S1E7 – Bootstrapping To A 200M Acquisition With Patrick Campbell
Today’s episode discusses practical ways of Bootstrapping his B2B SaaS to a 200M acquisition. Our guest expert Patrick Campbell did it, and he will share his learnings and knowledge.
Why you need to listen to Patrick – Thanks to his company’s analytics product, Profitwell Metrics, he has access to the payments data from around 36k SaaS companies. This brings even a more unique context to his story as he has this rich data library at his disposal.
How did you manage bootstrap acquisition for your business? The successful bootstrapping of his own B2B SaaS startup to a $200 million acquisition resulted from the willingness to optimize for the long term. They published lots of content from understanding the system they were working with, engaged with the target audience, and utilized the feedback accordingly. There were also effective cost-management strategies and intentional culture. Generally, they built a great product with high NPS.
Would you ever charge for your free Metrics product – The Profitwell Metrics product does not lend itself to moving it to be paid because the nature of the market is not conducive. Thus, Patrick reckons it does not make business sense to start charging for it. He finds the alternative more appealing – instead of skimming a couple of millions at the minimum, they would instead work for a potential hundred billion dollars of lifetime revenue from the free Profitwell Metrics. Instead, the business can add other features to the paid-for effect.
Challenges in converting a free trial to paid subscriptions – The hardest thing with bootstrapping with freemium was financial challenges. It would have helped Profitwell Metrics if they initially raised money for the free multi-product that required accuracy. Also, because of the first-timer effect, most of the actions were reactionary, given that it was his company.
What does the data say? – The most successful SaaS companies utilize metric-based pricing. In B2B SaaS, a successful pricing model considers what the target customer values.
Tactical churn, which often contributes to 20%-40% of credit card failures, can be addressed through revamping optimization and getting your monthly customers to annual arrangements.
Advice to B2B SaaS companies growing towards 10k monthly revenue – focus on some measure of activation or engagement with your user before concentrating on making money. It helps to create a small number of customers pleased about using your product.
Biggest advice: Cuttle with the Chaos.
Key Timecodes
- (0:32) Introduction of today’s topic and guest
- (1:36) Why you need to listen to Patrick
- (3:05) Types of premium
- (6:32) Free trial to paid conversion rate
- (8:36) Challenges in converting a free trial to paid subscriptions
- (10:20) Would you ever charge for your free Metrics product
- (12:47) How did you manage bootstrap acquisition for your business
- (20:21) What SaaS companies need to do for growth
- (25:05) Secrets of successful SaaS companies
- (27:45) Role of customers when raising your prices
- (32:00) How to decrease churn for your business
- (35:55) Advice to companies with 10k monthly revenue
- (38:39) Patrick’s contact information
Transcription of interview
00:31 – Joran Hofman
Welcome back to another episode of The Grow Your B2B SaaS Podcast. Within SaaS. One thing is for sure, you need to track and measure how your business is performing in many different ways. Keeping track of benchmarks will help you to understand the current market. We’re going to talk to Patrick Campbell today. He has access to the data of around 36,000 SaaS companies, has almost the same amount of followers on LinkedIn, and Bootstrapped his company Profitwell to a 200 million acquisition by Paddle last year.
I personally had to laugh when I read his LinkedIn post announcing the acquisition.
He started it with “some news, sold profitwell, joining Paddle. Bootstrapped to over 200 million now to IPO. I think he’s a great example of bringing a lot of value to the SaaS community while still growing his own SaaS business. People love listening to him as he is willing to share anything, and that’s exactly what he’s going to do today.
01:21 – Joran Hofman
I’ll be happy to have him on the show today to share his journey about profitwell and his knowledge about how to become a data-driven SaaS company. Welcome to the show, Patrick.
01:32 –Patrick Campbell
Hey, thanks for having me. Excited to be here.
Introduction Patrick Campbell
01:34 –Joran Hofman
Thank you. For any reason, people are still not convinced to listen to you today. In your own words, why should people listen to you?
01:42 –Patrick Campbell
I don’t think you should listen to me. I think you should listen to some of the contexts I’m able to bring from the unique position that we’re in at Paddle, particularly when it comes to the data we’re able to study in the aggregate, we should follow the data. I, thankfully, am just a mouthpiece for the data. Less about me, it’s more about the insights that we’re able to see.
02:03 – Joran Hofman
Nice. I mean, the data is coming from Profitwell metrics, right? 36,000 companies. Has it always been a free product to use?
Why Profitwell metrics is free
02:12 – Patrick Campbell
Yeah. To back it up, you kind of said in the intro, we have this free product called Metrics. It’s going to get rebranded Paddle Metrics, but it was Profitwell metrics, at least for now, and we ended up giving that away for free, mainly because, frankly, selling analytics products is terrible. It’s really hard. It’s really hard to sell analytics products.
People don’t appreciate the amount of time and effort and the value of actually getting that number to be as 100% accurate as it can be. We’re thinking of selling it early days, and it’s basically a report. It handles all of your reporting for free, all of your financial reporting. If you’re a subscription business.
We discovered that we did our own research and it was going to be a really hard time to scale it. So we had a choice. We could go upmarket, which is what most analytics companies do, we could give up and just do something else, which was definitely an option.
02:58 – Patrick Campbell
Or we could do this freemium play, which is ultimately what we ended up doing and ultimately what worked out well.
03:03 – Joran Hofman
Yeah, there may be a question about this, I guess the first idea and then you decided we can’t charge for it, let’s offer different services. Or was it always the play you are going to offer different services next to it?
The two types of Freemium models in SaaS
03:15 – Patrick Campbell
There are two types of freemium. There is a FoFree trial, which is when you limit. First, the biggest problem and the biggest mistake people make with freemium is they think about it as a part of their pricing or revenue model rather than as part of their acquisition model. The reason it’s part of your acquisition model is that you are essentially taking your product, which is the best content you have, and you are giving part of it away for free as content you want to think about.
It is almost like a premium ebook because freemium is not something that all of a sudden solves any part of your business problems if done right, except for acquisition. The best freemium plans, they’re typically one to two years into a business’s lifecycle. Once you understand your customer, you understand how to convert them. All of a sudden you want to kind of open up the top and that middle of the funnel.
That’s the thing you got to understand. With freemium, the benefit isn’t like the first 30 days or the first two weeks. The benefit is you’re nurturing that lead over time. So much of sales is about timing. With freemium, what I’m able to do is if it’s not the right time to sell, I can nurture that lead or I have the right to nurture that lead every month, every single day, depending on what your product looks like. When they start to think about oh, I need this solution or I need to do more with this, that’s when they convert to being a paying customer. It’s putting the onus of conversion mostly on the customer with probably some nudges and less on some artificial sales process or artificial free trial that is just based on time, which kind of pushes a lead to a point of conversion and then if they’re not ready, you lose that conversation.
With us, what we discovered, and one of the biggest misconceptions is that a freemium plan, at least in my opinion, if you’re doing freemium right, should be better than the paid competition. You used to be able to have a free product that was kind of just like almost a trialish type product. It had like crappy features or it was really limited.
You really need your free version to be an almost full feature, but may be limited in how much you give. Like you don’t get more than 100 email sends or something like that with the free product. Or it needs to be basically something that they can use every single day or every month and then all of a sudden they can upgrade to other stuff, right? Those are the two types of premium. One is called FoFree trial. You limit some metric or something inside the app and then your target customer, when they burn through that, typically within a couple of weeks, they’re presented with a point of conversion and then they can upgrade to the paid plan that gives them unlimited or whatever the limit is on the particular paid plans.
And there’s this, I call it tangential free, which is basically a forever free product, like a profitable metrics. We sell other stuff to you that solves tangential problems. And that’s what we ultimately did. For those who don’t know, we have this free product, then we have a product that optimizes your pricing, we have a product that optimizes your churn, and we have a product that does revenue recognition. Now with kind of the whole paddle suite, we have something that just takes on your billing payments, all those types of things as well, outside of this free product that you’re using, your current billing system.
06:13 – Joran Hofman
Nice. To give an example as well, we’re, for example, doing the freebie model and then the model you mentioned first as if we limit the amount of revenue somebody can generate via product. From there, if they hit that threshold, they have to start paying us. In the end, giving all the features, but as soon as they hit a threshold, they need to start paying. But they got so much value already. One question regarding your free product. Would you be able to share any conversion rates? As in from people actually signing up to ever moving to a paid product of profit? Well, and now in this case, also from Paddle.
Free to paid conversion rates
06:45 – Patrick Campbell
Yeah, I get asked a lot about free to paid conversion. The problem with giving an answer to this is that it’s so variant, it depends on the efficiency of your funnel because it comes down to percentages. I’ve had people who are very proud of a 10% conversion rate from free to paid. I just go to them and I look at the rest of their funnel. I’m like, you’re not pushing anything. There are not enough free users coming in, and there are not enough people to quote, or unquote downloading the ebook. You’re proud of something that you’re not really taking advantage of. Right? I’ve had people who have 0.1% free to paid conversion and their funnel is amazing. It’s just immaculate. I think the thing that you have to think about, is that it also is dependent on how quick of a game you’re playing. Right. With profitwell, our LTV is so high no matter the product you choose, and then obviously through cross-selling, that I kind of am okay.
07:42 – Patrick Campbell
If you don’t pay for something for a year, like, I’m okay with that. I’m okay with that time horizon, right? If I’m running a FoFree trial where I’m only giving you 100 email sends or 100 accounts or whatever it ends up being, that conversion probably needs to happen in the first couple of months, right. You’ll get a trickle over the next months from there. So, yeah, it’s probably the wrong metric to look at.
The right metric is a cohort of your customers coming in free. How much of that cohort are you converting in three months? Six months. And the first year or one month? Three months. Six months if you’re of a quicker sales cycle and then is that number going up over time? Because it’s just like retention, like trying to keep customers around or churn. When I look at this, I can go, okay, what’s happening here is our 1st 30 days is pretty good, but we’re not really improving in our three months. Can we do more product marketing in that particular place to kind of raise those particular people up?
Converting free users with a free product to paid clients
08:36 – Joran Hofman
I always like the new, fresh perspectives. Your boots are profitable, right? With a full-featured product, as mentioned. Getting people in on the self-serve free product, what kind of challenges did you experience, especially at the beginning, converting those free users into a paid subscription?
08:52 – Patrick Campbell
I think that the hardest part of, I would say freemium and frankly, bootstrapping with freemium and multiproduct freemium with bootstrapping is that the hardest part was I think our ambitions were to be a very large company, and we did not achieve that. I think one of the reasons is that we should have raised money probably when we knew profitwell was going to be free and when it’s a financial product that requires accuracy.
Those two things mixed together mean a lot of work and a lot of time. I mean, it worked out, I’m not complaining. We created a very large exit as well as tens of millions of dollars of revenue. I think it’s one of those things that it probably would have been better to kind of have more fuel to the fire to develop multiple products quicker. I think that most companies, they develop multiple products.
It used to be when you’re 100 million in revenue, now it’s like closer to five to ten. We kind of started it. I mean, we had this pricing product that was our first product ever, and then we built the free product. We kind of had this like we’re kind of starting it at zero, like, almost like we’re getting seed investment, but it’s my first company so we’re kind of reacting to not really knowing what to do.
Part of that naivete was really helpful because everyone told us were dumb. Part of that also held us back because as an operator now I can recognize like, oh, we need more parallel paths going or we need to supremely focus and money solves both of those problems depending on the context of course.
10:20 – Joran Hofman
Yeah, and you mentioned it earlier already. Like the product is still free. You mentioned you probably won’t be able to charge for it because or no, you’re not expecting they’re going to charge for it. Is that still the case? Like are you never going to charge for profitwell Metrics? Well and is it still going to be a lead generator for your profitwell products and now Paddle products?
10:39 – Patrick Campbell
Yeah, I mean you never say never and that’s not code for we’re talking about it or anything. I said this every single time someone asked me a profitable as well. I think it would be very dumb for us to charge for the metrics product. I highly doubt we are ever going to charge for it. The reason is that if you look at the market, you have chart mogul, you have bare metrics and then you have spreadsheets, right? You have a bunch of dozens of different analytics or Bi tools. It’s not a great market, it’s not a great market at all. Am I going to try to skim a couple million, five to $10 million off the top, or am I going to try to get $100 million of lifetime value off the top of it being free? Right? That’s not a hard decision for me.
I could see a world where we have an actual Bi product because in the phases of how we’re building metrics, eventually we did all the hard work of the calculations and keeping up with because that’s what a lot of people don’t realize. They’re like, oh, stripe, the analytics should be accurate. Stripe’s analytics haven’t been accurate for six years now and they’re still not accurate because it’s hard, it’s really difficult because everyone implements everything differently.
It’s actually easier to get recurring analytics or paddle analytics to be very accurate because there just aren’t as many factors like how you can implement those tools. Stripe you can implement in many different ways and so there’s 1300 different edge cases we account for in stripe and stripe themselves still can’t get it right. It’s like that’s a thing to kind of think about where we’ve done all that hard work.
Theoretically, we could provide something on top of it that’s more of a Bi tool. Or we do have this thing called Rev Connect where we can take all of that clean data and port it into HubSpot salesforce, eventually into Snowflake or those types of things. Maybe we charge for something along that angle. Again, I think it’s short-term revenue, which is not a bad thing, but you got to keep in mind the mid to long game when it comes to freemium as well. That’s another reason why went down this path.
12:38 – Joran Hofman
Yeah. At the moment you have so many complementary products, of course, that probably doesn’t make sense indeed to start charging because you have so many things you can offer besides the free product.
12:47 – Patrick Campbell
Yeah, exactly.
How did Patrick bootstrap Protifwell to a 200M acquisition?
12:48 – Joran Hofman
You’ve done something, of course, a lot of founders would love to do as well. Bootstrapping a startup to 200 million acquisition. What do you think is the biggest reason you were able to do this?
12:59 – Patrick Campbell
Which part? Bootstrap the company to a size worthy of that or actually sell the business?
13:04 – Joran Hofman
I guess let’s take both, I guess.
13:06 – Patrick Campbell
Okay. I think one of the biggest reasons were able to grow and scale in this particular manner, I think it was kind of what was just talking about, which was a willingness to optimize for the long term. Part of running a business, it doesn’t matter if you’re funded or not, is so much just living in the contradiction constantly, the contradiction of everything’s going to be okay, we’re going to take over the world and everything’s terrible. You need both of those things at the same time. You need that it’s a little insensitive to say, but you need that level of schizophrenia because what that does is make sure that you’re moving things forward. You’re not tanking the team, but you’re also realizing that there are flanks that you need to cover. Right. For us, we optimized long term, which doesn’t mean we moved slowly or were not impatient.
It meant that we made decisions, optimizing for the long term, but in the short term, we voraciously executed and went after tempo and efficiency. We published a significant amount of contact with a team of four to five people on marketing. We published more than were in a HubSpot level because that’s basically the top of the heap when it comes to publishing if you’re not like a full-blown media company. We published so much more content and it was over a particular bar.
Not all of it was fantastic, but it was all good. I think that came from an obsession with understanding the system that was building and then holding ourselves to a tempo. To make this really practical, let’s say I was walking into your marketing team, your sales team, or just your business in general. The first thing I would do is I would literally map out this is one of the first things I did at Paddle here, and we’re finally going to publish it, at least internally, which is like, let me just follow a dollar through the system.
Like for you. It might be, Let me follow a contact, or it might be following something through the system. How does this work? Right. Well, we do this, then this is this, and the user adds this. I start color-coding things based on what is something we have to do. What is something they have to do? What is something we pay for? What is something they pay us for? What is something that we use a subcontractor for?
Or something like that. Let’s put the costs or let’s put the time each thing stays in a particular place, and then when I can look at that system, I can go, okay, where should we start? Where should we fix it? Where should we optimize for? Right? You can do this on your cognitive level. Like, cool, let me [email protected] level. Let me look at marketing, we chose a media model, which is shipping.
Shipping a lot of content. Great. How much content can we produce? How much of this type of content? Let’s map out all of the steps it takes to produce that content. Oh, it’s interesting. We spend this many hours doing, for example, when we do, like, a show, ten episodes of Pricing Page Teardown, which is a video series we do about pricing pages.
When we started mapping this, were like, oh, when we add up all the time, we spend 10 hours setting up and 10 hours pushing down. If we basically published every single week and filmed every week, if we just film once at once, we can cut 20 hours, 18 hours, because there’s only 1 hour set up, then a 1-hour tear down rather than doing that every single week. It’s just like realizing stuff like that and obsessing over the system. The other piece of that is obsessing over tempo.
16:03 – Patrick Campbell
What does good look like in terms of shipping, launching products, and stuff? Well, ideally, we would launch something every single month that our customers were excited by. Okay, where are we at right now? Once every six months. Okay, well, is that because we don’t have the stuff to ship or announce? Or is that because what is that? What is the reason? Well, something of that level.
Well, what if we had smaller stuff and then we say, all right, product, your job is to give us something per month? We can figure out a story. You would make a lot of improvements that no one sees. Great. We’ll package that into, I don’t know, something around we did a bunch of efficiencies, right? Our security stuff. All right, we’re going to announce sock two. Like, we’re going to get marketing out of announcing these things, right? All of a sudden, you’re like, okay, we got to one a quarter, then we got to, like, one to two a quarter, then we get to one a month, right?
16:46 – Patrick Campbell
You kind of work backward, and I think, what a lot of companies do. They react, react, react. Sometimes they end up getting to a point where they end up like, okay, finally we got to one a month, right? What they should be doing is calling out the once a month, having their team be like, that is the goal.
We realize we’re not there yet, and working towards it because you end up getting to that one a month quicker. It’s a lot more intentional with what you’re trying to do. Those are the things that I think made us really successful. Besides, I think were very intentional about culture. We weren’t the whole time, but when we started getting intentional about culture, everything got better. We definitely have a fantastic product team. We definitely did some unique aspects of our marketing, which all came from first principles, thinking.
17:27 – Patrick Campbell
There are a lot of those types of things. That concept of operations that I just described is really good. I think in terms of being able to sell, I think that brand aspect helped a lot. A great product with very high NPS, even though it’s free, it’s really hard to have a great product with free that’s free and has a high NPS. Having our LTV high, we didn’t go after $50 a month. Anytime there was something that was $50 a month, were just like, just give it away. Just give it away. It didn’t make sense because our Tam, our logo Tam wasn’t big enough. There are only about 150,000 subscription companies, SaaS companies. There’s probably less than 50,000. It’s like $50 a month doesn’t make a big business. Were like, no, we have to get after three-figure Mrr at least $100, let alone like, we’re optimizing for four figure Mrr $1,000 or more to really make this a great business.
18:14 – Patrick Campbell
Those are the types of things I think really helped. Because when you’re selling a business, someone, whether it’s PE firm, a company, et cetera, they’re going to put stuff into a model and that model is going to spit out whether this is a good deal or not or what the deal should be. When you have a brand and high LTV, those are two things that mix together really well. And probably an element that helped. Another thing that probably helped is weren’t looking to sell. That makes it so much easier to sell. Because honestly, you’re like, anytime there’s a thing or anytime a number isn’t what you want, you’re just well, we can just keep building our business. That’s kind of the thing that we kind of think about. Yeah, those are hopefully some helpful things to folks listening.
18:50 – Joran Hofman
Nice. I do see some correlation between what you mentioned, as in getting the marketing out once a month, right? Or have a product update once a month where the culture also takes into place. Because if you are going to basically market the things you’ve been doing. You’re also going to say how great the team is and how much they have been working to get things done. Like the product team will be happy. Marketing is of course happy because they can share things. Sales have new things to share. I think there is a correlation, I guess there as well, where the more you talk about yourself or what has happened internally, the more the people are also going to be happy. Do you agree with that?
19:26 – Patrick Campbell
Yeah, it’s momentum. That’s the thing. Because momentum is a thing that’s really hard. This is why building a company over 20 years is really difficult. Building it over like seven to ten gets a lot easier. If you have enough momentum, you can extend that to 15 for kind of your core team. The reason is because, yeah, people want momentum, but also your customers want momentum. This is why we would announce stuff, because people didn’t always know what we announced, but they knew were announcing stuff. There was always a video, there was always like some social with it. There was always an inapp takeover. We worked in order to get things that weren’t trite. Page optimization at one after another. There had to be an actual product feature that they could see or touch or something like that. Yeah, the team, it helps the team as well because they see the positive interactions.
20:15 – Patrick Campbell
Sometimes it distracts them but yeah, that’s super important. You’re right.
How can SaaS companies still grow in a downturn?
20:20 – Joran Hofman
Let’s dive into the data. I mean, I seen you, of course, during the Saastock local tour in Amsterdam. You mentioned growth is harder during this time due to more competitors, higher customer acquisition costs, salaries increasing, and people staying shorter at companies. What should SaaS companies do now to keep growing?
20:39 – Patrick Campbell
That’s a really broad question. I think overall, it really comes down to this. You have three main growth levers in your business, right? Acquire customers, monetize them, retain them. Those are the three levers. You put a ton of time, effort, budget, and money into acquisition, which you should you need to you probably need to spend more there.
Unfortunately, even though that’s where most of your money goes for growth, I think you need to get unique with your acquisition or at least more leverage with your acquisition. I think too many companies that I see in terms of their growth and marketing and even their sales, they do a lot of throwing stuff up against the wall or bets here and there. I think leadership is about choices. You got to choose inside sales, which is a very common thing in SaaS, which is great. Content that’s supported by Paid or X, I don’t know what X could be for your business.
21:24 – Patrick Campbell
It’s going to change depending on who’s listening. I think those are the things to kind of really focus on. I think the other thing to kind of think about is not being okay with mediocrity. A lot of people will test something and they’ll do a very mediocre execution and the problem comes in if they think it wasn’t mediocre. That’s a whole different conversation though. Like inside sales, if you do what everyone else does, you should expect probably not even the same results, probably worse results, right? Because that person who gave you that benchmark is doing things differently. It worked for them, but it might not work for you. You got to figure out how to break through. I don’t think enough, not enough people spend time agonizing over email copy. One thing that we did is we treated our core cadences for outbound sales. Code, almost like version control.
22:12 – Patrick Campbell
Everyone uses the same cadences for different folks. We had a growth manager kind of optimize them and then any outbound sales rep could do we called it Beat the Vic because Vic was the guy who managed this. The outbound salesperson could say, I think I can do better with this email, with the subject line, we’d branch it off. They’d do it for testing, period. If they beat it, they got a spiff and then we merged that back in so everyone could take advantage of it, right? That’s a level of control that some people are uncomfortable with because they think, oh, micromanagement it’s not micromanagement it’s. You have a 21-year-old kid who’s great and hungry and smart. You should be managing them on that level. You’re not micromanaging it, you’re just setting up the system. You’re setting up the system for them to play in.
22:53 – Patrick Campbell
These are your guardrails. Do your thing. There are a bunch of other things you can do with going after things. Obviously, after they ramp more, you kind of give them a longer leash on some of these things. I think a lot of times we’re scared to go there and we’re scared to do the right thing. Or we get really excited by like, oh, let’s get this tool and this tool and this tool, and it’s like, tools help. Once the system is in place, that’s the biggest problem. People are like, let’s solve this tool. Well, of course, their landing page says they’re going to solve that problem. If you haven’t manually tested it and you can do a trial with them that test it manually, that’s fine. Too many people over optimize and I’m an over-optimizer. I am definitely one of those people. I catch myself enough where I’m like, I was over-optimizing and then I step back.
23:34 – Patrick Campbell
In terms of the acquisition, those are the things I think you need to focus more on. I think in terms of monetization retention, it’s just retention. You need someone who is not in product thinking about retention. It can be in finance, it can be in operations, it can be in growth. The reason is that product teams think about what’s called strategic retention, which is all the paper cuts, the onboarding, the features, struggling to figure out value, which is this big nebulous concept. In B, two B, SaaS, 20% to 30% of your churn. The problem is because of tactical things. Credit card failures, cancellation flows, term optimization, these things that you can implement within a quarter or use something like Paddle and just does it for you. Right? You have to set it and forget it rather than continue as a product team. A product team always deprioritizes those things because they’re never as big as figuring out the next feature, those types of things.
24:27 –Patrick Campbell
A monetization, just take it seriously for once. Put a calendar, and invite every single quarter, hey, we got to do something with our monetization. If you’re big enough, 510 million dollars in arr, have a pricing committee, it might be three of you, but just run with it. Yeah, those are the things to kind of think about. I think there are a lot of little tactical things we can get into. The beauty of SaaS is it’s not hard to understand why a customer monetizes and retains them. As I said, the pain of SaaS is that being successful requires a fastidiousness that most of us are not willing to do because there are so many things going on in our businesses. And that’s mining. That precipice that I was talking to you about before.
25:06 – Joran Hofman
Yeah, this is really good and I think I am going to zoom out again because we can go really in detail. I guess when you look at the fast-growing SaaS companies and you look at the data, what differentiates them from the rest? Like what do they do differently that they’re growing still this fast?
25:25 – Patrick Campbell
I think the companies that are doing really well in SaaS when you look at the data, have metric based pricing in some particular way. That’s a very tactical thing and they really figured out what that metric is per user, per thousand visits, per 100 widgets or whatsits or emails or whatever it is, it just bakes growth into your pricing. You get expansion revenue baked in. Those companies typically have Nrr of 130 plus, which is obviously what we’re going for. I think those companies tend to do really well. Do you think about HubSpot? I think HubSpot has defined culture very aggressively. It’s not only they’ve defined two sets of cultures at that size, which I think a lot of people don’t realize. There is a culture set on leadership, like Execs and kind of their wider leadership team. And then there’s culture set company-wide.
26:14 – Patrick Campbell
The reason that distinction is important is that when you’re 10,000 people, your culture, it’s going to be a little diluted because you have so many people. Yes, you’re trying to optimize for certain things, but you’re doing it in a very dilutive form. So cycles take a little bit longer. When you kind of define the culture at a kind leadership level, that team should be moving as quickly as humanly possible. When you don’t define those things separately and they look like each other, there’s just like different depths of the different things because obviously, one doesn’t go one way and the other goes another way. That wouldn’t work either. That’s a really important distinction. I think the third thing is team and hiring. You see it all the time. I did this for so long, and I’m sure I’m still going to make some of these mistakes around.
26:57 – Patrick Campbell
Like, you don’t pay what you should for a role. You get someone who seems good and you’re paying less, and then you kind of realize, oh, I got what I paid for. Sometimes those trade-offs are fine if you’re going after a Bdr role where you’re training someone and you have a good program. Other times it’s terrible when you’re trying to hire a VP of Sales in the States for 120 to 130 Ote, which is not going to work. Were like, oh, we’ll try it, and that type of thing, and you just make those mistakes. It’s underpaying, but it’s also like, not firing quickly enough. I think we accept too long because we want to give people the benefit of the doubt. Sometimes you just got to trust your gut. It doesn’t mean you have to be mercurial about it. It can just be most of the time, everyone’s on the same page like, hey, this isn’t working out.
27:42 – Patrick Campbell
Let’s figure out how to move forward. I think a lot of us wait way too long.
How to raise the prices for your SaaS?
27:46 – Joran Hofman
Yeah, and I think that goes really well to the next topic, like waiting too long. I think a lot of companies also wait too long with raising their prices. When you do raise your prices, should you grandfather your current clients so basically not raising the pricing for them, should you upgrade them? Like, what is your opinion on raising prices?
28:05 – Patrick Campbell
I am not a fan of doing legacy pricing, meaning keeping your customers at their same price. I think it’s a good idea when you have your earliest of earliest customers if you want to throw them a bone or you’re doing like indices and you’re trying to do some early access lifetime type deals to get funding. The problem is people, things cost money. People know things cost money. Right? We have this weird conception when it comes to pricing that we’re like, we’ve tricked our customers into purchasing our products, and if we remind them of their price or we try to get a higher price, all of a sudden people are going to think, oh my gosh, no, I can’t do this, right? It’s this weird notion because the beauty of SaaS is that the product should be improving over time, like continuously improving. When someone goes to a store and buys a better version of chocolate or bread or something like that, they pay more for it, right?
29:01 – Patrick Campbell
Thankfully, you don’t have a depreciating asset because SaaS is kind of infinite. I guess you could argue it depreciates in the market depending on the density of your market. Long story short, people know things cost money, and if you’re improving things enough, that’s fantastic. Let’s go. I think the problem is that we just have convinced ourselves that we just can’t have that uncomfortable conversation. From a money perspective, there’s this period where it’s really hard to get users, then it’s a lot easier to get users. That phase takes the first phase is like zero to a couple of million, depends on your place. It starts to get a lot easier. Well, you’re going to reach a point it’s different for everybody, where you’re going to go, oh, we already have so much market share. Well, how are you going to get more revenue if you have so much market share?
29:44 – Patrick Campbell
It’s going to be harder and harder to get that next percentage of market share. Well, you’re going to have to raise prices eventually, right? Or come out with more products. Even then, you’re going to probably have to raise prices. It’s a really easy lever. If you do it right and right involves doing some research, most people just don’t have the confidence. If you go collect some data and they say you’re at $100 and current customers say $100 and people have never heard of you also say $100, okay, we’re just going to stay at $100, but at least we’re confident in it. At least we’re not rationalizing like, oh, we’re not going to raise the prices because we want to be nice. It’s like, no, you’re not raising it because you don’t have the confidence. Let’s go get the confidence first and then we’re confident we should keep the price the same.
30:23 – Patrick Campbell
Let’s say it comes back and current customers are saying 120 and customers who’ve never heard of you are saying 200. Okay, well, let’s look at the data, let’s look at the segments, and let’s say we settle at $150. Well, if that’s the case, then great. Our current customers, a 50% increase is a bit much, so maybe we break that out over two years. We’re going to raise prices on our existing customers or new customers day one, and then we’re going to send really good communication to those customers who are existing and say, hey, we added all of this stuff. Here’s how much value you got in the past year, you did this many contacts, you wrote this many blog posts. Whatever your product is. What we’re going to do is we’re going to give you this because you’ve been so loyal to us, we’re going to raise prices on everyone today.
31:06 – Patrick Campbell
For you, because you’ve been with us for three years, we’re going to give you next three months at your current rate to this much value because you’re not going up in price. We’re just going to you up to the new price. If you have any questions, let us know. Thing to keep in mind with price changes, even if you lower your price, you’re going to see Churn because you’re reminding people that they’re buying your product. If you sent all of your receipts on the same day, that would be your highest day of Churn as well. Like, it’s the same thing. What we’ll notice with price increases is the Churn will go up a bit. It’ll actually go down then past the point that it previously was and you’ll get excited, but then it’s going to creep right back up to where it was because you’re just pulling forward some of that churn was going to happen next month or the month after anyways, assuming you’ve done your homework now.
31:49 – Patrick Campbell
Dramatic changes in price because you’re going to go into a completely different market. There’s different ways to handle it and sometimes the Churn is more aggressive, but yeah, it’s just one of those things to kind of keep in mind.
How to decrease your SaaS Churn?
31:59 – Joran Hofman
This is one way, of course, to grow, right, to get more revenue. Another way is to decrease your Churn. Any best practices, especially at Kessler, when looking at the data to decrease Churn?
32:09 – Patrick Campbell
In terms of decreasing Churn, I think you need a great product team who is going to agonize over all of the disparate conflicting data and onboarding and usage and NPS and all of those different things. You just need a great product team and frankly, a product team that’s like really good at saying no. A lot of product leaders, if your product leader is a project manager, you have to decide, did you put them in that position? Sometimes the answer is yes because the CEO is trying to run the product. Like, don’t do that, you’re thinking about too many different things. You should be involved in those conversations, but your product leader should be making the final product decisions. Now, there’s a chance they’re just not a good product person. They’re a good project manager. If that’s the case, then you need to make some changes and get them some product leadership to report to or replace them if they are in that product leadership role.
32:51 – Patrick Campbell
The other part, which I mentioned was kind of this tactical Churn. 20% to 40% of Churn is typically from credit card failures. If you’re a credit card-based business, that’s how you collect payments. That’s something to look into right away. Term optimization. Getting monthly customers on annuals, depending on your vertical and your price point, typically annual customers have two to 800% higher lifetime value than monthly customers because you’re having to make one purchasing decision a year versus twelve implicit purchasing decisions per year. And then cancellation flows. I think there’s this misconception that you either have to hold someone, hostage, when it comes to canceling a product, or you have to just instantly let them go and apologize that they even wanted to cancel. Right. Really you have about 18 to 30 seconds. For customer success-type businesses, you have more time, but when someone clicks a button, you have 18 to 30 seconds of their time.
33:43 –Patrick Campbell
Ask them why they’re leaving. Really powerful, obviously question multiple choice, don’t give them free response. You’ll get one out of 100 really good responses and free response. I just want the data across a portion of even qualitative users. The question that people don’t ask that we found works really well is what did you like about the product? The reason is because they’re on a very negative path, all of a sudden you force them to be positive and that gives you of an opening essentially to figure out, okay, I like this about the product. With those two questions and hopefully some data from their actual metadata from them using the product, what plan they were on, what they did, all of a sudden, now I’m going to offer an offer. Hey, you liked this, but you didn’t like this. Why don’t I give you the next month free, right?
34:28 – Patrick Campbell
Or why don’t I give you’re going to come back, but you’re not going to use the product. Now let me give you a maintenance plan or else we’re to delete all of your data or hey, we’ll be here when you’re back if we didn’t have the features for you or something like that. So that’s a big thing. You do those three things. You can reduce your cancellations by about 20%. It’s significant or more, depending on the type of your business. If you’re a lower priced product, typically more than 20%. But yeah, it’s really powerful. It just requires of training and of a different mindset.
34:57 – Joran Hofman
Yeah. The cancellation flow you’re talking about right now is all in product, right. It has to fit within those 30 seconds. Otherwise people probably get upset or angry.
35:07 – Patrick Campbell
Yeah, you try to make it if it’s just those two questions and then an offer like normally you’re within those 18 to 30 seconds, some of the data won’t be great. Right. If you expect perfect anything in order to do it, then you’re not going to be a great leader, in my opinion. Your job is to, all right, we got some great data, we got some not so great data. Well, let’s look at the great data and let’s not look at the bad data, right? You can actually measure, like, if they took 2 seconds to answer the questions, probably not great data, right? This is something we did with our pricing product for a while. So, yeah, long story short, I think it’s just understanding those users and kind of going from there.
Advice for founders growing to 10k MRR
35:44 – Joran Hofman
Yeah, that’s where it all starts. Like, you need to understand your users and what they’re trying to get out of their product, and then from there, you can still try to save them. Of course, with all the data you have. We are almost coming to the end, and I like to ask these two questions at the end, when we look at the different stages the listeners are in. What kind of advice would you give somebody who’s just starting out and trying to grow to ten k?
36:08 – Patrick Campbell
Mrr I think that one’s just like cuddle with the chaos. Honestly, your first ten k, you’re it’s of a knife fight. You’re just like, all right, I’m going to go here, I’m going to go there, I’m going to try this, I’m going to try that. I think if you have the runway, try to focus on some measure of engagement or activation with your user before you focus on the money. Like, make ten people ecstatic and using your product either every day if it’s kind of a workflow product or not at all, but still seeing the value, if you’re kind of more of a set it and forget it. Type product. That’s more important, I would argue, than the Ten K. Sometimes you need the Ten K to survive, depending on where your business is. If you’re doing this as a side project or a full time thing, I think then it gets infinitely easier because then you have those ten people, and maybe you expand it to 50, depending on what the product is.
37:02 – Patrick Campbell
Then, hey, we’re going to charge for this now, or we’re going to charge for this version of it. You start from a really strong foundation. I think sometimes, tactically, a lot of people will do some lifetime deals, and people are only buying because of lifetime deals. Or they’re like, let’s go through this distribution channel, and they get customers. But then they all churn. It’s like you’ve just injected a bunch of noise into your judgment in order to make decisions. And it felt good. Sometimes you have to make some of those short term decisions to get funding and stuff like that. I don’t know if you have the ability to be somewhat patient, like patient over the midterm, but not patient at all over the short term. I think that’s the right mindset to have.
37:44 –Joran Hofman
I can 100% relate to this because we actually did an Ltd lifetime deal, I think, one and a year ago now. And, I mean, it was nice to get some money in but in the end, it weren’t the users we’re really looking for, always. In the end, I’m happy that’s over now and focusing fully on getting value to normal paying clients, if we can call them like that.
38:02 – Patrick Campbell
Yeah, totally.
Final Thoughts
38:03 – Joran Hofman
Any final thoughts you want to share with other B2B SaaS founders?
38:07 – Patrick Campbell
No, just cuddle with the chaos guys. It’s chaotic by design and if you’re sitting there thinking like, oh, this person over here doesn’t have to deal with this chaos, this person over there doesn’t have to deal with this chaos. No, they do. It might look different, they might have the thing you’re struggling with really well and then the thing that they’re struggling with that you’re good at, so that’s why you get peer groups and stuff like that. But, yeah, it’s chaotic and just embrace it. You want to reduce certain types of chaos over time, but then there’s just another layer of chaos at some point. So not really tactical advice. That’s the biggest advice I can give.
38:41 –Joran Hofman
Nice. Thank you. If people want to get in contact with you, what will be the best way?
38:46 – Patrick Campbell
I’m Paticas on Twitter. Patticus you can follow me on LinkedIn. I have not figured out how to manage LinkedIn messages yet, or you can email me at [email protected]. That’s my direct email, my personal email. So, yeah, just let me know.
39:01 – Joran Hofman
Nice. Thanks again for joining, making the time, and sharing your notice today, Patrick.
39:06 – Patrick Campbell
Yeah, absolutely. Thanks for having me.
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