Transcript for:
Insights on Subscription Value Creation

hello I'm your host David Bernard and with me today Revenue cat CEO Jacob iding Our Guest today is Phil Carter an independent growth adviser and angel investor helping consumer subscription companies Phil spent the last decade as a VC and product leader at companies like Fair Quizlet and ibata on the podcast we talk with Phil about his subscription value Loop framework what it means to create robust value for customers and why AB testing shouldn't be your first step in price optimization Phil thanks so much for joining us on the podcast today it's good to be here thanks for having me and Jacob always nice to chat with you I'm extremely excited to be here with you today David So Phil you have a ton of experience working with subscription apps you've been doing consulting for a while now working with a bunch of great apps as we dive into some of your Frameworks and other things I know a lot of those were developed in your time in Quizlet so let's kick it off talking about about Quizlet and how you ended up working there yeah sure so I found my way to Quizlet through a bit of a circuitous route I started my career out of college as a consultant as many of us do but then pretty quickly discovered Tech in the Bay Area and was the first employee at a car sharing app called Wheels it was a pretty cool product we had the first incar device where you could Sound the Horn lock and unlock the vehicle find it on your iPhone and Android if you were under reservation and so that was a cool product and then ended up going to business school spent a few years in Venture Capital doing early stage consumer mobile investing and so that's how I found my way to Consumer Tech specifically which you know it goes in es and flows there are a lot of people out there who spend their whole careers in B2B but I was attracted to technology for the impact it can have on everyday people's lives and so spent a few years in venture capital and then I'd met my wife Ashley in business school and we wanted to be closer to family in The Great Outdoors so we packed all of our belongings up into our Subaru in 2015 drove across the country to Colorado and I've been here ever since as a product and growth leader for a few companies out here cool so then what attracted you to working at Quizlet I know there were some like specific aspects of the product that seemed to gel with you so why Quizlet yeah so the funny story about Quizlet is I had actually never heard of the company at the time and I was briefly embarrassed about that until I found out that a lot of other people hadn't heard of it either it was like one of these really well-kept Secrets where high school and college students in the US have been using Quizlet for over a decade I wasn't quite in the age demographic to where it was an instrumental tool for me personally so I had a recruiter reach out in 2018 and mentioned this company Quizlet that was starting a Denver office and at the time I'd been working at ibata I'd been leading core product team there but I found that I really loved growth and specifically product driven growth things like onboarding SEO conversion optimization conversion and so when I heard about Quizlet it just felt like the perfect alignment of a really interesting product a great mission that was really making people's lives better and then a great business model like when I looked at the unit economics as part of my interview process there the combination of really lowcost organic user acquisition through Word of Mouth an SEO combined with the recurring Revenue that you get from a subscription business was really compelling to me so I ended up taking the job to go start quizlet's growth team and I went home for the holidays that year and told my cousins I was joining this startup called Quizlet and they were like yeah of course we know Quizlet we've been using it for years yeah I'm sure this is something you've seen in patterns now but this low cost of acquisition there's always like something with the great subscription apps like dualingo I think was the same way there's something about them that makes their CA really low and Quizlet I feel like students in that Community they have high needs like specific needs and they're very viral right so they like communicate a ton and that changes everything but it struck me the I don't know if it say irony or whatever this is but that's when you hire the growth team right it's like bringing the growth team when you have the good economics that's the company you want to come into it's like the company doesn't need a growth team then bring in the growth team right and that's exactly what I was going to say so it's like they were already growing they had a lot of word mouth what did they hire you to do then and what did you do at Quizlet Quizlet already had a few people who were working on growth and so they had been doing some signup optimization work things like new user onboarding flows signup walls and the company was growing very nicely and so it didn't just make it a really compelling opportunity it also made my job much easier getting things to the next level where I really added value was getting into the nuts and bolts of how Quizlet had gotten to where it was and then how we were going to replicate that growth going forward and more and more so replicate that growth in international markets where 95% of the global student population lives outside the US and so that was a huge challenge for us so one of the first things I did in my first few months there was I talked to a lot of customers obviously I spent a lot of time in the weeds with the analytics team and basically distill down okay quizlet's been around for almost 15 years at that point lot of different product features lots of different user segments but like at the end of the day what's really driving growth for this business and it turned out that there were six key actions and four core growth Loops SEO being the most important one that was driving a lot of the growth and so then based on that information and we built a quantitative growth model around it we were able to more systematically Drive user and revenue growth from that point the quantitative growth model this was a thing I remember hearing about was kind of the whole Grail of how to build a growth system right is like you have to have a model what does that practically mean what is that is that some machine learning thing like what is that I mean the short answer is it looks very different at every company for good reason because you can't just take one template and sort of copy paste and have it work for your business but what you're looking for is the simplest possible model you can get away with called it the minimum viable model that really gets at the variables that are most leveraged for driving your business that are tied to those key user actions and so for qu Quizlet we had acquisition retention and monetization assumptions built into the model it was about 100 variables and we broke it down by students versus teachers and a couple of other key variables I won't go into too much detail it was simple enough that it could be communicated across the company and used to align people around common ways of thinking about growth but complex enough that it could help inform strategy and identify where the biggest leverage points were I remember being in this position at Elevate and being like what is like a model like how do I make this like what I need to hire like somebody fancy to do some fan and stuff it's like no literally just write the equation that equals money right put money on one side and then figure out the multiplication problem and addition problem usually it's linear algebra that goes in and generates that money and that's your model and it's different like you said it's like okay well we have teachers generate some amount of something students generate another amount of something multiplied by our conversion rate multiplied by this I mean I have one for Revenue c as well then you just take partial derivatives right you be like okay what's the most effective variable to move today what are some strategies I can employ and it just helps you to like hold the business in your head in terms of like the mechanics of it and like I don't know if you found this but they're always wrong and that's they're always wrong so so reforge actually has a really provocative statement which are models are useless but the exercise of modeling is absolutely necessary because it forces you to really think through the hardest questions and then the other thing is so there's two components right there's the more complex quantitative version of the model but the blueprint of the model is basically just one image of the various actions users are taking in the compounding Loops that forms that drives user Revenue growth and in a lot of cases that ends up being equally valuable because it just gets everybody on the same page using the same language and operating off of the same assumption schematic for the business and you were talking about alignment right you can start to like be like all right team X this is the part of the ayylic graph you're going to be working on right or I guess it is a cyclic graph in this case this is the like little Loop you're going to be working on this is a loop you're going to be working on stuff like that so yeah it's super useful yeah one other thing we did is we built the most basic version of the model for the US only but then we replicate it for other International markets so you could literally put a country code into a python script and replicate the whole thing for a target market in Europe or South America or Asia and that was cool because it just let us look at how the business was growing differently across different regions so that was another use case yeah you basically can slice it right I'm sure you didn't have that on day one no right you probably had something simpler we did not so in building this very Quizlet specific model I know you came up with kind of like a broader framework to think about subscription app growth so I'd love to dive into that now the subscription value Loop tell me how that work at Quizlet informed what you now developed as this subscription value Loop and what it is and then we'll dive into all the specifics of the subscription value Loop yeah sure well like so many of these stories I'd love to say that I had this all in my head at the time I absolutely did not so this was a framework I actually developed more recently as I've been starting this growth advising business but at the time the way it manifested was there were two problems one was coming out of the model work where are the biggest bottlenecks in the business and then based on that where are the biggest strategic opportunities we should be focused on because as a product or growth leader you're always constrained by people and by time right and so you've got to find the highest leverage initiative be working on at any given time and that's always a challenge you all have a lot of Founders on your podcast who are working at smaller apps but as you get to this sort of awkward adolescent phase of a series B series C company you're kind of figuring out okay where does growth product fit in versus core product versus growth marketing and this was a challenge I heard come up over and over again because I would talk to my peers at other companies I'm like I'm figuring this out for the first time I haven't leted a growth product team prior to this I was working on core product that I bought us so how are you thinking about this and I just kept hearing the same challenges of like we're stepping on marketing's toes because life cycle marketing really needs to work with onboarding so how do we coordinate on that and we don't know when core product should be taken the lead versus growth product and so I started talking about this idea of value creation versus value capture and working with the VP of product at Quizlet around okay how can we have core product teams really focused on creating core value for the users with the primary metric being retention and then free up growth product to focus on value capture as well as new user onboarding and various things that sort of connect users to that core value so this idea of value creation versus value capture is where it all started and it seemed to really resonate with my team and with the executives at Quizlet and then as we started to adopt this framework more and more we also talked to marketing about how can we best coordinate on bringing more people into Quizlet whether that be free users or ultimately subscribers and so that's where the interim step of value delivery came in so this subscription value Loop value creation value delivery value capture I think it is a really great way to think about this kind of like high level model like we've been talking about all businesses right like it's creation and capture that's the thing delivery is part of that as well like distribution but creation and capture it's somewhat Universal do you have any concrete examples of how this plays out this has come up on a number of your other podcast episodes this idea of you know in the early days of the app stores there were no subscription apps it was all just pay to download pay to use and then sub description app started to come along but it took a little while for the best companies to really figure out how to create this compounding value engine and the best businesses ended up leapfrogging their competitors in many cases because they found a really important need that was going unmet or not sufficiently met they really invested a lot of their resources in making that solution to that need as good as it possibly could be but then importantly they were able to capture enough of that value on the back end to reinvest into the business and build that moat around their core product advantage and so one of the examples that has come up on a previous sub Club episode is the example of Spotify versus Pandora where Pandora was the first mover in that space But was more of an ad driven model and that was suboptimal for two reasons one it wasn't the best user experience because you would get interrupted all the time while you were listening to your music and then two they didn't have as much profit density in their business model their LTV CAC ratio I would guess I don't know I never worked at Pandora but I would guess it wasn't as strong as it could have been had they had spotify's model and so Along come Spotify they really go all in on the subscription business model and they find a way to really efficiently reinvest that Revenue back into the core product experience and then you can look at the charts out there I mean they just Clos the Gap very quickly and the rest is history and then what aspects of working daytoday in a subscription app do you feel like can be best informed at a high level level from this subscription value Loop yeah well I think where it gets interesting because your point earlier Jacob if you zoom out enough this framework applies to almost any business certainly any consumer subscriptions capitalism really yeah it's capital freise I think what's different though about consumer subscriptions even relative to prosumer apps is they really have to sell themselves because the ltvs on consumer subscriptions are much lower than Enterprise sass or prummer right and so you need a really really efficient machine for this to work and you need everybody at the company to understand what their roles and responsibilities are and how they fit into the framework I think where the rubber hits the road is on the specific prerequisites within each step that need to be true for it to really be firing in all cylinders and then what that means in terms of initiatives that the team works on and how they approach solving problems let's dive in I'm excited to go through the nuts and bolts and like details of each of these points in the subscription value Loop so the first one is value creation we've kind of talked at a very high level but what is in this framework what is value creation so value creation is likely the most important step right because if you don't have a product that people really want then nothing else matters and so it really comes down to what I'm calling the four RS within the framework so is it robust Are you delivering value rapidly is it repeatable value and then is it remarkable enough that people are going to talk about it and ultimately build a community around it and so we can go through one by one but the first is robust which is really a measure of do you have a value promise that is solving a real pain point for customers and do you have strong product Market fit and so one of the things that I look at when I'm thinking about this part of value creation is there's a 40% test that Sean Ellis developed he was the first marketer at Dropbox and it's a very simple test you just ask your customers if you were no longer able to use this product today how disappointed would you be very disappointed somewhat disappointed or not disappointed he realized over time after working with enough companies and talking to enough customers that the golden Benchmark was 40% you needed 40% of your customers to say that they would be very disappointed if they can no longer use your product to really say you had strong product meit and you can also Subs segment that so you can look at it globally across all of your users but you can also peel the onion back and look at smaller segments and so one of the things that I think superhuman actually pioneered this idea but a lot of other companies have followed it is product Market fit can be very binary you hear people talk about well you know product Market fit when you see it because everything just gets easier but that's not very actionable and it can feel very lonely as a founder of a new company who's like trying to figure out well how far away are we from product Market fit it's like a combustion process that is like exothermic versus endothermic if your process takes energy you just you push it it stops you push it it stops you push it it stops I always think about it and that's why it's binary is like eventually the combustion the reaction whatever chemistry magic you're making becomes exothermic it can actually like release energy and that's you come above this line somewhere and then that's why you get that perception I believe then everything just starts to run away if it has enough fuel it can potentially go forever right then you start feeding the fuel not pushing it yourself yeah yeah exactly the problem is I think you're about to highlight is that you don't know if you're one iteration or a thousand iterations away from tripping into that boundary unfortunately it's not as predictive as say like chemistry is right yeah no that's right and I love the car analogy I know Lenny has used it and it's one that I often think about as a growth leader but that's right you want to know are we even building the right car so where the 40% test is so helpful is you can say okay are we at 20% of our customers very disappointed are we at 30% are we at 40% and then not many companies do this but if you're really systematic about it you can actually create an objective function and sort of work your way over the line and so Rahul Vora who's the founder and CEO at superhuman has this great blog post where he talks about how superhuman did this in the early days they were looking for a way to measure product Market fit he found Sean Ellis they did the 40% test and they found out that they were below the line but maybe not as below the line as they would have thought and then they went through this iterative process where they basically looked at which segments of their users had the highest propensity to say they would be very disappointed and they resegmented the data and that got them a little bit closer and then they went and talked to those users and they said well what would it take for you to be more delighted by this product more willing to pay for it and by doing that they were able to really hone around the nucleus of their highest intent users and develop a product road map that filled those gaps and very quickly he goes into detail in the blog post but very quickly that allowed them to get past that 40% threshold and learn a lot along the way that helped them later on as they were scaling the business would you do that 40% test at a feature level too to like understand which features specifically are driving that Delight versus like at a higher level overall product level it's an interesting question and I don't want to say you couldn't do that but I don't think it's the right approach because the best products have a 1 plus 1 equals 3 effect right the whole is greater than the sum of its parts and so I think what you want to segment on is the user Persona not the feature there are other tools that can allow you to isolate the value of individual features which is really important yeah I Al think you probably run into statistical issues but depending on your user base size I think that's one thing that is fraud a little bit in these surveys is like depending on who you're sampling it can really vary that same segmentation question but in generally like who are you asking is it everybody who ever signed up is it everybody who ever hits your web page is it everybody who ever like actually uses the product right I think in some arguments everybody who uses the product is pretty good because if anybody's using the product you've got part Market fit for somebody how deep is it and stuff like that I think you need to also use these in conjunctions with some of the other classic product Market fit usage statistics like retention whatever makes sense for your product if that's a consumer product day one day seven if that's a SAS product it's probably something a little bit different because like you were saying Sean said 40% yeah you know like what's the what's the science behind it you know kind of works and I do agree I have seen people use this it gives you a good directionality but it's a lot of this stuff it's all very directional well none of these are silver bullets it's using them in tandem where I think you get the magic yeah and before we move on from robust it was a perfect thing to kick off the whole subscription value loop on robustness because I do think that's missing from so many apps who think it's a growth problem it's a marketing problem it's a retention problem it's a whatever problem they think it is at the core it's just so easy to build an app you said this it's easy to build an app but it's hard to stand out and robustness is where it just has to be a good product like people actually have to care people actually have to get value from it like it has to be something real to build a good business on top of and I do see a lot of apps and I mean there's different niches like a knitting app is a great great example of that like I don't care about knitting but for some segment of the population like a knitting app is amazing and valuable but whatever it is it's like you just have to actually create value and so robust while I know you use that word to fit into the four RS of value creation so it's a little bit awkward as I'm a former consultant I've got to make it P but that Foundation of just value creation I think just is so important anything else you wanted to talk about on the value creation robustness side of things before we move on to the other RS in value creation completely agree with what you just said this is the first step for a reason if you don't have a robust value promise nothing else matters the only other thing I would say is we talked about finding initial product Market fit but this can also be really important for companies that have already found product Market fit but are trying to expand that product Market fit and so a couple examples of this that come to mind I was at Quizlet during the time when they acquired Slater which ended up becoming their textbook explanations tool and so that's a great example of Quizlet up until that point had historically been focused on repetition based learning and preparing for exams the acquisition of Slater and standing up Quizlet explanations really helped them move into the homework help and getting unstuck problem space and so that's a perfect example of if you had looked at a segment of users they would have probably told you like this is a need we wish Quizlet had and that filled a gap and then I've been working with a number of subscription companies more recently as part of my advising work and one of the companies is called matter it's kind of a Next Generation reading and listening apps it's similar to what pocket was you know a decade ago but with a lot of more advanced features and they started with a focus on reading but recently they launched a feature called readable podcasts that allowed you to convert a podcast into a text transcription it did other things like you could double tap your airpods to pause and create a highlight out of the audio transcription and so it's this really Innovative feature that sort of expanded the value prop of matter to a segment of its users and that alone ended up almost doubling subscriber conversion for the business and so it's a great example of even if you already have product Market fit you should always be on the lookout for those clusters of users that want more there's two parts of it right there's market and the product and both of those are this nebulous problem space people have like distributions of needs and use cases but there's adjacencies and things and you're moving two sorts of equilibrium you're finding folks that are adjacent to what you know how to do but have like you're saying some adjacent need and then you can take your product and you can also serve them and that's actually why companies can scale that's more efficient than finding that very first breaking into a market also you're running up against like no brand no mechanisms of business you nothing you're starting very scratch yeah like I saying like why we have such power law outcomes often in business is because you just can draft off of these things like repeatedly but it still does play into that robustness argument and the fact that it's never product Market fit even though it is is binary it's binary for your first one yep everything else you know it's like a repeated process of incremental expansion and yeah exactly robust rapid repeatable remarkable let's move on to Rapid what do you mean by rapid in the context of value creation yeah I think this one may be the most obvious which is there're more apps than ever out there it's really hard to get someone's attention and it's really easy to lose it very quickly I think there was a study done by Microsoft a number of years ago that showed that the average human attention span had dropped by like 50% between 201 and 2015 I'm sure there were flaws with that study but directionally people's attention spans are getting shorter I think that's pretty hard to argue with yeah and today with Tik Tok it's devolving even more quickly hopefully we've hit Bedrock would be assumtion but I hope so I hope so Nur link might change everything you know so the idea here is it's not enough anymore to create a really compelling product you need to make sure people understand why it matters matters for them really really quickly and so the companies that do this really well they take a problem space that in general is somewhat complex because if it wasn't then somebody probably would have already solved it and they really distill it down to like what is the most important point for me to get across to new users in their first session ideally in the first 30 seconds of them using the app reforge has this framework that talks about sign up and then moving into the setup moment the aha moment and the Habit moment so ultimately you want to build a sustainable with users but you're never going to get there if you can't tell them why they should be using your app in their first session and so I like to think about this one in terms of like how do we remove all of the noise from those first few onboarding screens as possible front load as much delight and backload as much work so that we get the user to the aha moment as quickly as we can I was just talking to Ryan Jones the founder of flighty he's in Austin so we went and had uh coffee and he was talking through his onboarding and we were just talking through like what he could potentially do he's like my onboarding sucks it's just a single page like I know I need to do more and I was like I don't know that you do because his product really does a great job of once you get into the product he has a lot of little set up your first flight or like if you don't have a flight like do a sample flight and so that one page of onboarding for flighty because the product itself gets people to that aha moment might not need this massive onboarding to actually get to that moment but then there's so many apps where maybe you do need that are there some examples you wanted to share around this getting to that aha moment I think that's really well said I mean less is more in general when it comes to onboarding and so if you can get away with one or two screens great by all means do it but that's not always practical and so I think one canonical example of a product that's been really successful with a longer onboarding flow is n the weight loss and fitness app and one of their big insights was that by asking users more questions they were actually building more and more intent because users felt like okay I have an acute problem that I want solved I'm here for a reason and I need your help and the more you ask me questions the more I feel listened to and the more I feel like this product is actually going to succeed where many other products I've tried in the past have failed and so there are just like with all of these and with any framework right there's always going to be exceptions but I would start from the point of what's the minimum viable onboarding experience like how quickly can we explain to a user why this matters so a couple other examples I give you the other end of the spectrum reflectly is an app I really love I think reflectly is largely growing through paid ads and Word of Mouth they have a fairly simple product it's a journaling app there are lots of journaling apps out there and so their onboarding is very short and very delightful it's really really welld designed it gets to the point quickly and there's a hard pay wall pretty quickly or at least there was the last time I looked at the app that's an example of like all the way on the other end of the spectrum versus n and in the middle you have Rises is another app that I've been using a lot this year around sleep and energy management to me they're one of the best examples of onboarding I've seen in recent memory because they take this really complex problem around sleep right like everybody sleeps differently you've got genetics youve environmental factors and it's a really cool challenge they're solving it's not a simple one but you've got to be able to explain to the user in a minute or less right why this is going to work for them and so in a few screens they basically say imagine there was a drug out there that could solve all of these problems for you make you happier healthier more energetic that drug is sleep now based on the scientific evidence there's really only one variable that matters most and that's sleep debt and then they say answer a few questions and we will help calculate your sleep debt score and immediately tell you changes you can make to improve your energy levels and So within two minutes you understand the value prop you understand the metric that matters most which is sleep debt you've provided them with the minimum amount of information they need to provide you with the best possible experience and then there's an optional flow where you can connect your wearable device which many people using rise are likely going to be doing and then you get this magic output of like here's your sleep debt based on the last 30 60 90 days of your sleep and here's what that means in terms of when you should be going to bed when you should be waking up when you should stop drinking caffeine in the morning and that's just such a powerful experience it takes this really complex problem and it simplifies it and helps the user believe that this is going to help them I don't know if we talked about this on that podcast or not but I have since use that as an example that the onboarding of Rise is a great example that the value prop of Rise is sleep coaching and the onboarding is delivering that coaching value like what's a good coach they're going to ask you some questions they're going to inform you of things you didn't know they're going to and it's like the onboarding is actually demonstrating the value of Rise as a coach and maybe N is a similar thing of like a good weight loss plan is not going to be the same for every person and by asking those questions is like demonstrating that they're going to be a good coach because they're going to take all these different factors into account when they're building this custom plan for you so it's interesting how onboarding can actually demonstrate the product value through asking questions and like delivering some of that value along the way versus like leading up to the value or trying to tell people about the value but actually helping them experience the value in the onboarding I think is part of the key of why that ends up working as well as it does it's sales right this is a sales pitch this is the you got two minutes to sell somebody a time share or whatever it is right it's just that you're doing it in the form of an app so you have multimedia and experience and stuff like this and maybe that's where some developers struggle is that maybe they're like trying to oh it's got to fit in the interface doesn't have to be what there are no rules I think you just highlighted Phil with these three wildly different examples of onboarding right there's really no rules it's like what is the best way to make the most compelling human pitch for what value you're providing and I would say it's different because it's consumer but honestly B to be like every sales pitch you got to hook somebody in the first 30 seconds right or they're just like it's not for me you think about it somebody saw something they attracted they went through the beginning of the funnel they downloaded your app and here they are like don't blow it you've come a long way to get them here if you're an early stage person like thinking about how do I think about onboarding I think you can evaluate product Market fit before you have a good onboarding right like if your onboarding can be kind of crappy and in fact I think that can help reduce the like noise because if you have a really good onboarding but a crappy product it might like it's a bridge to nowhere yeah exactly if you're asking these surveys and stuff people might give you like weird answers like oh it's really beautiful because you did a really good onboarding but the app sucks but I'm going to tell you the onboarding was good but if the onboarding is absolutely garbage and like people are still saying I love this app then you really know you've cracked it then yeah the onboarding to that and then it's just pure rocket fuel right yeah no I think that's exactly right they definitely go in that order and on boarding is becoming more important than ever because even if you do have a really good product your early adopters will stay with you no matter what and you guys have made the point that it's actually a positive signal in some ways when you have a really crappy product and people still want to use it but eventually you'll move past those early adopters and especially if you start relying on paid advertising then you better be able to tell someone quickly why this matters for them and one last point before we move on David you brought up this idea of helping the user to understand why the product is valuable as they're going through the onboarding flow so Quizlet we actually called this immersive onboarding the idea was how can we steep the user in the product as they are going through the setup and aha moments not every product can do that it depends a little bit on the nature of your product and your Target customer but there are plenty of good examples out there of apps who do and Rise is one example I think dual lingo is another great example right the onboarding is you do a round of language learning you answer a few questions on what language you're studying on what your proficiency level is and then you're dropped immediately into this gamified learning experience and by the end of it if you were ever going to sign up for dualingo Now's the Time because you're really excited about what it can do for you one piece of context I think a lot of people leave out in thinking through onboarding is like what the experience was before getting to onboarding so if you're just repeating your top three screenshots from the App Store like people probably have seen that what ad did they see what value prop were you selling that brought them into the app and like how much awareness do they already have of that and then the onboarding shouldn't just be a repeat of the first three screenshots in the app store because they've already seen those and that's where that term the immersive what do you call immersive onboarding immersive onboarding um yeah that's really cool just thinking through like you actually at that point they downloaded it because they had a sense that it was going to be valuable if it's flighty it's a flight tracking app it's going to track flights you don't need to tell them in five screen shots that you're going to track the flights if they're downloading dualingo you don't need to tell them in six pages that you're going to teach them how to learn a language it's like that's the value they're expecting to get you want to demonstrate how you're going to do that and demonstrate how you're actually going to deliver that value for them and immersive onboarding that's a great way to think about helping people get to that value as quickly as possible yeah it's the whole idea of show don't tell because you've already told in the App Store and in your advertising and so once they get to the app you should be showing them not telling them that's a great way to think about it okay so robust rapid repeatable remarkable what is repeatable in the context of value creation repeatable is one of those that well the overall framework might be Universal I think this one is especially important for subscription products right because there are plenty of apps out there I'm sure both of you have used some of them where the first month you're like man this is incredible how did I never know about this before and then you get like 60 or 90 days in and you're like H I've kind of gotten the value I wanted out of this and I'm not sure I need it anymore and actually I think early generations of fitness trackers Fitbit being one example ran into this challenge a lot in some ways it was why they were a hardware model right because they're getting paid upfront obviously they have to cover their Hardware cost but another problem was if all you're really doing is telling somebody how many steps they walked every day and then a few cool analytics around that there's sort of a Decay curve to the marginal value that a user is getting from that experience and so you need to make sure that the value promise that sits at the center of your subscription value loop is repeatable and that there's sort of like a new chapter every so often that's going to bring the user back in and this also gets into different types of subscription products right so with content products you just need more content like with Netflix with Spotify with even meditation apps like headspace and calm a lot of it is a just new content that will bring people back in other cases like for tools products or is a good example of this whoop is a good example of this it's how can we build more functionality and how can as a user is using us for a longer and longer duration of time as they're using the product and looking at it more frequently how can we uncover new insights I think or is a great example of a product that's done a really nice job of that because if you don't do that eventually your subscribers are going to churn and ultimately consumer subscription businesses only really work if they have really high long-term retention rates because that's what builds the compounding layer cake of net revenue retention yeah I think about this a lot with I mean things like a document scanner where that really works as a subscription app is the people who are regularly scanning documents but if you like oh I just need to quickly scan something because I'm buying a house and you do that once a decade or whatever that's not a repeatable experience and so that's not the core market for a scanner wrap I do feel like there's a lot of subscription apps out there now that offer a very especially for a broader Market do offer kind of a more time encapsulated value prop it's like I'm going to do things once or twice and I'm going to get the value out of it and it you don't build a great subscription app on that now a document scanner is a good example that there are a ton of people I use uh scan I was say David it's just a product Market thing like you're just in you're in the market for which it is not a great subscription business but there may be a market for which it is a good I I was thinking about but you need to figure that out right yeah cuz like I was going to say I use this app scanner pro by rle and I use it multiple times a month and I actually bought it as a paid app years ago so I'm not even paying a subscription for it but that's an example where I am part of their target market as a subscription app because I am going to keep scanning multiple documents a month indefinitely but then for other people who do it once that's just not the market that's going to work for that app so yeah you got to figure out like is there a core demographic who is going to get repeatable value out of it or is this more kind of of a one-off value prop and if it's a one-off value prop it's going be really hard to build a good business around that yeah if that's your product you better either be monetizing heavily UPF front either with a lifetime or anual plan but even then you're kind of like building a castle on Sand right because the value of delivering is Inc commensurate with what you're charging there's just High turnover those aren't super durable businesses right with a handful of Exceptions there was this era I think this was preat and the unit economic changes on acquisition on the app but there were just so many of these like shovelware subscription apps they were just trying to extract as much money before they got caught by the user kind of situation and high turnover let's put it that way like they did not survive the at apocalypse they were subscription businesses in name only in the sense right that they were yeah they technically set up a recurring thing but in terms of having any sort of durable repeatable value delivery and capture like it wasn't really there and time eventually shook those out well and you mentioned so the second exception I was going to make is if you can manage to find an organic acquisition model that is so strong that you're spending very little money to acquire users then maybe maybe it still works but those are hard to come by if you don't have a repeatable value prop that can sustain long-term retention and your primary growth Loop is paid ads that's where you see a graveyard of companies that have just completely failed yeah because you eventually run out your cat goes up as you expend your users and actually I think that is kind of the just to jump to the next R this is is remarkable and like efficiency and virality right it's part of that capture so what do you mean by remarkable sorry David I stole your job it's fine yeah so remarkable is the idea that there are standout companies like tender straa that have built these explosive experiences right and with tender it was the swipe mechanic among other things with straa it was this highly engaged community of athletes if it didn't happen on straa it didn't happen but those are the exceptions even if you're not a product that depends primarily on virality in order to grow your user base ideally you want a product that is unique and compelling enough that people want to talk about it and you may not have a k Factor over one but people are going to tell their friends and family members about it and that does two things that are important one it helps drive more organic acquisition which brings down Blended CAC and gives you a more sustainable business model but the other thing it does is it creates this installed community of users who are really loyal in talking to each other and again straa is like a standout example of this but when you have that it also really helps with long-term retention and that's equally if not more important at the end of the day than you know having a viral product that has a k Factor over than one because that's really really hard to come by I think this is something people assume oh if I just build a great product people will talk about it or whatever and to a certain extent that's true but the remarkable part is really interesting and again just being fresh on my mind having talked to Ryan Rec recently the most remarkable part about flighty and the stories that get told is when flighty tells people six hours ahead of time that their flight's going to be delayed or two hours ahead of time and they can actually see that the plane that's supposed to take them wherever they're going is not even landed at the airport or whatever and they get to spend three more hours at home with their family instead of sitting at the airport for three hours like that's what people remark when they talk about flighty it's like yeah it's a great flight tracker and yes it has all these other great features it's probably a good exercise for Founders and growth teams to think like what is remarkable about our product and in that word it's like what will people actually say what are people actually saying about our product when they share is there something that people care enough about that they're actually going to talk about it and can we make it easy right right yeah do something facilitate that yeah well and two other things that I think a lot of companies don't think about when it comes to having a remarkable product that drives word of mouth so one is there are different types of Word of Mouth Loops there's the like Facebook example of it just went viral like wildfire at Harvard and then everywhere else but that's not the only type of reality so you have personal viral Loop which is people are inviting people to the product because it makes the product more valuable for them you have a social viral Loop which is where people are telling other people about the product because they want to be one of the cool kids who knew about it early on and sort of spread the word you've got a financial viral Loop which is you're actually getting a monetary or non-monetary reward for inviting other people and so there's subscription apps like masterclass for example has done a really good job with that type of growth strategy and then there are casual contact viral Loops where people at a party see someone swiping on Tinder and they're like oh that's interesting maybe I should download Tender or people are at a marathon and they see people recording their run on straa and they think oh maybe I should record my runas drava so you have to think about what your product is naturally Suited for when it comes to how it's going to drive word of mouth and how you design it to match that flavor of word of mouth and then I think the other thing that people Miss is the fact that so much Word of Mouth happens offline and you can't measure it easily and so there are exceptions where you can just track directly in the app like somebody sent a referral code or they shared an invite through this Channel and there's a unique parameter and so we know how many people invited how many friends they invited and how many of those friends converted but most of the activi is happening off line and so there's a tool called the word of mouth coefficient that allows you to quantify offline Word of Mouth by looking at how many new users are you getting through channels like direct branded search or social in any given period so look at it over the course of a week a month over your returning users plus any new users getting through non-organic channels and that coefficient is telling you how efficiently you're getting new users through Word of Mouth from your existing user base and so that's nice because it goes beyond tools like NPS that aren't really telling you anything actionable about what you can do to a tool that quantifies it in more detail the word of mouth cuff I found I Googled it because I need to Google things but there's an article on reforge about this like it's a really interesting concept of using basically subtracting out all of your knowes and then is like assuming that that's the remainder is your word of mouth is that like the basic concept yeah that's the idea you're basically backing into what can we directionally estimate we're getting in terms of Word of Mouth new user acquisition through through returning users and new users who aren't coming in through organic channels so that could be paid ads it could be non-branded search traffic and the reason it's powerful is it helps you understand one like overall similar to K Factor roughly how many new word of mouth users are we getting for an existing active user the second reason it's important is because depending on the nature of your product you can actually see Word of Mouth coefficient fluctuate quite a bit for various reasons and so I spent time at Quizlet looking at this but I've also worked with several edtech companies as part of my advising business and one of the things you often see in edtech is your word of mouth coefficient goes way down over the summer and during holidays which makes sense because nobody's in school then there are these critical back to school periods around August September in North America as well as after the holidays where your word of mouth coefficient spikes way up and then there also a few periods in the middle of the school year around exams where you have these windows of opportunity to really take advantage of a much higher Word of Mouth coefficient and then the last piece that was even more interesting was during the pandemic you saw Word of Mouth coefficient fall off a cliff when the pandemic first hit for a lot of edtech companies but then what happened after that really varied by country and so you had countries that kicked into gear with remote learning really quickly and in those countries Word of Mouth coefficients actually ended up higher than they were before the pandemic in some cases and then you had other countries that took much longer to recover and you could see all this in the word of mouth data and so it's a pretty actionable metric in terms of identifying when you have these pockets of opportunity to capture more verality and then when you pair that with the type of verality that your product drives you can think more tactically around okay what does that mean in terms of what do we do in the product well I think that's a great place to wrap up the four RS of value creation robust rapid repeatable and remarkable the alliteration is amusing I love your consultant background and alliterating these but it is actually helpful like I'm going to remember that robust rapid repeatable remarkable that's the idea if somebody doesn't remember it then it never happened all right so let's move on to Value delivery what do you mean by value delivery in the context of this subscription value Loop yeah so value delivery is the idea of okay you have a product that people care about and want to use how do you as cost efficiently as possible get it into the hands of as many users as possible and connect them to that value and the reason this is so important for Consumer subscription apps especially now is because the playbook for much of the last decade has been find a product that people are interested in and then go spend a bunch of money on Google and meta to acquire users and make sure LTV CAC is high enough for the business to work and keep your fingers crossed that that will last I'm oversimplifying it but that Playbook no longer works for a variety of reasons one the app stores have just gotten much more crowded so there's a lot more competition two there all of the challenges presented by ATT and iOS 14 where paid marketing is a lot less efficient than it used to be and then the third which is not the most important but it's a factor is Venture Capital funding is harder to come by now and so if your plan was well we're going to scale until we hit a Tipping Point where the economics work and we can do that because we're going to go raise a large seed in series a round that doesn't work anymore at least not in this market environment certainly not in consumer right yeah and not when interest rates are nonzero that Capital needs a faster return on investment and a more sure return on investment yeah so I was going to say I'm not going to go into as much detail on value delivery as I do on value creation value capture but the number one point I want to make on value delivery is that the best consumer subscription companies almost without exception and the ones that have really stood the test of time have really robust organic acquisition strategies that are their primary growth ever and they only use paid ads as a supplement what are some examples of that so I think you can divide them into two categories you've got companies that have really been able to grow through Word of Mouth the other big one is content so there are a few different flavors of this quizlet's an example of a company that has done a really nice job growing through longtail SEO right there's so much flashcards content created on Quizlet by students by teachers and so even though there are plenty of other edtech companies out there competing for p terms Quizlet has a really strong advantage in longtail search queries so that's one good example of a company that has been able to find this kind of unique way of scaling without having to spend a lot of money another good example is alltrails which I know has been on the podcast and for them longtail search I'm sure was relevant as well but hyper local search I'm sure was a big Advantage for them because if I'm looking for where I want to go on a hike or a trail run I'm probably by and large looking within five 10 miles of my home and so you know as is the case with all of these things you sort of got to double click and triple click before you get to the real insights but I think companies that can generate user generated content that's organic to the product experience and ideally pair that user generated content with a unique and differentiated SEO strategy can really be successful with the long run yeah and there's probably like 10 other ways that that works we could probably do a whole podcast and all the different kind of organic Loops that work for different apps for different reasons for different context for different markets for different whatever but yeah I think that's a good summary we do talk a ton on the podcast about value delivery about getting attention for your app about getting people to the App Store about marketing and everything else one point that Phil has in the notes Here we talked about earlier there's always this wall eventually that LTV and CAC sort of normalize because you pushed beyond your product Market fit you've pushed into like a less spendy market like eventually it loses steam it might be at scale a scale B scale C right you know some order of magnitude difference between those two but it will die out all of the things we talked about before make that number a little bit further in the future better word of mouth all these things like better product make it all a little bit more efficient but at the end of the day you're only going to be able to scale it so far and so I mean I think that just supports your point and which is a benefit for the world like I think we've entered an even better era I was not super thrilled with the Zer era of apps as we mentioned before and I think we've entered a better world where as you said talk about value capture right like value creation value capture delivery and all that stuff let's let the App Store handle that that's always been there you know it's kind of it's great thing yeah there's this idea of painkillers versus vitamins and I think Zer allowed a lot of vitamins to hang around but at the end of the day if your product isn't solving a real need then it's probably not going to last and so I think as Zer has subsided there's just been a lot of companies left holding the bag who don't really have an answer for it so the last part of the subscription value Loop is value capture and this is one I do want to Deep dive into and we do talk about this a lot on the podcast but it's just such a fundamental part that's hard you know you create value but capturing the value and finding the right balance of how much value you give to the users and how much value you take and finding that right balance is really tricky so tell me about value capture yeah so value capture is this idea that to go back to the car analogy your subscription revenue is your fuel and so even if you build a really nice car if it doesn't have enough fuel to run it's ultimately going to sputter out and fail and so I think what's interesting about this step is you can almost think of different categories of companies in terms of where they are strong versus weak in the subscription value Loop and so the companies that are really really strong at Value creation they have a great product they're going to get past that initial product Market fit phase they're at least going to get to the point where they're scaling the business but they may run into a wall if they can't be efficient about one or both of value delivery and value capture on the other end of the spectrum you have the companies that are really good at Value capture but they're not good at Value creation well they're probably never really going to get much past the starting day right and so what's interesting about value capture and a lot of my advising work centers around this step is you really want these companies to succeed that have done a great job building a great product but they just haven't quite figured out how to get enough value back out of the system to keep the car running and I even run sometimes into we ran into this a little bit at Quizlet where Quizlet is such a mission-driven company and it's done so much good in the world for teachers and students but there were times I was like well should we be monetizing this product less than we are like ultimately this is an education app we want to do everything we can to advance education but it doesn't have to be a zero sum game and the more resources that you can invest back into your product the better you're going to be able to deliver value to customers the longer your business is going to last and the more flexible you can be in terms of deciding okay maybe we have tiered subscription plans or maybe we have a premium model and that way we can subsidize users that don't have the resources to pay for the product while still having a sustainable business and so value capture is all about making sure the car keeps running you want to leave Surplus right this what you're saying this the debate on how much to capture you can capture none you'll go out of business but at the end of the day you should be allowed to capture enough that you're still delivering a net value you know if you put dollars on it you create a $100 of value for your customer you charge them 50 like they're still ahead nobody should be mad about that right like people get real icky about monetization but like with the energy analogies again I know but it's the car analogy the same thing it's you've created a little engine and extracting the fuel from the engine is why these things grow which is actually different than the car analogy where you bring the fuel in from somewhere else it's actually a perpetual motion machine more so the point you make about and it's maybe a bit handwavy if you're having that conversation with yourself about like you know are we capturing too much value are we like off of our mission but if you like actually are investing that capture back into the product it's not right like and I guess it depends on what you do with the profits of a business just goes into like the fundamentals of capitalism right are you reinvesting that in growth are you reinvesting that in product are you reinvesting that in both you're not only leaving a value Surplus and depending on how much you capture but you're also leveraging that investment into hopefully even more value creation for the customer lots of hands getting waved in like the accounting on that like it's really hard well and I think there are exogenous forces that dictate in most cases at least with consumer subscription apps that a lot of the value will be reinvested into the business for two reasons one is because the companies that make it far enough to where they're really honing their value capture engine that have grow to your point earlier right you probably haven't hired a large growth team until you've gotten to the point where you have a really compelling product in a large user base so the companies that have made it this far have made it this far for a reason and they have a compelling product and they're not mercenaries or they probably wouldn't have made it this far the second and probably more important reason is the competitive forces around consumer subscription unless you have a really really strong Network effect which most consumer subscription apps don't you can't afford not to reinvest a lot of that value into the product because if you don't somebody will come along and they will and eventually they'll Le frog you you talked about a premium strategy as the paid users subsidizing the value that you're giving away for free to the free users but you can and do actually capture some amount of value from the free users and if you're using a premium model you should be thinking about what value you're capturing from those free users and a good example is alltrails which we've talked about a lot but part of the reason their freemium strategy works is that those free users are helping update the data and adding new trails and it's like they're actually contributing value back into the loop and all TRS has I think they have some minimal ads and some SP sponsorships and things like that and they have merch and they have other things and so when thinking about value capture we're mostly going to talk about value capture in relation to capture through subscription but when you have a freemum model you should still also be thinking about what value those free users are adding to the equation so before we move on to the subscription value capture what are your thoughts on that value capture from the free users I think that's spoton and as with so many things you need to tear your strategy around the fundamental constraints of your business so in this case your growth Loops that drive your business will dictate things like what is our trial strategy how aggressive or conservative are we going to be with our pay wall placement and for a product like all Trails or Quizlet for that matter where so much of the growth is being driven organically you're getting a ton of value out of those free users in fact I would argue you're getting value that the business would struggle to to exist without or at least it would be much less valuable right because they are the engine that is driving compounding growth on the other end of that Spectrum though there are cases where you have a product that free users might hang around and Dabble and they might write into customer support every once in a while and they're not adding zero value but the amount of value they're adding is so incommensurate with the amount of time and maintenance and energy that a company can be spending to support support them that it's not always the case that you want to cater to that free user segment it just really depends on your product and your business model and and to your point with Quizlet I mean it's perfectly acceptable as a business to say part of our mission as a company is to deliver excess value and part of how we're going to do that is to give way more away to these free users and let the paid users subsidize it but you need to think about is that what we're doing or do we need to capture more value from the free users or how do we capture more value from the free user so I think it's kind of an interesting thought exercise on the premium side of the equation I think that's right and I think part of the reason that Quizlet is now one of the most valuable Ed tech companies in the world is because they've given away so much value for so long in their case it really does make sense for their model it's built this really compelling Community not just among students but there's this cross-side network effect between teachers and students that creates this really virtuous cycle improves retention improves V word of mouth and it's because Quizlet had no sub subscription for the first many years of his existence didn't even have ads for a long time and even after it introduced a subscription kept its prices quite low that allowed the company to build this really strong mode and this brand around we're going to do good we're going to put our students and teachers first and there are a lot of companies that tried to sort of take the shortcut and monetize more rapidly that ultimately ended up failing because Quizlet just had such an advantage when it came to acquisition so let's move on to the five PS of value capture pay wall pricing and packaging payments and promotions so it's four categories five p i bundled pricing and packaging together how makes sense it makes sense it's a classic pair so let's talk about pay wall in the context of the value capture how should you be thinking about pay walls I'll sort of break this one into two parts there's standard stuff that you can and should do with your pay wall that kind of applies to just about any consumer or prosumer subscription app and I know you've had Jake Moore from Super wall on the podcast a couple of times I think he's talked through a lot of these so things like when you're first getting started air on the side of being aggressive with your pay wall because one it will help you start to make Revenue but two it will really filter out the users who are your early adopters who value your premium product the most so that makes a lot of sense and then there's tactics around use visuals a picture is worth a thousand words a video is better than an image like make your pay wall as compelling as possible keep your feature list short lead with an emotional appeal a lot of this just goes back to frontload Delight make things as easy as possible for the user like a lot of users don't even read all the text on the payall right and so it's got to be quick and easy to consume I think where things get really interesting is when you start to move one layer deeper than the sort of General best practices around paywall and get into the specifics around what makes sense for your business depending on factors like the nature of your product so if you have a simpler product you probably can afford to be more aggressive with your pay wall if you have more complex product you're likely going to need to give user a little bit more time to experience it before you ask them to put their credit card down pricing similar like if you have a really high price you're going to need to be more conservative if you have a lower price you can probably be more aggressive growth Loops we already covered so if user generated content or VI word of mouth or cord to your growth strategy probably want to have a freemium app experience and create a great experience for free users but if you're a pay-to-play subscription where it's all about just funneling Revenue back into paid ads then you can be more aggressive and then there are a few other factors like so Target users adults and prosumers are probably going to be a little bit more patient and have a little bit more money to spend versus students or teenagers so you have to keep that in mind competition is an obvious one so like the more viable substitutes there are for your product the more you're probably going to need to be generous with your pay wall and then the last one is trial strategy so where you place the pay wall how aggressively place the pay wall needs to be compatible with how you've structured your free trial if you're giving away a month free then pay wall away because it's a very soft pay wall right people are still going to get a lot of time to experience the Corp value prop but if it's a three-day free trial or if there's no trial at all then you probably want to be a little bit more thoughtful about where you put that experience what are some good examples that you've seen of effective pay wall strategies I'll give a couple of outside in examples that I've just observed companies doing what I would consider to be a really good job with this and then I have one example of a company that I'm working with directly now that I mentioned before matter that actually sto pretty significant improvements from some of these changes to start with calm I think is a company that gets referenced a lot in terms of their pay wall design there's the obvious stuff they lead with an emotional appeal they have this nice calming imagery of people resting meditating their feature list is short and piy it doesn't take a lot of time to read or digest they use the standard Amazon yellow best deal recommended tags to highlight the annual plan they break down the like effective monthly rate of the annual plan versus the monthly plan they're all the like blocking and tackling stuff that they do really well I think the more subtle thing that is easy to miss with columns pay wall is one it's very much built for mobile because most of colm's consumers are purchasing on mobile and using the app on mobile as opposed to desktop they do have a desktop pay wall but it's I would guess it's not what most people are going to and then the second piece is the secret to calm success in leapfrogging headspace in many ways was stumbling across this idea of sleep stories and really solving the most acute paino have in this mindfulness space which is sleeping better and so if you look at their pay wall imagine it's midnight or 1 in the morning and you can't sleep you've got racing thoughts you open your call app maybe you heard about it from a friend or you've been considering paying for it and it's like this nice soft blue palette it uses a lot of calming language it's just very tailored for their customer and the mind space that their customer is going to be in when they're getting to that purchase decision and so I think that's an example going beyond the generic advice going beyond the Frameworks and actually applying judgment around what's going to work for their consumer I noticed CM has also experimented a lot now and it's leaning in toward customizing the pay wall experience for different entry points so like if you enter I was playing with the app recently and I'm not currently a subscriber so when you enter from like whatever famous person Matthew mccon reads me to sleep I think they have like sleep stories from him it's like you tap on that button and then it follows through with Matthew mccon but if you hit the pay wall without that context you're not seeing celebrities you're seeing different sets of value prop and so you know and it's a big team and they're able to do this as harder as a small app to figure out every different entry point and all that but over time figuring out those entry points and even potentially customizing the paywall to the entry points can be a very effective way to do it and I think C is really killing it on that front yeah I think that's something where you you've seen a lot more Innovation recently is personalizing the pay wall or customizing it based on the channel the user came in through or even based on inapp signals that you've gotten about the user depending on where the pay wall is placed yeah any other examples top of mind on great pay wall strategies I think one other example that a lot of people point to is Du lingo I talked about their immersive onboarding experience and getting the user to the point where they're really excited about the product before they get to the pay wall above and beyond all of the standard advice I think one thing du lingo really differentiates itself on is this personification of the app through duo their owl mascot and when you convert into a trial with du lingo which is now super du lingo is what they're calling it used to be du lingo plus now it's super du lingo Duo turns into an astronaut the whole Chrome of the app experience changes the color the look The feel there's more animation that's a missed opportunity that I think a lot of obviously you're not going to do an optimization like this as a smaller company but when you get to the point where there's a lot of Leverage in optimizing trial start and trial conversion doing something like that that really celebrates that purchase moment I think can be really powerful and then the last example I was going to give is this company that I've been working with matter that I mentioned previously the reading app so we followed a lot of the standard advice that Jake provided in terms of just making the pay wall more prominent looking at pay wall view rate so like what percentage of all users who install the app are actually viewing the pay wall at least once in their first session and their first week and their first month and by being a little bit more aggressive about where we place the pay wall but then also by optimizing copy visuals and a number of other things matter ended up more than doubling the pay wall view rate and then that translated into about a 30% increase in subscriber conversion and so these things like a lot of them seem small but in the aggregate they can actually lead to some pretty significant improvements yeah 30% and doubling the pay wall view rate which we hear that a lot we've talked to a lot of folks in the podcast like people who didn't have the pay wall in onboarding they move it to onboarding which like for them sometimes it's like 100x because the pay wall was so deeply buried in the app experience that they're showing the pay wall way more than double and then it's like 5x in Revenue not even just a 30% increase but if you're already fairly optimized there's still opportunities to increase by 30% which is crazy I remember doing optimization stuff around elevating back in the day and like everything is just how close it is to the starting point there's things you can do you can Shuffle things around but there's kind of an exponential decay curve in like who sees what in an app and then also you have your home screen in the app that's where 90% of the eyeball minutes are going to be 95% of the eyeball minutes that's not even a pay wall hack it's a guess strategy but it's just like make sure every and this is something I learned from a Zinga person Zinga people are really good at modation but like the user should always be one click away from buying you know you design a store the same way like you don't go into a store and there's like massive parts of the store where you can't buy things right like the whole purpose of it is to buy stuff and you have to think about your app in the same way if you're monetizing you don't have to be go about it like you can do it Tastefully but you should always be subtly reminding your customers like hey and that's why I like the dualingo example I didn't know they changed the Chrome because like I think that's a really easy way to remind users you don't have Pro just so you know you're not paying right even they don't get any features right it's just kind of a subtle psychology thing we still love you but you're not quite as special as you could be yeah I mean I think you can make the argument that a lot of subscription apps in some degree are a luxury product you don't need do aink to survive certainly don't need dualingo Pro to survive right you don't need these things so you can take some pages out of what the automotive industry does and like the luxury goods industry and think about it in some ways as a display of status right I guess that's more about what's behind the pay wall but as you're leading somebody through that pay wall as well you're selling them on what life's going to be like on the other side for them you know what I mean like oh come on you've got oh sir $8 a month wow big spender come on in right like well to that point I found this isn't always the right answer but but in a lot of cases there's this one two punch of trigger a pay wall in a user's first session whether that's immediately after sign up or at the end of an onboarding flow depends on the product but make sure that a user sees the payall in their first session because you'd be shocked how many users of consumer subscription apps don't even know there is a premium version of the product but then pair that with a set of more customized pay walls that are tied to your best premium value props and meter them so you have a free number of uses but once you get to the end of that free usage quota then you get a customized pay wall that's really honed around that feature and I think what's nice about that is you solve the pay wall view rate problem that Jake talks about which is you got to First just make sure people know your premium product exists but then instead of like tapping on on the shoulder every single time they open the app which gets really annoying really quickly and it's going to churn out a lot of your free users instead like align the ask around purchasing the product with when the user is actually experiencing the value yeah and then being thoughtful about where those like limitations to free usage are I think a lot of David I'm sure you've talked to plenty of Indies this is like classic Indie mistake it's like oh I'm going to bury the purchase thing like in the settings whatever and like they actually have quite a compelling Pro offering some kids it's just like embarrassed to like pull it forward this is some advice I had from a mentor but just being like these people are getting an app for free they can look at an ad they can look at the price tag they're not going to die but you said like don't be annoying about it like be thoughtful you don't want to degrade your free user experience completely but it's okay for free users to give something up if that's just a little bit of degradation in user experience that's okay if you do it right the pay wall moment in and of itself can be delightful I think du lingo is a great example of that like even you decide not to pay like oh du lingo in a astronaut suit that's I mean that's a great guiding principle from like product design and business design in general it's like even bad moments in a business they're in support like something's bad you know whatever you have an incident like whatever it is there's always ways to think about how you can take that moment and turn it into a net positive experience and sometimes it's just little things right it's like framings and copy and offering to like make it right that applies to monetization as well the walls and like where you hit stuff so yeah and I think you have a little more flexibility to your point Phil about turning out free users by Annoying them it's like the more value you're creating for those users the more leeway you have to demand something of them so like my fitness pal I'm not currently subscrib but I still check calories every once in a while check my macros or whatever every single time you open the app they show up py wall I'm not as annoyed anymore because it's like I'm getting so much value when I use it it's a fair trade right I mean we've talked about it a lot today that that kind of balance of how much value you're creating and how much value you're capturing that pay wall moment you just have so much more leeway with those free users if you're giving them so much value but moving on from from pay wall pricing and packaging are the next two PS of value capture let's talk pricing and packaging when you look at each of the steps in the subscription value Loop and then you look at the individual levers within each step this is one of those along with onboarding and a couple others that has the most leverage getting pricing and packaging right I think there have been a few episodes you all have had guests on that have said well pricing in the early days doesn't really matter and I agree with that like in the early days just find product Market fit but once you get to the world I've spent most of my career in series B series see trying to get to the point where you can go public pricing really really matters and it's really hard to do well and so one of the things that I try to help clients with in my advising business is using some pretty standard tools out there like van West and Dorp and conid Analysis to really get to at least a more accurate view of what the optimal price is for your product so to just briefly break those two down van westendorp analysis I actually was listening to the latest podcast episode on my run this morning and so I know the CEO at ladder mentioned van West Andor last week so I won't go into too much detail but the idea is basically you can't ask a user directly how much would you pay for this product because research has shown they're going to generally give you a lower price than is actually what they'd be willing to pay because they know that any answer they give you could impact what you end up charging so instead you ask a range you ask at what price would this product feel like it was really expensive at what price would it feel like it's starting become more of a bargain at what price would it feel inexpensive like a really good deal and at what price would it feel too inexpensive meaning you'd actually question the quality of the product and then by doing that you can generate What's called the van West Dorp it's basically a price sensitivity meter and so it shows you these intersection points between those four curves and it gives you an optimal price range and also an optimal price point somewhere within that range this tool is really good when you're just looking at what is the overall willingness to pay for my product in the aggregate or as was mentioned on the latter episode you can cut it by segments of users so if I want to know for students versus teachers or for college students versus high school students what willingness to pay looks like you can do that segmentation it's not as good at pinpointing willingness to pay for individual features and so that's where conjoint analysis can be a helpful supplementary tool because what conjoint does is it presents the users with a set of Alternatives it could be two packages it could be three packages usually it's no more than two to four and each package has a list of attributes so this could be price it could be number of Super likes per month in the case of a dating app like tender or Bumble so it could be a range or it could be binary so it could be a feature that you either get or you don't get and then every user is asked to go through anywhere from like five to 10 of these conjoint tasks where they pick whichever package they like the most and by doing enough of these again there's a formula that will sort of spit out okay what is the relative importance of each of these attributes what is the marginal willingness to pay for each level within each attribute so how much more am I willing to pay for five Super likes versus 10 super likes versus 20 super likes and when you do all that you can really hone in on not just how much are people willing to pay overall but what are the premium features that are driving most of the monetization for our business and again how does that vary by user segment where does price testing fit into this is this kind of like hypothesis validation start with V westendorp and conjoint Analysis and then start testing whether your hypothesis formed by this analysis is actually correct yeah that's right and I view them as tools in the same toolkit and I've even had a healthy debate with a couple of my clients around like why don't we just do an AB test like why do we even need to run a survey and sometimes that's the right answer like in general the ultimate survey yeah exactly I mean that's the real asset test right I'll give you an example I work with a edtech company down South America called Udo and they had two tiers so they had Udo light and Udo Pro and then they had monthly and annual subscriptions and one thing I'll say right up front is when you're an early stage consumer company ideally you want one plan you want one plan that is either annual only or that is monthly and annual because any more complexity than that and you're going to lose conversion on the margin simply because people don't have the attention span to make a decision that's that complex if they're a pro suumer or it's B2B SAS different story but for Consumer you want to keep it as simple as possible so we could have run an AB test and if we'd run an AB test we would have figured out what is the optimal annual and monthly price for the light and pro tiers respectively but what happened is we ran the van westendorp and we looked at the light versus Pro plans with the van westendorp analysis and we saw that the marginal willingness to pay for the Pro Plan was very very small relative to the light plan and we also found that the marginal willingness to pay for annual relative to monthly was fairly low and in some cases this just comes down to you're talking about college students in South America they don't have a ton of disposable income in a lot of cases so some of it just comes down to the ability to pay for the product but then we did the conjoint and in the conjoint we actually found that student interest in ebook content generated by Publishers that was like the big incremental value prop for the Pro Plan was you don't just get access to user generated content you get professional publisher content was actually in many cases the lowest marginal toay premium feature and so as a result what the company ended up doing was streamlining down to a single tier just getting rid of the pro tier and only having what they now call Udo plus and then lowering their annual price and so they had a much simpler set of plans they had a lower annual price that was more aligned with willingness to pay of their target user base and then also importantly because they got rid of the ebook content which had a pretty significant cost component to it because they had licensing deals with these Publishers they actually improved their Mar Marin and as a result their LTB CAC ratio and so in the Aggregate and I've talked to the founder about sharing this information in the aggregate this ended up driving a 12% increase in subscriber conversion and a 10% increase in net subscription Revenue so this is a case where AB testing's fast and it's effective but it's kind of a blunt instrument and surveys can sort of give you some deeper insights when you do them the right way yeah and then doing the vend westendorp and the conjoint analysis helps you create a thesis for why the prices you're going to test should be tested versus just throwing crap against the wall that's my favorite method it works it works until it doesn't hold your finger in the wind be like $4.99 that's the right answer for the early days yeah yeah so the next p is payments what do you mean by payments in this context yeah so payments I break down into a few things one is I think a lot of people don't realize the the degree to which alternative payment methods or apms are surpassing in many cases credit cards the biggest ones being obviously Visa Mastercard American Express as the primary form of e-commerce right like that's happening in a lot of international markets and it's even starting to happen in the US and so one is just making sure you're aware of the alternative payment methods that really matter in your geography and for your user base the second is your purchase flow and just making sure that you're being as clear and transparent as possible with user around how your trial works and so the canonical example here is the blinkist ethical subscription design pattern which I think JC day was on your podcast and talked about how effective that was Quizlet ended up adopting that pattern a lot of other consumer apps have as well it's one of these rare win-wins where it drives a huge amount of incremental upside in terms of subscriber conversion Revenue but it's also just the right thing to do like it it really builds trust with your users and then the last one is cancellation flows and this is one that I think is tricky right because you want to remind the user of what they're losing if they give up the Premium plan but you don't want to be a jerk right you don't want to adopt these black hat patterns that a lot of companies end up doing in some cases just because they see all the other companies doing it and so you need to make sure that your cancellation flow is easy to find you need to make sure that you're not preventing users from canceling the subscription if that's what they want to do but it's okay to remind them along the way like hey why are you leaving can we fix it is the price too high okay we can offer you a discount is it something else like is there anything we can do to amarate this and if you answer is no then fine they cancel and I think this is going to become more and more important because there's legislation that is working its way through at both the federal and state level now in the US that is actually going to mandate that more and more subscription apps basically make it as easy to cancel as it was to sign up and so you're not going to be able to get away with some of the stuff that some companies have been doing for a while where you sort of make cancellation really difficult to find yeah and the app stores make that really easy but I did want to highlight when you were talking about alternative payment methods I've been hearing this from revenue cat customers that when they are offering web payments it's not enough to just offer like credit card and Apple pay and Apple pay is kind of the happy easy path for a lot of folks but like pay with venmo pay with PayPal all those it's like if somebody's potentially going to give you money make it as easy as possible for them to give you that money and some of those alternative payment methods even in the US actually can drive incremental Revenue just by making it that much easier for people to pay outside of the App Store well I mentioned so there's the US which is the primary market for a lot of consumer subscription apps but this is even more important in a lot of international markets and when we looked at this at Quizlet we didn't do a ton of this while I was at the company but we started to look at it because we wanted to make sure that we weren't just bringing in more users International markets we were actually monetizing as many of them as we could it's a shockingly high percentage of users in certain count like Germany is a great example you've got sepa and other markets like in the NE lands it's ideal you've got sof for in South America there's boletto in Brazil there's Oxo in Mexico so you kind of got to know if you're a US company expanding into some of these countries or if you're an international company just make sure you know what the numbers are in terms of how many of your potential subscribers are going to pay with these feature request Jacob Revenue cat needs to make this easy for developers we didn't accept like thousands of different payment PL confirm or deny anything about our road map so all right the last P for us to touch on today as we wrap up is promotions and I do think this is a really important one so I'm curious to hear exactly how you think about the usefulness of promotions in this value capture step well this one feels timely because we've all just been through Black Friday and Cyber Monday and so I'm sure like me you've just been inundated with deal after deal after deal and act now and don't miss out best deal of the year and I think this gets at the key point I want to make with promotions because you know promotions are not rocket science right it's a tool just like a lot of these things are it's a tool to better align the value of your product with the willingness to pay of an individual customer and by doing so to capture more consumer surplus for your business the key though is you got to be targeted and thoughtful about it and so I actually think we've seen a little bit of an over rotation on the amount of act now Black Friday deals I mean that certainly has its place I actually think the companies that are doing this best are for holiday deals and other sort of seasonal promotions they're really in their own personality and brand into it so that it stands out and then there are these more sophisticated techniques so one of them is activity based discounts so if a user comes in and they don't subscribe within their first 24 hours look at the point where 90% of your subscribers typically convert and then whatever that time period is at that point if a user hasn't converted offer them a discount I think that's a really effective method because the user is giving you a direct signal on their level of intent willingness to pay based off of their activity in the app so that's a good one and then I think the last one is GE graphy based or there are many cases where you can't segment based on demographic but where you can use demographic or psychographic information to just better align the price of your product with the customer I think that's where most of the value is I've been talking a lot about tearing as a way to expand the number of points along that price value curve but in prepping for this podcast and talking to you it kind of dawned on me that promotions are another very effective way to do that is that if you would potentially consider doing a premium tier that's a lot of bandwidth on separating out the features and a lot of cognitive load like you said with the Udo example of having multiple tiers so the first step before you go to tiering your subscription is start experimenting with promotion see if you can meet more people on that value demand curve by offering them discounts and yeah I mean more and more apps are using it it's not like this is rocket science or some like amazing Revelation but it is something that I think is a great way to meet more customers where they're at it's labor intensive too I think is one of these things that why it's a tactic you layer in a little bit later when you're spending more of your time on value capture you have extra lanes for like a growth team or somebody to focus on this it was a huge unlock almost 10 years ago now I guess like an Elevate huge unlock for us to run stuff and I think we also just have the cover in our society that like people don't get that mad when things go on sale like it's an expectation that if I buy in normal time or I will wait this year there's kind of an interesting backl on Black Friday specifically I feel like maybe you're right Phil like maybe this is over maybe we're on the way out but we make a product with essentially zero marginal cost right it would be very silly for us to only sell at one price point so finding good ways to do that to like unlock more of that demand that you're just leaving on the table is smart right I think that's right and I also think sometimes people look at price discrimination even the word price discrimination sounds negative we need rebranding there yeah they do need that's why I say capturing consumer surplus but in all seriousness you have to look at it both ways like one way to look at it is well they're discounting so that they can bring more users into the product that otherwise wouldn't pay and isn't that unfair to the users are willing to pay a higher price but the other way to look at it is if a company isn't able to monetize those lower willingness to pay users or the users that simply don't have the resources to be able to pay but really want the product then they are actually forced in many cases to set their price higher to make the economics work which ends up hurting everyone and so there is an argument to be made that done thoughtfully this actually better it's certainly better for the business and it can go way too far but done thoughtfully it can actually benefit the consumer as well well I think that's a great place to wrap up Phil it was really fun talking to you and I don't feel like we could have done this Justice I specifically decided to make this the first long podcast because there was just so much to go through in this Loop this framework that you developed but as we wrap up anything else you wanted to share well first of all I just wanted to thank you all as you know David and as you found out earlier Jacob I've been a fan of your podcast for about a year now I hadn't stumbled across it until this spring but I've caught up I've now listened to every episode and really love what you guys are doing not only because the content is great but it's really built a nice Community around people who are living and breathing this stuff every day as far as things go on my end so you can reach me at Phil G Carter on X you can also check out my website at www.il GC carter.com and then I'm launching a course with reforge in January actually on consumer subscription growth so as you said David there was a lot to cover in this podcast and even with the time we had we only really scratch the surface and so if you feel like some of these Frameworks and tools we talked about would be beneficial for your business reach out to me through the channels that I mentioned or you can go to reforge docomo Phil thanks so much this was a blast and certainly in this hour and a half already influenced my thinking a lot so I think it's going to be super value for for the audience so thank you for sharing today likewise it was my pleasure thanks so much for listening if you have a minute please leave a review in your favorite podcast player you can also stop by chat. subclub [Music]