house ad, it’s more effective to show a shorter flow.
(23:20)
I mentioned in-house ads and shared the Duolingo Max example here 👇
stage: early / growth / scaled
💎 If you want to maximize how much your existing users are paying, you have a few levers:
Increase their retention and LTV by moving them from monthly to annual or from Individual to Family
Introduce a higher-tier (e.g., Duolingo Max)
Introduce an adjacent product
Augment the subscription offering and its ceiling by having one-time purchases that are more natural to be purchased and used more than once a month. Example at Duolingo: gems, play some mini-games, dress up for the leaderboard, etc.
(30:30)
Be very mindful of the growth stage you’re in and your resources before you decide to get too sophisticated.
stage: growth / scaled
💎 Some people are just against subscription, and having a one-time purchase product gets them into the purchase funnel: you now have their payment info, and it decreases the friction to upsell/cross-sell them to another product. Duolingo gets a "pretty sizeable" % of first-time payers via in-app purchases.
(32:14)
stage: early / growth / scaled
💎 Optimize the price you’re showing users based on what they’re familiar with:
In the EU, that’s all-in price
In the US, where taxes are added at checkout, it’s price before taxes added
(37:30)
Said differently: in the US, customers are used to see a higher price at checkout (with added sales taxes).
stage: early / growth / scaled
💎 Small changes in the purchase flow like animating images the right way can have a pretty significant impact on conversions.
(40:17)
stage: early / growth / scaled
💎 Leverage pre-selection. If you know what the user intent is based on where they came in to the purchase flow: make it easy on them to preselect what they want, and if they're agnostic then select what’s best for the business.
(40:55)
stage: early / growth / scaled
💎 There is a tradeoff between how fast you move with price a/b testing, how rigorous you can be, and how much risk (of backlash from users) you’re willing to accept. Think about how interconnected your customers are, how likely they are to talk to each other, and if they are talking to each other how likely this might turn into a problem. If people complain about seeing a higher price, have customer support just take care of them.
(41:55)
stage: early / growth / scaled
💎 If needed, to de-risk price changes, pick a representative/analogous country (e.g., Australia for Canada/US) to experiment on pricing. At Twitch - they needed a different approach, because users did talk to each other.
(42:51)
See you next time.
Stay curious!
— Sylvain
Chief Insights Miner at Growth Gems ⛏️
(Fractional) Head of Growth at Reading.com
Growth Consultant/Advisor for high-potential subscription apps (hit reply if you want to chat - bonus if you’re in Education, Meditation & Cooking categories)
🔗 Source:
Thanks for the shout-out, Sylvain! I also put tons of raw pricing data into this post: https://www.retention.blog/p/pricing-and-lifecycle-mktg
(scroll down to get all the price points for the top 25 grossing Health and Fitness and Educations apps for 15 countries)