In January 2017 I accepted a product marketing role at a small software studio. The studio wanted to transition from client revenue to product revenue. It already had two products in the market but they were only bringing in a small percentage of total agency revenue.
One of these products had rapidly gained users, seemingly finding product-market-fit in no time. It helped solve a well-defined problem: turning files (CSV, Excel, JSON) into SQL databases. The product had organically made it to the top three Google spots for ~10 search terms. But revenue was low despite thousands of daily users.
My task was to find out why revenue was so low despite thousands of users and do something about it.
Research finds a lack of market position
As usual I started with market research. I found a handful of other products offering similiar, if not exactly the same, service. What stood out was:
- None of these products had defined positions in the market, including the one I was trying to grow
- Competing tools would’ve looked right at home on a Windows 95 computer and some even required you to download their software
- Competitors had problems with privacy and security - many convert your file for free and then publish the contents for the world to see
- Only a tiny portion were charging customers
- Tools ranged from too simple to too complex
I realised my product didn’t have a defined market position but had carved one out for itself: letting you easily and reliably convert your file to a SQL database without sacfificing privacy. There was an opportunity to strengthen this position.
Talking to customers
The product had thousands of free and tens of paying customers. I talked with willing users from both groups and asked them:
- How often do you use the product?
- What does the product help you do?
- Why do you / don’t you pay for the product?
- Why did you choose the product over competitors?
- How would you complete your task if the product disappeared tomorrow?
Five things emerged from customer research:
- Pricing could be improved
- Privacy and security were important
- The user-friendly UI made an otherwise fiddly task easy
- The product solved multiple problems for different personas
- Being able to convert larger file sizes than our competitors was great
I concluded that there was an opportunity to create a strong market position around security, privacy, and a superior user experience.
A paywall doesn’t equal revenue
At the time the product had a generous free tier (which free users loved) with a single (low priced) monthly subscription option. If someone tried to convert a file that was too large they hit a paywall. Despite thousands of daily users hardly anyone was paying.
Customer research had unearthed an inadequate pricing strategy so I took a deeper look at the analytics data I had and found:
- Large numbers of people hitting the paywall but a conversion rate of less than 1%
- Healthy visits to the sign up page (different from the paywall) but conversion of less than 1%
- Of those customers who did pay, monthly churn rates were huge because people were paying once and cancelling before renewal
- Big dropoff of file conversion at the top of the free allowance. This suggested that reducing the free conversion allowance wouldn’t make any difference to revenue because people would simply chop up their files to the new free limit and convert multiple ones, which was what was already happening
Based on the analytics data and the use cases I’d discovered from customer research, I concluded that our current pricing structure wasn’t serving our customers and their diverse use cases.
Forming a hypothesis and increasing revenue
I hypothesised that we could add a 24 hour pass and an annual tier while raising prices and boosting conversion rates. The new pricing structure:
- 24-hour pass (same price as the original monthly subscription fee)
- Monthly subscription (double the original price but grandfathering in existing users)
- Annual subscription (save 20% on monthly subscription when paying for a year upfront)
Two hours after the new pricing was live someone bought a 24h pass. Three hours later someone purchased a monthly subscription.
After a month it was clear the new pricing was a hit:
- 24h purchases increased conversion rate upon hitting the paywall by 40%
- Monthly subscriptions increased by 20%
- Multiple annual subscriptions were purchased
After three months of consecutive revenue growth across all pricing tiers I believed prices could be raised again. Growth was strong enough to suggest the pricing structure was correct and could withstand a pricing change.
The goal now was to find the price ceiling without changing positioning or building out the product.
After asking willing users “how much would you pay each month/24h period to keep using this product?" every tier was doubled.
After another three months of consecutive, but slower, growth I again believed prices could be raised. But I was more conservative as I believed the product was reaching the price ceiling for its current positioning and product offering.
Prices were raised by 50%. Over three months user growth retracted slightly. But overall revenue was higher. The price ceiling had been reached.
By creating a strong market position and changing pricing to offer more value to customers I successfully 10xed MRR.
Read the article I wrote for Mind the Product about this.