Achieving sustainable growth beyond $10 million in revenue

[Webinar Transcript] Achieving sustainable growth beyond $10 million in revenue

[00:00:00] 

Introduction

[00:00:00] David Barnard: Hello and, uh, welcome to this webinar. Uh, as I say, every webinar, I hate the term webinar, but that’s what it is. So that’s what we’re going to call it. Um, today’s guest is Phil Carter. We’re going to be talking about scaling beyond 10 million, which is, uh, yeah, maybe, maybe that’s 20 million these days. I don’t know, you know, a few years ago, I used to hear 10 was like the glass ceiling for a lot of consumer subscription apps, but it does feel like.

[00:00:25] You know, somewhere between 10, 20, maybe even 25 these days is where a lot of folks start hitting a wall. Um, but anyways, we’re going to be talking about scaling beyond some of these walls where, where you kind of saturate some of that early product market fit and the kind of early low hanging fruit and subscribers and how to expand beyond that.

[00:00:45] So I want to introduce Phil first, or actually give Phil a chance to introduce himself. So Phil Carter, take it away. 

[00:00:51] Phil Carter: Sure. Yeah. Thanks for having me, David. I also don’t love the term webinar, but I guess at some point you just have to embrace it, it’s been around so long now. Um, thanks for having [00:01:00] me on again.

[00:01:00] It’s, it’s always a pleasure working with you and the rest of the revenue cat team. Uh, excited to talk about this topic in particular today. I think I’ve been on record several times over the last few months as saying consumer subscription apps are relatively easy to launch, but very difficult to scale.

[00:01:14] And so I think this is a really important question to be talking about. Um, just by way of a quick background. So my name’s Phil Carter. Um, I’ve spent most of my 15 year career in tech and specifically consumer technology, um, spent a few years as a venture capitalist in the Bay Area early on, and then, um, moved to Colorado with my wife to start our family here.

[00:01:34] Uh, and I’ve spent the last 10 years in operating roles, leading product and growth teams, um, at three multibillion dollar companies. First I bought a, um, then Quizlet where I spent nearly four years leading both the user growth and subscriptions teams. And then most recently at FAIR, um, where I led all international, international category, not market expansion.

[00:01:52] And then for the last year or so, I have been launching and scaling my own growth advising and consulting business specifically focused on seed [00:02:00] to series C consumer subscription apps. Uh, so hopefully many companies like those in the audience today. Uh, and excited to talk more. 

[00:02:07] David Barnard: Awesome. Um, so for those of you who don’t know me, I think a lot of folks know me at this point from the sub club podcast.

[00:02:14] I am growth advocate at revenue cat. We’re a platform for building and scaling subscription app businesses. So we provide a lot of the tools that help. Folks do the things we’ll be talking about today. Um, and also host the sub club podcast, run the sub club community. Uh, Phil was actually on the podcast last fall.

[00:02:32] Fantastic episode. If you want to go dive deeper into the, um, uh, his frameworks for, for building and scaling subscription apps. Um, yeah, without further ado, let’s, uh, get a little bit of housekeeping out of the way, and then we’ll jump into the meat of the, uh, webinar. So, um, if you have any questions along the way.

[00:02:53] Um, there’s a tab specifically for questions and we’ll hold all questions till the end and then we’ll answer [00:03:00] those questions in, um, kind of mostly in order of how they’re voted up. Although I probably skipped some that we may be answered, uh, you know, in, in the presentation. Um, We will be going about an hour.

[00:03:13] Maybe we may go over a little for the Q and a at the end. Um, and the last thing is this will be recorded and shared. So it’ll be on YouTube, uh, probably within the next couple of days. Uh, although, you know, don’t, don’t tune out now and I think you’re going to catch it on YouTube later. Um, it’ll be fun and, and, you know, having the opportunity to ask Phil questions.

[00:03:31] Um, you know, if you were to book a time with him to ask some of these questions, it’d be. Quite expensive. So, uh, if you stick it out to the end and ask some good questions, you’ll uh, get some great insights, uh, for free. And that’s kind of what this webinar is all about is, uh, sharing, uh, what Phil and I have, have learned over the years.

[00:03:49] Um, so the first thing we’re going to kick off is actually a poll. And one of my colleagues is going to share that poll. It may have already been live. Uh, one thing to note on [00:04:00] the poll is that it is anonymous. So we’re not, we’re not doxing you, asking you to share your revenue and it’s going to be shown.

[00:04:06] Uh, but we did kind of want to get a sense for, for who we’re talking to in this audience. Um, you know, last webinar we did was about, uh, windbacks and it was really instructive to see that most people on the webinar, um, actually hadn’t been doing, um, uh, windbacks at all. Um, so if, if a lot of folks here are maybe aspiring to scale to 10 million versus kind of already at a, a.

[00:04:32] Walker at 10 million, then, uh, Phil and I can kind of tailor the content a little bit more toward, you know, what, what might be more applicable to you, the audience, Phil, any comments on the, uh, on the poll, uh, I’d imagine you kind of worked with, uh, folks all along these different stages, like early trying to find product market fit, those early growth stages.

[00:04:53] And then of course you worked at, at companies well beyond, uh, 10 million a year in ARR.[00:05:00] 

[00:05:00] Phil Carter: I have seen a little bit all across the spectrum. I would say the sweet spot that I’ve found I enjoy most is that magical period just after a company finds product market fit, but before they’ve really figured out how to reliably and sustainably scale their business. But I have worked with, you know, pre product market fit companies, pre seed, seed stage companies.

[00:05:21] I’ve worked with companies that are much larger. Uh, and then of course, as a, as a venture capitalist, I’ve, I’ve sat on the board of, of companies that are much larger. So. A little bit, a little bit of everything, but, but I tend to love the smaller companies. 

[00:05:33] David Barnard: Gotcha. So looking at the answers so far, and it looks like a good portion of you have filled this out already.

[00:05:40] Um, looks like the majority is, is like me, I do still run a app on the side. It’s a, it’s called weather app. And I’m very much in that early stage, initial growth phase. Um, I’m at actually closing in on 100 K of, of ARR in, in my little side project, uh, which is fun. Um, but we. Looks like [00:06:00] we do have quite a few folks, um, even over, uh, 10 million in revenue and kind of everywhere in between.

[00:06:06] So, uh, yeah, really interesting. And, and thanks for sharing. Um, all right, well, let’s, let’s dive into it, Phil. 

Challenges of Scaling Beyond 10 Million

[00:06:13] David Barnard: So the first thing I wanted to talk about is the challenges of scaling beyond 10, 20 million, you know, kind of that, uh, again, as I kind of said in the intro, a lot of apps kind of hit a ceiling and, and.

[00:06:27] You know, the, the first thing that always comes to mind for me when thinking about scaling beyond 10 million is, is do you have a level of product market fit or a product specifically that in its current form will scale beyond 10 million? I think that’s kind of the first question anyone should ask. And we, we’ve seen this with calm and so many other Strava, you know, calm, it kind of hit a ceiling with the meditation and they expanded into sleep stories, Strava.

[00:06:56] Um, grew tremendously just on cycling, but they added [00:07:00] running and, you know, one of the big ways to scale beyond, um, any wall that you do hit is expanding product market fit, but then the first question is to like, be real with yourself, you know, do you have something that can scale beyond 10 million? 

[00:07:14] Phil Carter: Yeah, it’s a great question.

[00:07:15] And I think it also relates to fundraising strategies. So I’ll, I’ll actually break this up into a couple of parts. I think the first question. That any founder should be very intellectually honest with him or herself about is, uh, is my market large enough to support a 10 million plus ARR business? And number two, do I have, do I have a product that is built to drive enough organic acquisition that I’m not just going to be entirely dependent on paid advertising to get myself to scale?

[00:07:49] And the reason I think both of those questions are important is because there are a lot of consumer subscription apps that will just never be 50 million, a hundred million, 500 million ARR [00:08:00] businesses, right? You don’t have the same, in many cases, you don’t have the same network effects that marketplaces have, where you hit a tipping point and things just go exponential.

[00:08:08] Uh, you don’t have the land and expand dynamics and the net revenue retention upside of B2B SaaS businesses. And so there are just some inherent challenges to scaling these apps. Um, so number one, you’ve got to be honest with yourself around how big can this get. Yeah. And then, um, 

[00:08:25] David Barnard: Well, wait, before you move on, I want to add one thing to that list is, and it applies to my own app is, is it, you know, are you in a category that maybe potentially could be a 500 million ARR category?

[00:08:38] So like I have a weather app, the weather category in total is probably over 500 million in ARR. But there’s so many different players and even the weather channel, you know, the kind of five, 900 pound gorilla in the space is not capturing, you know, 90 percent of that market. So even if your market could potentially [00:09:00] be a 500 million ARR market, are you realistically going to be able to either steal market share or become that market leader who really dominates that category?

[00:09:10] I think that’s another kind of way to think through where you can land ARR wise. 

[00:09:17] Phil Carter: I think that’s a great point. And at this, you know, it was different five, 10 years ago, but at this point. The app stores have become so crowded. The dominant paid marketing channels like meta and Google have become so saturated that odds are, if you’re in a market that can sustain a billion dollar consumer subscription business, there’s an awful lot of competition, which doesn’t mean you can’t win.

[00:09:40] It just means you have to be clever around building what I refer to in my subscription value loop framework as a really. Differentiated and enduring core value promise. And then you have to be really smart about how you bring that product to market so that you can do it cost efficiently. And I think this gets to the second point you were making, which is, okay.

[00:09:57] Um, maybe you’re Strava and you start [00:10:00] with cycling or you’re calm and you start with meditation, but at some point, either because of competition or because you’ve tapped out your early adopters, um, what tends to happen is you move beyond your core. Average LTV goes down. Average customer acquisition cost goes up.

[00:10:18] If you’re relying on paid acquisition, your unit economics start to look upside down. And so Casey Winters and others have described product market fit as a moving line. It’s not like it’s, okay, you hit product market fit and you’re done. Because your customers are evolving. The ecosystem is evolving.

[00:10:33] More and more competitors are entering the market, especially if you’re in a really large attractive category. And so it’s a moving target and you have to continue innovating both on the product side and on the go to market side in order to stay ahead of that. 

[00:10:46] David Barnard: Yeah, totally. And then what was the second point I interrupted you?

[00:10:49] What was the second point you wanted to make or was that it? 

[00:10:53] Phil Carter: That was it. So the first point was be honest with yourself around how big your market is and whether you have a product that can [00:11:00] scale organically, and that will influence things like fundraising strategy. Do I bootstrap Do I raise a small friends and family around and maybe bring in some, some angel investors and that’s enough?

[00:11:09] Or do I actually go raise a large institutional round of investment? And you don’t need to know all that up front, but it helps to understand how big you think your product can get. That’s point number one. And then point number two is, um, regardless of the answer, that first question, just recognizing that product market fit is a moving target.

[00:11:27] And so you need to continue to innovate on your product and go to market strategy, stay ahead of the curve. Okay. But once you’ve raised institutional funding, the stakes are much higher because now, you know, if you’re a 10 person team and you build a 10 million ARR business, that can be a great outcome for the founder and everyone else on the team.

[00:11:44] But if you’re a 10 million ARR business and you’ve raised even 10 million in venture capital, let alone 50 or a hundred million venture capital. Not nearly good enough. And so you’re sort of welded to the cockpit at that point. 

[00:11:56] David Barnard: Yeah. Yeah. It’s tough. Um, and [00:12:00] you’re, you’re, we were kind of chatting before, uh, the webinar started about how understanding that market, you might want to just raise an angel around and see how far you can get, raise a seed round or, or even.

[00:12:14] Kind of, as you raise money, make sure you’re raising money with folks who are aligned with a more modest outcome. Um, and, and even raising from folks who are willing to kind of, um, adjust those expectations along the way. So if you get to 10 million in ARR and you realize this is not going to hit a hundred, like, are they okay with.

[00:12:40] Can you, can you do, you know, there, there’s actually, we, we did a webinar on this maybe two years ago, uh, about funding sources for subscription apps. And one of the folks we had on was, um, I believe it’s, it’s now called, it used to be earnest capital. And now it’s a calm fund or something like that. Or maybe it’s reversed.

[00:12:58] Um, but he has a, [00:13:00] like, Okay. Totally different model for venture capital, where he and I mean, it’s kind of like a super angel ish. Um, but it’s structured where you can buy back, um, equity in the company. And so the, you know, the returns are high, you know, it’s going to be way higher than if you, you know, Took out a loan, but you probably shouldn’t be, you know, taking out a loan, especially a personally guaranteed loan or, uh, running up the credit cards, uh, to try and scale your consumer’s encryption business.

[00:13:28] So there it’s, you know, non recourse, but you can potentially buy back equity and that’s kind of built into the structure. And so, yeah, as you’re, as you’re thinking about funding, just realizing that depending and being honest with yourself about where, how big the market can be. Really be and how big, how much competition you’re going to face along the way.

[00:13:50] What’s your organic growth strategies are going to be in the market you’re working in. Um, there are so many other ways to build and scale from bootstrap [00:14:00] to that like kind of a calm, fun model to angels who are aligned. And even, you know, I mean, these days the term angel can stretch to millions of dollars and, you know, really, Seed rounds and precede rounds can, can be rather large.

[00:14:14] Um, but yeah, just knowing kind of what you’re getting into and what you’re signing up for when you, when you raise that capital, uh, I think it’s super important. 

[00:14:24] Phil Carter: Yeah, I agree. And just to put one other point on this. So one of the things we talked about earlier is these app categories have gotten so crowded that more often than not at this stage, new entrants need some sort of niche they can start with and really dominate.

[00:14:42] Before they earn the right to expand more broadly into the full TAM of that market. So Strava’s example was cyclists, then moving into runners, then moving into everyone else. AllTrails, you know, is backcountry skiers and search and rescue professionals, and then they gradually moved into the much broader casual [00:15:00] hypermarket.

[00:15:00] Uh, you know, Duolingo started primarily with more affluent U. S. English speakers who wanted to learn foreign languages for trips or for their studies. And at this point, it’s flipped. And the vast majority of their, I shouldn’t say the vast majority, but a huge percentage of their language learning is, um, uh, international users who are looking to learn English, right?

[00:15:21] And so figuring out a smaller, um, um, Less competitive niche that you can dominate as a starting point is both a really good approach to getting early product market fit and getting some traction and momentum. It is also highly compatible with the strategy of like, don’t raise too much funding too quickly.

[00:15:40] Let the market pull you. And if you find that, okay, you’ve, you’ve dominated your niche, you’re growing like crazy, you’ve surpassed 1 million, 5 million, 10 million in ARR, and you want to raise a big venture round, but, but at that point you understand your union economics, you understand the market and you’ve got visibility or line of sight into how big this could be great.

[00:15:59] [00:16:00] That’s a fantastic strategy. But I think doing the opposite where you’re like, we’re going to go be a 500 million weather app, even though there are a million other weather apps out there is really, really tough. And you could set yourself up for for failure if you raise too much too quickly. 

[00:16:14] David Barnard: Yeah, totally makes sense.

User Acquisition Strategies

[00:16:16] David Barnard: Um, so then the next topic, and we kind of already, um, You know, hinted at it is that one of the biggest keys to scaling beyond 10 million is user acquisition. And, and you kind of already alluded to the fact that, you know, depending solely on a paid user acquisition is, is a tricky way to scale. And especially these days, you know, I think, uh, some of the early examples like calm, you know, they hit a hundred million and beyond, you know, Just being incredibly efficient and ruthless with their scaling paid user acquisition.

[00:16:51] Uh, but they also did so at a time when, um, that was easier to do. Like the idea of, you know, ATT wasn’t in place. Um, [00:17:00] there was a lot of arbitrage opportunity on, you know, Facebook. They were kind of early to a lot of these like paid user acquisition strategies. And then the reality is today that just looks really different.

[00:17:11] So as apps are kind of hitting that million. 5 million and seem like they’re accelerating. What are some of the things you watch out for and, and, and talk to your clients and people in industry about, about how to keep that momentum going and kind of break through some of those ceilings. 

[00:17:30] Phil Carter: Sure. Well, I think you already touched on the biggest washout, which is don’t get addicted to paid acquisition.

[00:17:36] At least not before you really understand the economics of your business and how they’re likely to change over time. Um, I’ve actually gotten to know Duan Wang, who used to be the chief product officer and chief growth officer at Calm. Um, during that payday of like, you know, Apple hadn’t released app track and transparency yet.

[00:17:53] You still had much better attribution on paid advertising. And so it was possible for companies like calm that already had a lot of momentum to grow very [00:18:00] quickly on a channel like Facebook. And to her credit, I’ve asked, I’ve asked Don to come be a guest speaker for my course a couple of times. And she said, you know, I just don’t think that a lot of the strategies we used at calm three, four years ago, they’re not as relevant today.

[00:18:13] Like the game has changed. And so I think that’s very important advice as far as specifically what that means for your business. Obviously every product, every category, every customer is different, but to try to, um, paint some generalities as far as how I might approach this question. I think the first one would be do your best early on to figure out how to grow organically for as long as you can.

[00:18:38] Now that doesn’t mean you can’t run a handful of paid marketing experiments across a few channels and see what works best for you and sort of know in the back of your mind. Okay. If we need to turn on the gas unpaid. Are we going to go to Facebook? Are we going to go to Google? Are we going to go to Tik TOK?

[00:18:53] And if so, what can our budgets look like? And what did the unit economics profiles look like? You know, growing [00:19:00] organically is kind of like training at altitude. Like I live in Colorado, right? It’s a huge advantage. If you can figure out how to grow in the early days through word of mouth or SEO or, um, you know, organic posts from, from micro influencers on Tik TOK.

[00:19:14] Like whatever you can do. To grow without having to spend a huge amount of money is going to give you a huge amount of flexibility and latitude. And then at some point you are going to have to turn on paid. I mean, even company Duolingo, I teach a case study on Duolingo in my Reforge course. They, they basically didn’t spend a dollar on paid acquisition for the first five years of the company’s existence until they launched Duolingo plus for the first time in 2017.

[00:19:38] Uh, and even today, 80 percent of their acquisition is still organic. But even Duolingo at this point is spending millions and millions of dollars acquiring users through paid advertising. So at some point you have to turn it on. Um, but the first point is try to grow organically as long as you can. The second point is once you’re ready to turn on paid, um, test a few of these different channels and make sure [00:20:00] you’re choosing the primary channel that works best for you.

[00:20:02] And for a lot of consumer subscription apps, that’s Facebook. But that’s not true for everyone. Increasingly, I think a lot of apps are seeing success on ladder. Sorry, not ladder on Tik TOK and some of these other longer tail channels. Um, and so make, make sure that you’re not just doing what everyone else is doing.

[00:20:17] Make sure you’ve really done your homework and figured out what your, uh, unit economics look like across these various pay channels. And then I think the last thing is in zero to one, uh, Peter Thiel talks about this concept of the power law of distribution, um, Brian Balfour and others have, have also written blog posts on it, but it’s this idea that Most fast growing tech companies get something like 70 percent or more of their acquisition early on from a single channel.

[00:20:43] And so figuring out what that channel is for you early on is really important. And then the second key is keep an eye on how your conversion metrics are trending through your funnel. On that acquisition channel. And [00:21:00] as you start to see degradation in those metrics, cause at some point you will start to saturate the channel and it won’t perform as well as it was performing before, make sure that you aren’t waiting the last minute to figure out what your second and third channels are going to be, because that can be a really painful transition.

[00:21:14] David Barnard: Yeah. One of the things I’ve been thinking a lot about lately on this topic is looking for leverage. And so some apps do find leverage in paid user acquisition. Um, I don’t know if that was a slip earlier saying ladder, but they’re kind of an example. Uh, maybe you were thinking about them and their success on Tick Tock, uh, and they’ve actually expanded that to reels.

[00:21:38] And, uh, uh, they mean to have the, uh, the founder, uh, Greg back on the podcast to talk about this. Uh, Um, but they, they, they’re early. Um, you know, I don’t know exactly what their ARR is, but, but they did scale on paid user acquisition, but they did so with a lot of leverage. Like they’re in the health and fitness category where people are willing to pay more, they [00:22:00] had a very high price point, but they had a product that was super valuable that worked.

[00:22:04] Um, but, but there’s so many other examples of apps that try. Um, and again, another, uh, a person I have on the podcast was Alex from the plant care app, Greg, and one of the things we talked about on the podcast, like three years ago was that they found some incredible leverage in working with. Um, Plant retailers to put little tags in the plants that are sold, like perfect place to meet your ideal customers when they go buy a plant and then they want to, they just spent 30 bucks, 60 bucks on a plant.

[00:22:38] That’s the moment that where they’re like, most motivated to, to make sure that this plant is going to survive and thrive in their home. And so, so they put these little tags in there and again, you know, this is something, uh, um, Alex has, has talked to me about and is it, we’re actually going to probably do a followup podcast in the not too distant future.

[00:22:56] So I’m not sharing anything he shared privately that he wouldn’t want, you know, said [00:23:00] out loud, but, um, They, they tried to, to, to go from there and to pay user acquisition and they just could not make it work. And when they doubled back down on that initial strategy that helped get them traction, they’ve seen tremendous success.

[00:23:14] And now they’re partnering with, with the, the plant suppliers at like Lowe’s and home Depot and some of these biggest, uh, plant retailers in the world. Um, to kind of go back to that original strategy where they had leverage and found success. And so, um, some of these like. Early strategies that you find that work, like also don’t give up on those either.

[00:23:36] Um, but the thing I see more and more when you really dig deep into some of the biggest apps on the app store is that they, they all typically have some point of leverage. Like we talked about all trails earlier. And their point of leverage was SEO, that they did an incredible job with SEO, where they were getting tons of organics.

[00:23:55] People search whatever trail find it on the web end up. And [00:24:00] so like, look for those kind of funnels and opportunities where you have leverage in oftentimes. And, and to your point about how competitive the markets are, how saturated the ad channels are paid is often not a channel where you’re going to be able to find much leverage, especially early on.

[00:24:17] Yeah. And it’s, and so then it’s just tough. And so if you can find a point of leverage early on and then find ways to continue scaling that, even when you layer on paid, uh, uh, paid acquisition, you’re just going to be in such a better place than if, if you’re constantly trying to, to, you know, optimize to the penny because you just don’t have much leverage in that paid advertising.

[00:24:42] Phil Carter: Yeah, I think that’s right. Well, and maybe the meta point here is. Don’t just do what everyone else is doing. I want to go back. And by the way, the reason for that, and, um, I, I have a guest post coming out soon in Lenny’s [00:25:00] newsletter where I talk more about this, but the reason for that is consumer subscription is just a hard category and, uh, the vast majority of consumer subscription apps.

[00:25:11] And this, and you can see this in the data from Revenue Cats 2024 state of subscription apps report, have metrics that won’t support. A 10 million, 50 million, 100 million plus AR business at scale. Like the retention is too low. The subscriber conversion is too low. Um, they’re just a number of headwinds that make it really tough, which means you can’t just play the game the way everyone else is playing.

[00:25:34] If you want to be one of the 95th percentile apps, right? If you want to be an indie developer or a small team making a good living on a great. 1 million, uh, you know, even 500, 000 ARR business. Like that’s great. That’s, that’s, that’s a really, um, great place to be. But if you want to be at the top, then you have to find contrarian ways to win.

[00:25:55] And I think the two examples that you gave Greg and ladder are great examples in two different ways, right? [00:26:00] Like Greg, uh, and I’ve listened to every sub club podcast as David knows. Uh, he talks about how they went into literally went into plant shops early on and like left. These QR codes that people could use.

[00:26:12] To make sure that the plants they were buying in the plant shop lived longer by using the Greg app. That’s like a brilliant do things that don’t scale, um, to quote Paul Graham strategy for getting, getting Greg off the ground ladder, very different, right? Ladder is going into this extremely competitive fitness space.

[00:26:30] And by the way, they did try running ads on Facebook and Google early on during the pandemic. Um, Greg talks about that in his podcast and it just. Out didn’t work. So they did try what everyone else was doing at first. And it was, it was a huge failure, but then they stepped back and they said, well, what’s different about our product?

[00:26:50] We have this group coaching model. Uh, the, the coaches are essentially the celebrities of our product. They’re what motivate our, um, [00:27:00] members. They’re what keep retention higher that we’re up there, what allow us to command a higher price point. And what would be a really good channel for leveraging the celebrity of these influencer coaches.

[00:27:11] It’s a channel that’s much less saturated than Facebook. There’s still a lot of room for innovation and upside on TikTok. So let’s see if we can get an organic acquisition flywheel going with these coaches on TikTok. Well, that started to gain traction and then they just doubled and tripled down on it.

[00:27:24] And now they’re at the point where they are spending large amounts of money on TikTok spark and brand ads. But the reason they can do that is because they’ve, they’ve dialed Every dial in their playbook to absolutely maximize the efficiency of their organic and paid acquisition on Tik Tok, which means they can muscle everyone else out, right?

[00:27:43] They’ve got a higher price point than a lot of the other fitness apps. They’re way more efficient at being able to predict the LTV of every customer who comes in their onboarding quiz. And so they can afford to spend large amounts of money on Tik Tok because they know it’s going to be efficient.

[00:27:55] They’re going to be able to pay it back quickly. And And their unit economics are going to be able to support, [00:28:00] uh, that’s been. 

[00:28:01] David Barnard: Yeah, totally. Um, and speaking of, uh, ladder is high price. Um, well, uh, my daughter and, uh, wife are actually subscribers. So, uh, and, and I, I have a personal policy of not taking freebies in the industry.

[00:28:17] Uh, you know, uh, uh, SAS providers, uh, individual apps, cause I want to, I want to feel the pain, you know, and feel like a customer just like everybody else. Um, so that my perspective isn’t overly skewed. So I’m actually spending as a family, we’re spending 60 bucks a month on ladder. Uh, and it’s a fantastic product.

[00:28:38] Um, but the next topic I wanted to bring up is pricing and packaging. And that’s again, one thing that. Ladder has done really well. And I think a lot of apps that are going to scale beyond 10 billion need to figure this out. Like if your product is absolutely fantastic, probably should be charging more and experimenting [00:29:00] with higher prices because this is something really interesting that I think, um, bending spoons is doing, uh, you know, some of their, some of the ways of running some of these acquisitions are, aren’t, um, going over well with some of the customers.

[00:29:13] It’s like. You know, um, Evernote, they acquired that and there have been a lot of complaints about them not working on the product and things like that. And I think that’s where it can get dangerous, but they’re raising prices significantly because there is a cohort of folks in a lot of these big subscription apps that are willing to pay two, three, five times more than, than kind of a historic price.

[00:29:36] Prices for subscription apps have been because they’re just delivering so much value. 

Pricing and Packaging for Growth

[00:29:41] David Barnard: So how do you think about pricing and packaging in relation to scaling beyond 10 million? 

[00:29:49] Phil Carter: Yeah. So, uh, part of the guest posts I’m doing for Lenny is on, um, specific tactics for scaling consumer subscription apps to overcome some of the headwinds that we [00:30:00] talked about earlier.

[00:30:01] And I roughly stack rank them in order of importance and towards the very top of that list is pricing and packaging. And it’s kind of remarkable that. You know, I’ve, I’ve run hundreds of AB tests, if not thousands now across dozens of different consumer subscription businesses, both as an in house leader at Quizlet and more recently with the clients I work with.

[00:30:23] And I consistently see that pricing and packaging is one of the highest leverage, most impactful things that these businesses can do to accelerate revenue growth. By the way, well, in many cases, keeping subscriber growth neutral or, or even accelerating it as well. Um, and yet so many companies will like set a price and then they won’t revisit it for years.

[00:30:45] Which means they’re just leaving a lot of money on the table. Now, having said that, I think pricing and packaging are two very different things. So on pricing, there are a number of, uh, very reliable tools that you can use. Um, relatively [00:31:00] cheaply and inexpensively to help determine your optimal price point.

[00:31:04] And that’s above and beyond just running a pricing test in production, right? Like ultimately you want to run an AB test to make sure you’ve got the optimal price, but tools like Van Westendorp analysis and conjoined analysis. Uh, and there are a couple others, Gabor Granger that you can use are really helpful for saying, okay, um, you know, what is the optimal price range for my product?

[00:31:26] Okay. And how does that vary based off of different user demographics, like age, geography, um, depending on the nature of your product, you might have different personas who are using your app. And so understanding those variables is really important because then when you go run the AB test in production, not only can you be more targeted about which prices you test.

[00:31:49] But when it comes to things like specialized plans for families or students or, um, running discounts that allow users who don’t convert into subscribers within the first 24 to 48 [00:32:00] hours, you’re just much more intelligent around who you should be targeting with these discounts. Um, and, and how much the discount should be and how you should be communicating them.

[00:32:07] So that, that’s my recommendation on price is price. I think it’s something that should be revisited at least, at least once a year, if not more frequently, especially for larger subscription companies. And it’s something you’re not, you’re never done optimizing. You should just continue to revisit it and make sure that you’re priced correctly because there’s a ton of leverage there on packaging.

[00:32:28] There’s a lot of complexity that can go into subscription packaging. And for like prosumer SAS or enterprise SAS businesses, you know, multiple tiers, lots of different bells and whistles. That makes sense. Cause it’s a considered purchase. It’s professional buyer. With consumers in general, less is more like consumers have short attention spans.

[00:32:47] Uh, if you, if you overwhelm them with complexity and make them think too much about what they’re buying, you’re just going to see conversion rates go down. So the vast majority of consumer subscription apps have a single subscription tier, multiple durations. So, you know, maybe you’ve got a monthly plan, an annual [00:33:00] plan, but a single tier.

[00:33:01] And usually. That’s enough. But as you start to become larger and, and if you start to develop more than one premium value promise, and I think dating apps like tender and Bumble are great examples of this, where tender plus tender gold and tender platinum all have different. Promises they’re making to their subscribers.

[00:33:21] Then there are tools like conjoined analysis in particular. It’s really valuable because you’re not just looking at the overall willingness to pay for the product. You can get a read on the relative willingness to pay and the marginal willingness to pay for every individual feature. And that means that you can be more intelligent about how you’re packaging those premium features into multiple subscription tiers.

[00:33:40] But again, that’s something that I wouldn’t worry about as. Series a series B business, because more often than not, the answer is just have a single tier. 

[00:33:49] David Barnard: Yeah. And how do you think about pricing and packaging in relation to retention as well, because, you know, I mean, the way I’ve always thought about it is, is it typically, [00:34:00] A lower price overall.

[00:34:02] So, and especially early on is going to lend itself to better retention, you know, and again, using me as an example, it’s like, I have asked my wife and daughter multiple times, you know, is ladder really worth. 60 bucks a month and the, the product delivers. And whenever I asked, they’re like, Oh no, this app is amazing.

[00:34:25] You know, I can’t imagine working out with any other app. I’ve tried other apps that’s cheaper than a, um, you know, orange theory or other places my wife has done in the past. Um, and so I think that’s, that’s, you know, part of what you need to. Think through in this as like, you know, are we actually delivering sustainable value at this price point?

[00:34:45] And then it’s just easier at a lower price for people to be like, Oh yeah. You know, if, if ladder were 10 bucks a month, I wouldn’t even be asking them that question, right? Like if it was 10 bucks a month, the two of them together is 20 bucks a month. That’s [00:35:00] cheap. Whatever, like fine, you know, at 30 bucks a month, 60 bucks for the two of them.

[00:35:05] I asked that question, like, is it really delivering the value that, that the price is commanding? Um, and so, yeah, how do you think about that in relation to retention and kind of like hitting that sweet spot, especially early? And then maybe, and that that’s maybe the case where we’re thinking about.

[00:35:19] Bending spoons is with like a much more mature product. Like Evernote that people have been using for 12 plus years. Maybe there is that opportunity where the value is so much higher. They, they, that the folks who have stuck around for a decade are willing to pay more and it’s not going to hurt retention as much.

[00:35:38] Phil Carter: Yeah, it’s, it’s an important question and you’re absolutely right. I mean, obviously on the margins, a lower subscription price is generally going to lead to both higher upfront conversion. And better long term subscriber retention. There are some exceptions to that. And we’ve talked on the podcast about GIF and goods and that, and that sort of thing, but, um, [00:36:00] but that’s the rare exception, right?

[00:36:02] Right now, the counter argument though, is. We talked earlier about how, no matter how hard you try to grow exclusively through organic acquisition channels early on, at some point, you’re going to have to turn on paid and you’re going to have to probably continue to ratchet up your spend on paid acquisition channels to continue scaling, uh, is just sort of inevitable at some point.

[00:36:23] And so what that means is you don’t want to be artificially pricing your products so low, just to spur short term growth that you don’t figure out how to. Cool. Set yourself up for sustainable unit economics down the road. When you inevitably have to start relying more on paid acquisition. The other problem you can run into, and this happened with Quizlet, and I think it happened with Strava too, is you set your price too low, you train your user base to expect a low price point.

[00:36:54] And then the moment you increase your price, even if it’s imminently reasonable, right, even if it’s lower compared to many [00:37:00] of your competitors. You’re likely to trigger outrage among your user base because they’ve just gotten used to a lower price. And it makes sense, right? Like humans don’t like losing things.

[00:37:11] And so when you tell them, okay, it costs 10 and now it’s going to cost you 20, um, or even 12, that can be really frustrating. So I think the answer, and this is the advice that I generally give my clients when I work with them. And we’ll run a subscription survey and we’ll do the conjoint Van Westendorp analysis.

[00:37:26] And that’s the science part of it. But then the art part of it is. What, what is our short to medium term growth strategy and how does pricing fit into that? And, and it runs across a spectrum, right? Like if you’re a product like Quizlet that is very driven by word of mouth and SEO, then you probably want to keep your price a little bit more on the lower end of the optimal price range that Van Westendorp would tell you to price at.

[00:37:51] Because on the margins, you’re going to delight your subscribers. That’s going to lead to more content creation, more viral word of mouth, higher NPS scores, higher product market fit scores, and that [00:38:00] fuels this virtuous cycle of organic growth. But there are many subscription products that don’t benefit as much from word of mouth and SEO.

[00:38:07] And that really are dependent on paid acquisition to scale, even relatively early on. These would be products like masterclass, I think is a good example, or, uh, some of the hardware, uh, devices like aura ring or whoop, right? Like those are. Expensive products. There are significant costs underlying their services.

[00:38:24] And so for those, it’s really dangerous to price your product too low because you’re just sort of delaying the inevitable price increase you’re going to need to make later. And in many cases, it’s actually better to do the opposite. Like if you’re an aspirational product, like masterclass price, your product, high, early, your early adopters are going to have the highest willingness to pay.

[00:38:44] You can build this aspirational premium brand. And it almost becomes a virtuous cycle in its own right, where because you have a higher price point, you have stronger unit economics, you can afford to spend more on paid acquisition channels, which means you can muscle out the competition [00:39:00] and you’re training users that, okay, if I’m paying this much for a product like this, I’m expecting a lot.

[00:39:05] But then if you deliver on that, then it can be a really positive experience. So it really just depends on your underlying growth strategy. 

[00:39:12] David Barnard: And then speaking of which, I think a lot of the tactics that we’ve talked about on the podcast otherwise are maybe tactics that some of that, if you aspire to be a hundred million, a 500 million ARR business, you maybe shouldn’t use except for like the very earliest stages.

[00:39:30] For example, in the very last webinar, we talked about windbacks and how it’s a good idea. Um, especially early stage and say, you know, if they’re not willing to pay, let’s take ladder as an example, because they don’t do this, but if they were to have that price of 30 a month, and then you don’t subscribe, and then immediately they’re offering you 20 a month.

[00:39:51] You don’t subscribe, they offer you 10 a month. You don’t subscribe, they offer you 5 a month. So now all of a sudden you have ladder. would have a cohort of people who are [00:40:00] only paying 5 a month. And then over time they become the next Strava where they’re a massive, you know, people are talking about them.

[00:40:09] There’s word of mouth. And then somebody is like, Oh yeah, ladder’s awesome. I can’t believe I’m only paying 5 a month. And people are like, I’m paying 30 a month. What are you talking about? And so. And that’s what you were talking about with Strava too, is like, once you kind of set these pricing expectations and you have whole communities around your product where when you raise a price, there’s like this big upper or, um, you know, if you’re aspiring to be that kind of 500 million AR app, maybe don’t lean as heavily, unless maybe just in the very early stages on those kind of over Discount strategies because of what you were saying of, like, you’re, you’re going to set these expectations.

[00:40:47] You’re going to then have these legacy of people on all these different plans. And like, then it, then it gets to be a little bit of a mess. And then when you try and clean it up by raising that person paying 5 a month to 30 a month, that’s a much harder [00:41:00] thing than even if you do a black Friday sale and it’s 25 a month versus 30 a month.

[00:41:05] And so some of the kind of common strategies that are, are employed by scaling apps that are, you know, trying to get to a million dollars in ARR maybe aren’t the best strategy, especially once you hit that mark and then try to scale beyond. 

[00:41:20] Phil Carter: Yeah, I think that’s right. And we don’t have to spend a ton of time talking about discounts, but the quick thing I’ll say on discounts is they can be a very effective.

[00:41:29] If tool, if used as a scalpel and not a blunt instrument. And what I mean by that is, uh, in my course, I talk a little bit about. I was an economics major in college. So naturally I go back to like your economics one on one curves and looking at consumer surplus versus producer surplus. And I won’t bore everyone with the details here, but at a high level, what discounting does is it allows you to charge a higher break base price in theory, but then if you’re, um, [00:42:00] Tactical about targeting the right users with discounts.

[00:42:01] And that might be students who have lower willingness to pay, or it might be any user who installs your app, but doesn’t convert into a trial or a subscription within the first 24 to 48 hours, they get an email offering them a 15, 30 percent discount, and by the way, uh, pro tip, send that discount through an email, route them to a web based checkout flow, you can avoid the app store fees and you still end up neutral on the transaction, but you’re, you’re capturing subscribers.

[00:42:26] You wouldn’t otherwise capture. So there, there are some of these tricks you can use, uh, where, where essentially everyone wins, right? The high intent subscribers are still paying a very fair price. The lower intent subscribers you’re able to capture at a targeted discount price, but you’re doing it in a way where you’re not just like spamming all of your users with 40 percent off, 50 percent off, you know, like the Oprah Winfrey, you get a discount, you get a discount, you don’t want to do that because you’ll erode the Your brand, you’ll, you’ll erode trust with your users.

[00:42:58] And that can be a very slippery slope. And [00:43:00] then I guess the last thing I’ll say, and Strava ran into this, I think they ultimately recovered and did a very good job with it, but when they increased their prices a couple of years ago, they didn’t communicate it very well. 

[00:43:10] David Barnard: Yeah. 

[00:43:11] Phil Carter: It wasn’t that, you know, they hadn’t raised their prices in like over a decade, more or less since the app launched.

[00:43:16] And so I don’t think anybody. Would have said that Strava overpriced their product with the price increase. It was simply that the rollout and the communications around that price increase weren’t handled as smoothly as they could have been. And so they faced a lot of backlash from that. And so that’s the other point.

[00:43:32] And you’ve got a lot of great podcast episodes on this, David. Um, there are folks smarter than I am on pricing stuff like Jake Moore at super wall, who just talk about if you’re going to increase prices, make sure that you’re communicating it clearly. And ideally, uh, launch the price increase around the time that you are adding additional premium value to the product.

[00:43:53] That could be a new premium feature. It could be an expansion on existing premium features, but that makes it a little bit of an easier pill to swallow. [00:44:00] 

[00:44:00] David Barnard: Yeah, totally. Um, All right. 

Subscription Value Loop

[00:44:03] David Barnard: And the time we have left, I did want to dive into your subscription value loop. Um, now, again, we’ve talked about this on the podcast.

[00:44:12] You’re actually, um, doing the keynote, uh, at our upcoming app growth annual, uh, conference. Um, for those of you who haven’t registered, there will be a, uh, Uh, in person event, um, and then also, uh, stream. So if you haven’t registered, um, go register for that. Phil’s doing the keynote. His keynote will be streamed.

[00:44:32] Uh, and he’s going to dive way deeper into the subscription value loop and going to, uh, share a lot of this data that he’s been compiling and that we’ve been helping him compile with Revenue Cat, um, to build this tool that’s also going to be a post on, um, Lenny’s blog. Um, so there’s a lot more to dive into around the subscription value loop, but I think we’d be doing a disservice to folks to not at least talk about this and then maybe kind of tie it back to some of these topics that we’ve been discussing.

[00:44:59] So, [00:45:00] uh, yeah, tell, tell me what your subscription value loop is and then, uh, maybe just a quick overview in relation to kind of what we’ve been discussing. 

[00:45:09] Phil Carter: Sure. Yeah. And I will be the first to say that. I wish I had had a tool like this when I was leading the growth team, the product growth team at Quizlet.

[00:45:18] Um, this, this sort of coalesced over the course of the last few years as I’ve been working with a lot of different consumer subscription apps. And the reason that the framework emerged was I kept hearing companies using a lot of the same language. Like, okay, how do we think about what core product teams should be doing versus what marketing or growth marketing teams should be doing versus growth product teams?

[00:45:40] And how do, how do all those pieces fit together? And what came out of that was. Well, there’s this idea of value creation, which is generally what core product is responsible for, right? Like creating new value in the form of a unique and enduring value promise that is compelling to subscribers. And in [00:46:00] some cases for users as well, if you’re a freemium product, then there’s value delivery, which is how are we going to distribute our product?

[00:46:06] And in this case, a mobile app to our users. And how are we going to do that cost efficiently in a way where we don’t run out of money or where unit economics aren’t upside down. And then finally, and I think this is often the most overlooked step for a lot of at least early stage consumer subscription businesses is value capture.

[00:46:22] Like, how are we going to recapture a high enough percentage of that value from our subscribers? In order to reinvest resources into the business, reinvest resources into product innovation and reinvest resources into paid marketing campaigns. As we, as we begin to scale up paid acquisition. And so all of this has come together in, in this framework that I call the subscription value loop.

[00:46:46] Um, it’s your core value promise at the center surrounded by these three steps, value creation, value delivery, and value capture. And, uh, it started qualitative framework. What I’m actually working on now, and thanks to revenue cap for all the help with this. Um, I I’m [00:47:00] building a tool called the subscription value loop calculator that takes, uh, revenue caps, proprietary data from over 30, 000 subscription apps and looks at by country and by category.

[00:47:11] What are the benchmarks that your business should be comparing its performance to for key growth metrics across each of these three steps that ultimately ladder up to your LTV over cap ratio and payback period. Um, so I’ll stop there before I ramble too long. Like that’s the framework at a high level.

[00:47:27] Um, that’s the tool that we’re building in the subscription value loop calculator. And then I’m happy to go into more details. 

[00:47:32] David Barnard: Yeah, no, I think that’s a great overview. And I think with that, I, we we’ve, we’ve, uh, whetted people’s interest enough to say, go, go listen to Phil’s episode of the sub club podcast.

[00:47:43] Uh, if any of my. Colleagues. I think Peter’s in the chat. You can, uh, share that podcast if you didn’t share it already in the chat. Um, so, you know, Phil’s done a lot of great content on this. And then, um, you’re also, I think, are you still registering for the next cohort of your Reforge course as [00:48:00] well?

[00:48:00] Where you go into like much that, so I was in the very first cohort. I gotta say, I mean, I love you, Phil. And, and, you know, it felt like, uh, you know, I’ve learned a lot from you, but when I signed up for the course, I was like, well, he was already on the podcast. Phil and I’ve chatted a lot. Like, I don’t know how much I’ll learn, but you know, I want to support Phil.

[00:48:17] I want to be in this class, but wow. I, it was fantastic. I mean, just, you know, when, when you have hours and hours and a lot of supplemental content and guest speakers, like it was, Incredibly valuable and, and genuinely like way more valuable than I expected. Like, Oh, I know all this, like, it’ll be interesting, but I’m not going to learn as much, but I was proven wrong very quickly.

[00:48:42] Um, so yeah, are you currently signing up folks for the next cohort or when would, will the next cohort be a launching? 

[00:48:49] Phil Carter: Yeah, well, first, thanks for all the kind words, David. I’ll admit, I put a couple hundred hours into building the course around this time last year, Q4 of 2023. And, uh, so thanks for [00:49:00] being one of the guinea pigs who were brave enough to sign up for that first cohort.

[00:49:03] But it’s gone very well. I’ve run a couple cohorts now. Over 200 members have taken the course. Um, close to an 80 percent NPS score. We’ve had some fantastic guest speakers, uh, Robbie Mehta, who was the former chief product officer at tender, uh, Uri Timmon, who led growth and marketing at Grammarly for nine years.

[00:49:19] Uh, Gina Gotthil from Duolingo. We’ve had speakers from Strava, uh, All Trails, Stitch Fix. So it’s a great group. And it’s a chance to not just learn the theory that we’ve been talking about today, but meet some of the practitioners who’s really done this at some of the very best consumer subscription apps in the world.

[00:49:34] And the next cohort is launching in September, so it will run September 17th through October 8th. It’s a four week course. 90 minute live event each week for four weeks. And then there’s a bunch of asynchronous course content that everybody can read on their own. 

[00:49:49] David Barnard: Yeah. Awesome. And, uh, we’re going to jump to Q and a, but anything else you want to share as we kind of wrap up the meat of this, uh, presentation?

[00:49:57] Phil Carter: No, I’ll drop a few links, uh, in the, in the chat. [00:50:00] Um, We already talked about the Reforge course, but I do have a free sub stack where I just put out, um, sort of my thoughts and, and some of my theories around for Shemale Loop and, and other, other ways of, of maximizing growth for consumer subscription, um, business models.

[00:50:13] And then the last thing is, you know, I spend the majority of my time now as a growth advisor and an investor. And so, um, I, I work with about half a dozen clients at a time. If you’re a consumer subscription business that has product market fit, and it’s just looking at how to accelerate your growth. Um, feel free to reach out to me anytime on LinkedIn.

[00:50:30] I’m Phil G Carter and would love to learn more about you and your business. 

[00:50:34] David Barnard: Awesome. All right. 

Q&A: Growing Your Subscriber Base From 100 to 1000

[00:50:35] David Barnard: Well, let’s uh, let’s jump into the Q and a, um, I have not been following the question, so this is going to be a, uh, surprise to me. All right. So, The top voted question is from Wooter. Um, I have a meditation app with 100 active subscribers.

[00:50:58] What would be the first steps to grow [00:51:00] it to a thousand subscribers? Um, I, I like this question because it, you know, we maybe didn’t tailor this, uh, overall. To that 40 percent who are like me under a hundred K and, and MR and ARR, um, and kind of in that very early stage. So I liked that this first question is addressing that like very early stage, which was the majority of people who listened.

[00:51:21] So hopefully most of you stuck around, but Phil, what’s your top advice when you’re, when you’re small and trying to grow? 

[00:51:31] Phil Carter: Yeah. I mean, first of all, congratulations on getting your first hundred users that like, that may sound small, but that’s hard to do, right. Especially if they’re retaining. And so I think the next step is to pick up the proverbial phone, or I guess zoom now, and talk to as many of your best users as you possibly can, whoever will talk to, you know, grab 15 minutes, 30 minutes, whatever time they will give you offer to give them Amazon gift cards or whatever currency is going to resonate with your users.[00:52:00] 

[00:52:00] It’s worth it because the key to getting from a hundred to a thousand to 10, 000 to a hundred thousand is figuring out product market fit. That’s all that matters in the early days. You don’t need to be worrying about paid acquisition channels or what your growth strategy is or anything else. First, you just need to figure out what the right product is.

[00:52:17] And that all comes down to talking to the users who are already using it, figuring out what they love about it and where to double down, and then also figuring out what could be better. One other specific tool I’ll point you to, and this is something I cover in my course, is the 40 percent test. It’s also called the Sean Ellis test, because it was created by Sean Ellis, who was the first marketer at Dropbox.

[00:52:35] Um, it’s a very simple survey question that basically asks if you could no longer use this product, How would you feel very disappointed, somewhat disappointed or not disappointed, and if 40 percent or more of respondents say they’d be very disappointed, that’s the early indicator that you have product market fit.

[00:52:51] And so as you’re having these conversations and you’re iterating your way to stronger product market fit, that’s a simple tool that can just give you a barometer of, are you making progress? [00:53:00] 

[00:53:00] David Barnard: Very cool. All right. Um, let’s go on to the next question, which again, I, I, I thought I was going to skip a few, but these are all really good.

[00:53:11] Um, Sorry, I’m having trouble with my windows here. One sec. Um, okay. 

Q&A: Key Metrics and Benchmarks

[00:53:18] David Barnard: The second question is, um, what is a good monthly churn rate for B2C apps? Uh, so this is kind of a series of questions. Um, what is a good conversion rate from installed to paid subscribers should B2C apps on what KPIs are you looking at when scaling an app with paid ads?

[00:53:37] And then lastly, What is a good retention rate for a B2C app? And I’m I’m lumping all of those together because I think we should maybe talk a little bit more about the meta and the fact that Any one of these metrics matters most in the context of the other metrics. If you have really amazing retention, you can maybe get away with lower [00:54:00] initial conversion.

[00:54:01] Um, if you have really high conversion to paid, then maybe you can get away with a lower free trial start rate. Um, and, and so many of these metrics that you’re asking for now, we, we do share all of these metrics in. Um, the, the revenue cat status subscription apps report, and you can look at the median, the upper quartile, and then for 2025.

[00:54:23] And I don’t know, Phil, if Rick has shared some of this data with you, but we’re actually working on the P90. So what are the top 10 percent of apps actually look like, not just the top quartile. And that’s been fascinating looking at that data internally of like, what are the best of the best? And it really is like, Sometimes orders of a magnitude better, especially than the media and even surprisingly better than the top quartile.

[00:54:47] Um, so, so maybe the, the, the kind of best one to focus on in answering this question is like, what KPIs are you looking at more specifically as you’re scaling? Um, and, and what really [00:55:00] matters in, in those early stages, especially. 

[00:55:03] Phil Carter: Sure. I mean, well, I, one more shameless plug only because this is like the perfect tee up for it.

[00:55:09] And it’s really for revenue cap more than it is for me, but. All of these questions are questions I get all the time from clients and others. And it’s why we’re building this benchmarking tool called the subscription value loop calculator. So Peter, who I know is in the chat probably has the link, uh, to the tool we’re building and, and actually there’s still a survey open.

[00:55:25] So if you’re interested in participating, we’re gathering benchmarks from existing companies. Everything’s aggregated and anonymized, but that’s going to be what powers, uh, parts of this tool. Um, but at a high level, uh, you know, I’ll explain it in the abstract now. And then when the tool launches in the next week or two, you can look out for it and actually use the tool yourself.

[00:55:43] You can plug in your own numbers and see how they compare to benchmarks. Uh, not just overall, but across specific geographies and categories of apps. Um, but at a high level, so what metrics do I look for? I divided up into three steps. So within value creation, I’m looking at things like, um, sign up rate, [00:56:00] activation rates, um, trial start rates.

[00:56:03] Uh, long term, both MAU, if you’re a freemium app, MAU, WU, DAU, retention rate, as well as subscriber retention rates. Those are all really important value creation metrics. Um, for value delivery, I’m looking at your typical performance marketing metrics, right? So cost per install or CPI, cost per trial or CPT.

[00:56:20] Um, uh, looking at cost per subscriber, which, which is essentially the same as, uh, customer acquisition costs. And I, and I usually look at both paid customer acquisition costs, uh, meaning what’s the average amount you spend through a paid channel like Facebook or Google to acquire subscriber versus blended acquisition costs.

[00:56:36] And so that’s where you’re factoring in organic acquisition. And then on value capture, I look at things like, um, trial conversion rate, install to paid conversion rate, gross margin, subscription prices. Across whatever different tiers and, and, and plans you have. So monthly subscription price, annual subscription price, uh, and all of those combine into your output [00:57:00] health metrics, which are your LTV over CAC ratio and your payback period.

[00:57:03] Um, so that’s, that’s like the laundry list of metrics I would look at. They’ll be in the calculator. That’s, that’s getting released in the next week or two. They’re also a part of my course. If you’re interested in learning more. As far as like what I would look for this, this is one where like big disclaimer upfront, this varies widely by which category you’re in, the nature of your product, the customer you’re targeting, which country you’re in, what stage you’re at.

[00:57:27] Are you early stage company or are you late stage company? And that’s exactly why we’re building this tool so that you can at least refine it by category and country. But in terms of like overall, if I have to give you benchmarks for overall consumer subscription ecosystem, and there’s a lot of great data in the, uh, revenue cat state of subscription, that’s report on this stuff.

[00:57:45] Um, so, so monthly churn, you know, in general, you, you want to level out at something like a three to 5 percent monthly churn rate, but this is also a very, this is one of those questions where the average is very misleading because the reality [00:58:00] is the first month. Most monthly subscriptions lose 30, 40, 50 percent of their subscribers in month one.

[00:58:07] Month two, you probably lose another 10, 20, 30%, and then hopefully it starts to level out. So realistically, you’re, you know, you’re looking for 65 to 80 percent retention of monthly subscribers in month one. You want it to start to level out in months two and three, and then you want to get it to like three to 5 percent churn after that.

[00:58:26] So that’s monthly, uh, monthly subscriber churn. Uh, what is a good conversion rate from install to paid subscription for B2C? So two to 3 percent is average. Um, 6 percent is starting to look good. The very best apps are in the like eight to 10 percent plus range. Now, when you’re really early, you can actually be significantly higher than that.

[00:58:45] So like for the person who earlier was saying I have a hundred users, you might have a 20 or 30 or 40 percent subscriber conversion rate because the numbers are really small. But as you get to scale, like Duolingo has an 8 percent subscriber conversion rate. At, you know, tens of millions of global [00:59:00] users, if not hundreds of millions at this point.

[00:59:01] And so at scale, anywhere from like eight to 10 percent plus is truly exceptional. Uh, more typically you’re seeing four or 5%. Um, on what KPIs are you looking at when scaling an app with paid ads? We talked about those earlier. I don’t, I don’t have as strong of benchmarks on the value delivery metric, which is exactly why we’re running this survey.

[00:59:21] The survey we’re running with revenue cat is to fill in the gaps on CPI, CPT, um, paid and blended CAC, because those metrics aren’t in the subscription apps report. Uh, and there aren’t, and there aren’t as good, uh, sources out there that I’ve found anyways for those metrics right now. Uh, and then the last one is what is a good retention rate for a B2C app?

[00:59:39] So this again, it varies, uh, we sort of talked about this earlier with monthly, but it varies significantly for annual. Um, one of the data points I talk about in the Lenny’s guest post is, uh, on average. So if you look at the median consumer subscription apps are losing just over 50 percent of their subscribers after year one on annual subscriptions.

[00:59:59] And they’re [01:00:00] losing just over 50 percent of their subscribers after month three on monthly subscriptions. So that’s not to say that’s good, but that’s average. Obviously, obviously, if you want to be a venture backed company, you want to be well, well above those numbers. Yeah, 

[01:00:13] David Barnard: great answer. You went to way more detail than, uh, than I would have on that.

[01:00:18] Um, and B, B, just because it really is so, so variable. And if, if you’re, if so, if you have amazing retention, um, that’s actually maybe a sign you’re not pushing. Subscriber conversion hard enough. Um, like some of these, it’s like, it’s all a big, you know, math equation of like people opening the app, starting free trials, converting from free trial and then retaining for years and anyone pushing any one of those metrics.

[01:00:54] I was recently talking to a company where. Um, every time they would [01:01:00] push, they were able to successfully run some experiments that changed, uh, uh, uh, subscriber conversion rate. And they, they saw a huge increase in that, but then they immediately saw a decrease in retention that more than made up for that.

[01:01:14] And so the key is finding like the right balance for your app is that if you’re industry leading in, um, Converting people to subscriptions, but you’re like well below median and retention. You’re not building a great business. So don’t overly focus on any one of those metrics trying to hit a specific benchmark.

[01:01:35] It’s like the goal is to optimize that full funnel across all of those different metrics. Um, and retention really being a key, but again, like if you have too high of retention, maybe your price too low. Um, and so in looking at these benchmarks individually, um, You don’t necessarily want to strive to be in the upper quartile.

[01:01:56] If you’re, you’re trying to balance that [01:02:00] entire equation for your specific app, for your specific category. Um, uh, I was talking to, and actually this was a podcast that was just released with, uh, Thomas Petit from, uh, um, he’s an independent consultant and he was talking about an app where they, uh, a client that he worked with where they were charging something like three, 400 a year for this, like really, uh, I think it was like kind of a counseling app for couples.

[01:02:25] And so if you’re able to charge 400 a year because you deliver that kind of value and you’re delivering that value and retaining people at those kind of prices, then maybe you can be well below industry and you’re probably going to be well below industry benchmarks on subscriber conversion because you have such a high price.

[01:02:46] But that doesn’t mean that it’s a bad business or that you have to get subscriber conversion. Up to be a good business. It’s a, you need to balance that for the business you’re running and not overly focused on any one of those metrics to the [01:03:00] exclusion of how you’re running the overall business. 

[01:03:03] Phil Carter: I think that’s right.

[01:03:04] Well, and two quick follow up points on that. So one is there’s a science and an art to this, just like so many things. And so benchmarks are a great jumping off point. That’s the science, but the art is deeply understanding your user and the psychology of your user. And then being able to apply that understanding to what you’re seeing in the metrics, because certain product, like take dating tender and Bumble are going to have high churn rates, right?

[01:03:27] Because if they do their job, well, hopefully they’re helping people find romantic relationships that they want to stay in. And so they’re going to turn. And so you have to apply some of your own judgment to these benchmarks and understand. You know, where you fit into them. And then the last thing I’ll say is the very best consumer subscription apps typically are good across the board.

[01:03:46] They don’t have any metric where they’re like way, way below benchmarks, at least for their given category. But then they have one or two metrics that they like really spike on that they are just a total outlier on. And so Duolingo is a good [01:04:00] example of this. Like Duolingo’s retention rates aren’t actually pristine.

[01:04:04] They’re not terrible, but they’re not the best longterm subscriber retention rates. But they have really high subscriber conversion rates and to go back to reactivation, which I know was the topic of the last podcast, they actually reactivate subscribers at a pretty high rate because, you know, users will learn a language for a little while they’ll go on their trip or they’ll do whatever they were studying for.

[01:04:22] And then a year or two later, maybe they want to pick it back up again, or they want to learn a new language. And so they will see subscribers reactivate at pretty high rates. Uh, and so you just have to figure out, you know, where do you have a unique advantage and then optimize for that. 

[01:04:35] David Barnard: Yeah, totally. All right.

Q&A: Referral Programs and Organic Growth

[01:04:37] David Barnard: Next question is, um, and it’s a, this is another great one. Um, do referrals or inviting other people by sharing, um, to use the app still work for consumer or social apps? Um, yeah. What do you think though? 

[01:04:56] Phil Carter: Uh, yes, but with a big caveat and that [01:05:00] is. How you go about referrals looks very different for different companies.

[01:05:06] And there are a couple of vectors to this. So one is. If your price point is pretty low and Quizlet was a good example of this, right? Like Quizlet subscription, annual student subscription price when I joined was 10 for go, which was their lower price tier, 20 for plus, which was their higher price tier.

[01:05:21] And then we ended up increasing prices while I was at the company, but it was still a relatively low price subscription, which makes sense because you’re targeting students that don’t have a lot of willingness to pay. Well, what that means is if you’re trying to do an incentivized referral program, You can’t do like the uber give 20 get 20 because there aren’t enough unit economics to play with.

[01:05:38] It just won’t work. And so you’re forced into this position of like, okay, give a free month, get a free month. Like it’s just not that compelling. Um, so number one, I think incentivized referral programs tend to work really well for subscriptions that have very high price points. Like aura has a good incentivized referral program.

[01:05:56] Uh, some of the health or finance apps out there with, with really [01:06:00] high subscription prices have great incentivized referral programs. But if you’re at a lower price point, it’s probably not going to work. What can work for lower price products, especially. Products that are a little bit more mission driven.

[01:06:10] And Quizlet’s a good example of this. I think Headspace has a great, uh, referral program that isn’t tied to a financial reward. It’s tied to either just the good feeling you get of helping someone else learn to meditate and improve their mental health or helping them succeed in school, or there are alternative rewards you can explore.

[01:06:30] And those can be like digital currencies, um, badges or recognition within the app. Uh, at one point, I think Headspace even had this program where they, they basically had a lottery to get like a handwritten letter from their CEO. I don’t know if I’m remembering that correctly, but it was some sort of like non financial reward that was really motivating for their user base.

[01:06:48] And so it’s yet another example of like, don’t copy paste what everyone else is doing. Understand your user psychology and then tailor your referral program to that. 

[01:06:57] David Barnard: Yeah, totally. And then to, to add to that, um, [01:07:00] we’re actually going to have Nikita beer speak at app growth annual on unconventional, uh, growth tactics.

[01:07:06] And I think this question was maybe alluding to that a little bit, because some of the apps he’s scaled, it’s like you’re, you’re required to invite folks to even get into the app to kind of like, Preload that social network so that the app is more useful once you are actually in the app. And what I’ll say is, is I think those kind of growth loops can work for very specific categories of apps in very specific circumstances.

[01:07:32] Um, but broadly, especially in like productivity and like most other kind of segments and even in social, like, it’s really hard to make those things work unless there’s like a really specific reason that they will work. Um, and, and that. For most apps, these kind of referral loops are kind of a cherry on top.

[01:07:54] They’re not like the growth driver. It’s, it’s, it’s if you can find, if it’s a leverage point [01:08:00] for your app, because of how the app works, then by all means, like go for it. Um, but, but I don’t think it is going to be a leverage point for most apps because it’s just not the way. People do things, you know, inviting a friend.

[01:08:15] Um, and, and, um, I was actually just reading, um, uh, actually, uh, Nikita was on Lenny’s podcast and one of the things he talked about on that podcast was how part of why it worked for gas and, and, uh, to be on a TBH that he sold to Facebook and then gas he sold to discord was that he was targeting teens and teens are way more likely to share it among their social circle.

[01:08:40] You know, like my weather app, you know, years ago, I, I, and I still have like a share button, but like, you don’t share the weather. And so like, yeah, it’s in there. It’s probably gotten me tens of users over a decade of having a weather app, but like, unless there’s like a really specific reason. And unless you’re kind of ideal customer profile is a type of [01:09:00] person who does share.

[01:09:01] It’s really tough to get these to be like a primary growth driver versus just kind of being a cherry on top that, like, why not do it as long as it’s like, not super costly in your time to implement and to try and scale it. Like, why not? Um, but it’s tough to make it kind of a primary growth driver. 

[01:09:21] Phil Carter: Yeah, I think that’s right.

[01:09:22] I mean, Lenny has this framework of the race car and you’ve got the different parts of the race car that are, are. Analogs to different parts of your growth strategy. And I think he would refer to a referral program as like a turbo boost. It’s not, it’s not your primary engine. That’s going to drive the car forward, but it can get you a little extra boost, especially if you’re smart about how you go about it.

[01:09:41] David Barnard: Yeah, totally. All right. Let’s do a speed round. So, uh, I know this is hard for you and me, Phil, but, uh, I think these next couple of questions we can, we can give like super quick answers to, um, and, um, and go from there. 

Q&A: Final Thoughts and Resources

[01:09:56] David Barnard: So Katie asks, what are some good strategies to incorporate [01:10:00] organic growth motivators in your subscription app?

[01:10:04] Phil Carter: 60 seconds. Sure. Yeah. So this goes back to like, understand the core motivations of your user base. Um, there’s this great framework called the Octalysis Framework that Yuh Kai Cho, uh, put out and he’s actually going to be another speaker at, uh, at the summit you guys are putting on in September. But once you understand the core motivators of your user base, uh, and for Duolingo, for example, that’s accomplishment, it’s ownership, it’s social influence, then you can tailor things like, um, Atomic viral content that is easy for users to copy paste from your app into social channels like TikTok or x or you can um, you can sort of preload invite flows with text In SMS or again on social channels that you know is, is likely to be relevant to the user so that they don’t have to do the work of writing out their own invite message.

[01:10:55] These again, are not going to be like the primary thing that grows your business, but they can be nice turbo boost. [01:11:00] 

[01:11:00] David Barnard: Awesome. All right. Last question again, like 60 seconds. Um, we talked about, uh, going too far with discounts and win back offers about eroding your brand, but the whole last webinar we did actually recommended that.

[01:11:15] Could you? Tell me more about that. Uh, and I’ll, I’ll, I’ll take this one and I’ll, I’ll, I’ll try and do the 62nd version. We kind of alluded to this, maybe this question was asked before we, we, um, got into this, but I, I think the real key to those kind of win back offers is like what stage you’re at and then what you’re asking for.

[01:11:35] And so, so the whole last webinar, we did talk about discounting and all those things, and maybe we should have been a little more clear about framing it, but if you’re, if you’re VC funded, um, and you’re, you need a massive exit to make it work, you need to be a household brand, you need to be the next Duolingo, um, those strategies can work early as you’re scaling.

[01:11:59] Um, [01:12:00] As Phil said, it’s like you want to use them more as a scalpel, not, uh, as a blunt instrument. So last webinar, for those of you who weren’t there, go check it out. I think we, you know, there’s a lot of good insights in there to, uh, to kind of maximize, um, subscribers and to offer discounts and, and do those things.

[01:12:19] But when you’re trying to become that household brand, it probably is a little more dangerous for those reasons that we talked about earlier. So, um, All right. Well, with that, um, I think we, we do need to wrap up. Um, so we’ve been mentioning, um, uh, you know, Phil was on, on the podcast. So, uh, there should be a link to that.

[01:12:43] There’s this, uh, QR code, uh, to rev dot cat slash scaling. Um, and there’s a bunch of links and further resources, um, from Phil and from the podcast and otherwise, um, um, And then, as we mentioned, app growth annual is happening in a month, and there’s a reason why we mentioned [01:13:00] pretty much every speaker who’s going to be there.

[01:13:03] We really got the best of the best from the subscription app industry. You kai chow, who created the octalysis framework, Phil giving the keynote with the subscription value loop in this calculator he’s building. So go check that out as well and register for that. Even if you can’t attend in person, we are going to be streaming a lot of that.

[01:13:22] Thanks a lot. So with that, thank you so much for joining. Um, it’s always fun to do these lots of great questions. Um, lots of great interaction in the chat. So thanks for coming. And then Phil, thanks again for, for joining me on this. It was really fun chatting through this with you. 

[01:13:37] Phil Carter: Likewise, as always a pleasure.

[01:13:39] Thanks everyone for joining.