How Beauty Brands Build Pricing Strategies To Grow

In our previous blog regarding pricing strategies for beauty brands, we covered the unique aspects of the beauty industry that can cause various challenges to arise and how some brands may utilize pricing as a tool to not only counteract such challenges but to grow and succeed. Here, we will delve deeper into some of the real challenges that come with pricing for beauty and cosmetic brands and then introduce a relevant case study to detail how exactly pricing can truly make a difference.

Delving into the challenges beauty brands face

Beyond what we have discussed previously, there are many unpredictable challenges that beauty brands may encounter as they formulate their pricing strategies. 

With numerous brands offering similar products, there is constant pressure to keep prices competitive. This can lead to pricing wars and margin erosion. At the same time, brands need to differentiate their products to justify higher prices. And, because consumers often associate higher prices with better quality in the beauty industry, brands need to carefully manage this perception while staying competitive. Finally, in spite of all of these other challenges, beauty brands will also have to deal with rapidly changing beauty trends, learning how to adapt quickly and making sure their pricing strategies align with these trends to remain relevant and competitive.

Furthermore, introducing product differentiation within such a crowded market can be very difficult. For instance, when a brand introduces a new and unique product, competitors may respond with their own innovations or price adjustments. So, brands must be prepared to adapt their pricing strategies accordingly. Furthermore, introducing a new, differentiated product often requires educating consumers about its benefits. This can be a costly and time-consuming process that impacts pricing decisions. And, differentiated products may require a different distribution strategy, such as being sold exclusively through certain channels. This can impact pricing decisions and channel relationships.

And, as we mentioned previously, the margins are thin for beauty and cosmetic brands due to the numerous costs they accumulate. This can include costs from investing in social media, establishing influencer partnerships, and more that can all eat into your profit margins. Actual product development costs are expensive, especially if you are investing into the research and development of new ingredients and formulas. And, because of the importance of brand image, brands typically incur packaging and presentation costs to appeal to customers who may be more willing to pay if the aesthetics of a product are attractive. Many brands will likely accumulate distribution costs trying to get their products into the hands of consumers, especially if they rely on third-party distributors or retailers due to their own limited distribution networks. So, these are some of the many different kinds of costs that brands will likely amass in trying to make their products stand out and appeal to their target consumers.

Case Study: Helping beauty brands achieve their goals

HelloAdvisr has worked with multiple brands within the beauty and cosmetics industry, accumulating experience and expertise with regards to how pricing can play such a crucial role in building for sustained growth.

For example, here we have a case study of our work with a fast-growing FemTech brand. Needing to assess their own approach and strategy to pricing, this brand realized that they were struggling with their product pricing because it was becoming increasingly complex as they expanded their purchasing methods (e.g. a la carte, bundles, and subscriptions). Furthermore, they were dealing with added complexity due to expansion plans into newer channels like retail. 

As a result, we helped leadership team transform their pricing approach in several ways:

  • Designed a custom pricing strategy workshop with the brand’s senior leadership team.
  • Assessed existing pricing portfolio – the prices and price combinations (including promotions and discounts) created and presented to customers.
  • Conducted data analysis of brand sales and select customer and product cohorts.
  • Reviewed the brand’s customer segmentation and value proposition.

Through our work, this brand was able to build a pricing strategy framework they could use for new and existing products. They also implemented pricing portfolio recommendations including discounts and bundles, which subsequently increased conversion rates. So, with these improvements, they continued to expand revenue growth and were well-prepared for the next round of fundraising. 

Final thoughts

Pricing in the beauty world is a multifaceted challenge that requires a deep understanding of market dynamics, consumer behavior, and brand positioning. By carefully navigating these challenges and staying agile in response to market shifts, beauty brands can find success in setting prices that resonate with their target audience while ensuring sustainable growth. It’s a delicate balance, but one that can ultimately lead to long-term success in this vibrant and ever-evolving industry.

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What is MRR and how can companies improve it?

HA article MRR
Foundations Series

In the dynamic landscape of business metrics, Monthly Recurring Revenue (MRR) has emerged as a crucial indicator for the success and sustainability of subscription-based businesses. MRR is a metric that reflects the predictable and recurring revenue generated from subscription services on a monthly basis. In this article, we will delve into what MRR is and explore strategies that companies can adopt to enhance and optimize this key performance indicator.

What is MRR?

Monthly Recurring Revenue (MRR) is a metric used to quantify the predictable revenue generated from subscription-based services within a given month. In other words, it is the revenue a business expects to generate each month. It provides a clear picture of the company’s stability and growth potential by capturing the regular income generated from subscriptions, excluding one-time transactions.

There are several methods to calculate MRR. One way is to simply calculate the monthly revenue from each customer and manually find the sum of all revenues obtained from the total customers. 

The other method to determine MRR is by using the average revenue per account or ARPA. This is a particularly relevant metric to calculate and measure for businesses that have different subscription tiers for different levels of usage or access. Once you calculate your APRA, you can find the MRR by multiplying the ARPA by the total number of customers per month.

Components of MRR

MRR can be broken down into multiple components that show how exactly your revenue is earned. So, understanding each component is crucial for businesses aiming to improve this metric. These key components specifically include:

– New MRR (NMRR): Additional MRR generated from new customers subscribing to the service.

– Expansion MRR (EMRR): Additional MRR earned from existing customers through upsells, cross-sells, or upgrades.

– Contraction MRR (CMRR): The MRR lost due to downgrades in subscription plans or customer cancellations.

– Churn MRR (ChMRR): The MRR lost due to customers who canceled their subscriptions.

Strategies to Improve MRR

With a better understanding of MRR and its components now, we can explore strategies to enhance this crucial metric. We cover six different ways to enhance MRR. 

1. Focus on Customer Retention

What this is: Implement strategies to reduce churn rates by enhancing customer satisfaction, providing exceptional customer support, and continuously adding value to your product or service.

How this improves MRR: Retains your company’s overall number of accounts or subscriptions. 

2. Personalized Upselling and Cross-selling

What this is: Leverage customer data and analytics to identify opportunities for upselling and cross-selling. Tailor your offers to meet the specific needs and preferences of individual customers. (e.g. offering free subscription plans to attract new customers and upsell users on plans with features to entice them to level up)

How this improves MRR: As your customers’ usage increases, your revenue will concurrently grow organically. 

3. Optimize Pricing Models

What this is: Evaluate and refine your pricing strategy to align with market trends and customer expectations. Consider introducing tiered pricing models or value-based pricing to maximize revenue.

How this improves MRR: Introducing tiered pricing models or value-based pricing can help you maximize revenue.

4. Enhance Product Offerings

What this is: Regularly assess and update your product or service offerings to stay competitive. 

How this improves MRR: Introducing new features, improving user experience, and addressing customer pain points can help you attract and retain subscribers.

5. Incentivize Annual Subscriptions

What this is: Encourage customers to opt for annual subscriptions by offering discounts or additional benefits. 

How this improves MRR: Provides a predictable revenue stream and improves cash flow

6.Monitor and Analyze MRR Metrics

What this is: Utilize analytics tools to continuously monitor MRR metrics and identify areas for improvement. Regularly assess the performance of different components of MRR to make data-driven decisions. 

How this improves MRR: Remaining vigilant about monitoring your performance ensures that any insights you gain are put into action effectively. Detailed tracking and reporting are key to determining what is working and what needs improvement.

Final thoughts

In conclusion, MRR is a key metric that reflects the financial health and sustainability of subscription-based businesses. This seemingly simple metric is driven by many different components of your business – from customer retention to pricing. By understanding the components of MRR and ways MRR can be improved, you can choose improvement strategies right for your company. This can create new opportunities to  pave the way for long-term success in the competitive subscription economy.

For more resources including metrics checklists and worksheet visit our resources page.

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Power of Loyalty: Unlocking Willingness-To-Pay

Loyalty
Foundations Series

In today’s hyper-competitive market, customer loyalty has emerged as a crucial factor in determining a brand’s success. Not only does it secure repeat business, but it also has the potential to influence the willingness-to-pay among consumers. However, cultivating loyalty is not as simple as it may seem – it involves creating an emotional bond, nurturing relationships, and being genuinely invested in your customers’ experiences. This article explores the intricate dynamics of customer loyalty and how it can enhance the willingness-to-pay, along with strategies to harness its potential to drive business success.

Recent data further underscores the importance of customer loyalty in the U.S. market. According to one study in 2021, 36.4% of consumers say they are more brand loyal than they were a year ago, and 90.1% of consumers reported that they’re equally or more brand loyal compared to last year. The Accenture Strategy Global Consumer Pulse Research found that U.S. brands are losing approximately $1 trillion in revenues annually to their competitors due to lack of loyalty, highlighting the competitive nature of the market. This further emphasizes the importance of harnessing loyalty strategies to gain a competitive edge.

Why is loyalty important to willingness-to-pay

Loyalty is key in any business. When people are loyal to a brand, they’re more willing to pay higher prices for the products and services it offers. But how do you unlock the power of loyalty so that customers will pay more? In this blog, we discuss some strategies you can use to increase your customers’ willingness to pay.

Steps to starting building loyalty 

The first step is understanding what motivates customers to be loyal in the first place. Loyalty isn’t just about offering discounts or rewards; it’s about creating an emotional connection with customers so that they feel like they have a vested interest in your company and its success. Consider providing personalized service, timely feedback on requests, and investment into customer relationships. You want to make them feel like you care about their experience, which will lead to a higher level of loyalty.

The second step is recognizing that loyalty doesn’t come overnight; it takes time to build and nurture relationships with customers. Consistency  – not just when you have something to promote – and switching up the type of engagement  shows your customers that you’re invested in them and value their opinions. You can also look for opportunities to surprise and delight customers with thoughtful gestures, such as sending them gifts or messages recognizing life milestones.

Next, consider creating a customer-focused rewards program that offers exclusive perks and privileges to loyal customers. This type of program allows companies to reward their most valued clients by offering discounts, priority access, or VIP experiences. It’s important to keep in mind, however, that rewards should be tailored to individual customers; a one-size-fits-all approach is unlikely not yield the desired results.

Finally, don’t forget about the power of the word-of-mouth and referral marketing. Loyal customers are more likely to spread the word about your brand and products and recommend it to others, so make sure you’re taking advantage of this powerful form of free advertising. Consider creating compelling content and engaging with customers on social media platforms to encourage them to share their positive experiences with friends and family.

Final Thoughts

Unlocking the power of loyalty can help increase willingness to pay – but it requires an investment of time and resources. What matters most is genuine effort towards building relationships with customers that reflect mutual respect and trust. When customers feel like they have a vested interest in your company, they’ll be more likely to pay the prices you ask for – and that’s what it takes to unlock the power of loyalty. Your customers will be able to answer why your products are “worth it”. 

By focusing on customer relationships and creating a rewards program tailored to individual customers, companies can unlock the power of loyalty and increase willingness to pay. Not only will this help them earn more revenue, but it will also create a loyal base of customers who are excited to support your company. With these strategies in mind, any company can make progress towards unlocking the power of loyalty that leads to increased willingness to pay.

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How Subscription Pricing Transformed the Business Model

Foundations Series

Subscription pricing plays an important  role in the history of pricing evolution. It  has transformed the way companies do business over time. It has enabled businesses to offer more flexibility and convenience to their customers, while also providing them with greater predictability in terms of revenue streams. 

Given the significant impact subscription pricing has had on businesses – particularly technology-enabled companies – and  on consumer behavior and expectations, we thought it was insightful to reflect how this pricing approach has become what it is today and how companies have leveraged it to bring new products to market and grow.

Evolution of the Business Model

The history of subscription pricing dates back to the 17th century when regular publications like magazines and newspapers started offering annual subscriptions to their readers. Subscription pricing has become a popular business model over the years where customers increasingly demand speed and convenience. Companies have had to come up with innovative ways to meet their needs. Subscription pricing is one way of achieving customer satisfaction while also creating predictable revenue. This pricing strategy is not just limited to digital products but is also used in other  industries such as healthcare and manufacturing. Fast forward to today, and we have subscription pricing models for everything from software to meal delivery services. It’s a testament to the effectiveness of this pricing strategy, and how it has expanded across industries and use cases.

The subscription pricing model also offers companies the opportunity to build strong, long-term customer relationships. Not only does it provide recurring revenue for businesses, but it also allows customers to experience a hassle-free, convenient way of accessing or consuming goods or services. The evolution of the subscription model has been driven by customer needs and expectations as well as technological advancements that enable businesses to offer more personalized and flexible subscription plans. Today, companies are finding new and innovative ways to incorporate subscription pricing into their business models, thereby increasing their bottom line and satisfying their customers. One study by KeyBanc found that 90% of software companies using a  subscription pricing model were able to achieve a gross profit margin of at least 60%, with more than half achieving 80% or more.

How Technology Enabled New Business Models With Subscriptions

Technology has played a significant role in enabling subscription pricing models. Online digital payment platforms, unbundling of products and services, and lower technology costs (e.g. cloud) has supported the adoption of subscription pricing. Subscription pricing has now become the norm across various industries, including membership programs, streaming media, and software. Subscriptions have revolutionized how businesses operate, making it less risky for them to introduce new products and services since there is greater predictability of revenue. Rather than customers waiting for access new and potentially costlier services, they can now access services without the risk of long commitments. Faster access has also helped companies to enhance product development speed and quality.  

Impact of Subscription Pricing on Consumer Behavior and Expectations

As this type of model becomes more prevalent across various industries, consumer behavior and expectations are undergoing a significant shift. Consumers now tend to view products and services as an ongoing experience rather than a one-time purchase, and they expect to receive a consistent and high-quality experience in exchange for their subscription fee. Additionally, the convenience and flexibility of subscription models have made it easier for consumers to try out new products or services without committing to a long-term purchase.

However, with this shift toward subscription pricing comes a greater responsibility for companies to maintain high standards and constantly innovate to retain subscribers. The companies that can successfully navigate these changes will not only see increased customer loyalty but also a positive compounding  impact on their bottom line. Successful entrepreneurs have touted the benefits of subscription models, noting that they align with modern consumer preferences for convenience and customization. By embracing subscription models, businesses can position themselves as innovative leaders in their respective industries, poised for long-term success.

Challenges Managing a Successful Subscription-based Business

Running a subscription-based business can be a daunting task, with its own set of unique challenges. One of the most significant hurdles that leaders  face is determining the right subscription pricing model. Should it be a flat rate for all customers, or should it vary based on usage? Finding the right balance to keep customers engaged while ensuring that the business remains profitable can be tricky. It requires leaders to think beyond just the metrics and numbers and also focus on creating value for their customers. Successful subscription-based businesses understand the importance of establishing long-term relationships with their customers and continuously improving their offerings to keep up with the changing market. It’s a tough road, but with the right mindset, strategy, and execution, it’s possible to overcome these obstacles and thrive in the industry. As Seth Godin says, “Be remarkable, be generous, create art, make judgment calls, connect people and ideas–make change happen.”

Companies that have effectively implemented this model include Amazon Prime, Netflix, and Adobe Creative Cloud. These companies have leveraged this pricing model to create a sense of loyalty and customer satisfaction that is unrivaled in their respective industries. These examples serve as examples that the subscription model is a mainstream practice that helps companies to create  sustainable businesses to invest in delivering more value for customers.

Final Thoughts

Subscription pricing has become an integral part of the modern business landscape, and businesses have begun to recognize its potential to foster customer loyalty and generate reliable recurring revenue. By understanding the benefits and challenges associated with this model, as well as examples of successful implementations, companies can make informed decisions that will position them for long-term success. A subscription-based business model is a powerful tool for achieving sustainability and profitability in the current market and should be taken advantage of appropriately.

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Why You Need to Invest in Long-Term Strategies to Grow Lifetime Value

Foundations Series

To formulate an optimal pricing strategy, there are many key metrics you have to keep in mind. One vital metric is customer lifetime value (LTV), which refers to the net present value of profits a customer generates for a business over their lifetime. To grow LTV effectively however, you need to be patient and invest in long-term strategies. Taking all the steps to do so will take you and your business on a direct path to sustained growth and success. 

Benefits of Investing in Long-Term Strategies

Investing in long-term strategies offers numerous benefits for businesses seeking to boost customer retention and drive profitability. One of the most significant advantages is increased customer loyalty and retention, which can lead to improved word-of-mouth referrals and reduced customer acquisition costs. By taking a strategic approach to customer experience and satisfaction, companies can create a positive feedback loop that reinforces their brand and drives repeat business. In addition, implementing retention-driven tactics can allow businesses to achieve higher profitability and ROI, as loyal customers tend to spend more over time. Overall, investing in long-term strategies is a key factor in building sustainable growth and success for any business.

In fact, a study by McKinsey & Company found that loyal customers tend to generate more than two times the profits of non-loyal customers. Furthermore, companies can expect a 20–40% return on investment when implementing customer-centric initiatives such as loyalty programs and targeted marketing campaigns. Investing in long-term strategies for increasing LTV is thus an essential part of any business strategy, as it helps to drive growth and profitability in a sustainable way.

Moreover, investing in long-term strategies not only increases profitability but also leads to a better understanding of customer needs. By engaging with customers and collecting data from interactions, businesses can gain valuable insights into customer preferences and behavior. This information can be used to create tailored offers, promotions, and services that meet customers’ individual needs. Companies can use these insights to further improve customer experience and satisfaction, creating a cycle of continuous improvement that enhances both sales and loyalty.

Strategies to Invest in for Growing LTV

Investing in specific strategies to grow customer lifetime value (LTV) is essential for businesses seeking long-term success. One key strategy is offering personalized promotions and offers to customers. By tailoring promotions to individual customers’ interests and buying habits, businesses can increase the likelihood of retention and repeat purchases. Another possible strategy is implementing loyalty programs and rewards that incentivize customers to continue to do business with the company. These programs can help build a sense of brand loyalty and increase LTV over time. Additionally, cross-selling and upselling services or products to customers can increase revenue while also providing a better customer experience. When done with a focus on meeting customer needs and preferences, investing in these retention-focused strategies can lead to long-term growth in LTV.

For example, a company that invests in long-term strategies for growing customer lifetime value could offer personalized discounts and promotions to regular customers. This approach of personalizing offers helps build loyalty and encourages customers to return over time. In addition, the company could also implement a rewards program where customers can earn points or cashback when they shop at the business. By creating a system of loyalty for their customers, the company can increase customer retention and ultimately boost LTV. This type of strategy is key to achieving long-term success and sustainable growth.

One example of a notable and successful loyalty program is Apple’s Apple Card. Through the Apple Card, customers can earn cash back on every purchase they make with their card. The more customers shop with their card, the more rewards and discounts they can accumulate. Additionally, users are also given access to exclusive offers and promotions that are tailored to their shopping preferences. This type of loyalty program is an effective way for businesses to retain customers and grow LTV over time.

How to Measure Your Success?

Measuring success can be a daunting task, especially when attempting to quantify the impact of your business. However, tracking certain metrics can enable you to gauge your progress and determine areas in need of improvement. For example, retention is a key indicator of success, as it reveals the loyalty and satisfaction of your customers. Monitoring customer feedback and reviews is another useful strategy, as it enables you to understand how your offerings are perceived and identify opportunities for improvement. Finally, analyzing the overall profitability of your investments provides a comprehensive picture of the financial health of your business. By diligently measuring these factors, you can ensure that your efforts are on track and take action to address any areas of weakness.

Furthermore, with the right tools, measuring success can be made easier. Analytical and tracking software such as Google Analytics and Salesforce can provide insights into customer engagement, retention rates, and overall profitability. Additionally, surveys and questionnaires can help gather direct customer feedback on products and services. By utilizing these types of metrics in tandem, businesses can gain a better understanding of their progress and take the necessary steps to drive long-term success.

How to Make Adjustments?

Making adjustments along the way  is an important part of the process when attempting to grow customer lifetime value. It’s important to be open to feedback and take a proactive approach to addressing any areas that are in need of improvement. When making adjustments, it’s important to focus on the customer experience. This means improving communication and providing support in a timely manner. Additionally, by providing personalization and customization options, businesses can better meet the needs of their customers.

Final Thoughts

Investing in long-term strategies for growing customer lifetime value is essential to building a successful business. By understanding customer preferences and implementing the right strategies, such as loyalty programs and personalized experiences, businesses can increase customer retention and boost their LTV. More specifically, companies can grow their customer base, improve loyalty rates, and maximize profits. Ultimately, investing in the right strategies for growing customer lifetime value is a smart decision that can pay off greatly over time.

But, doing so requires commitment and dedication. Nevertheless, it’s worth the effort for businesses looking to build a sustainable future. With the right tools and strategies in place, businesses can ensure that their efforts are paying off and take action to adjust as needed. The key is to focus on the customer experience and provide personalized options for customers to enjoy a seamless experience each time they interact with your business. With this approach, you’ll be well on your way to building a successful business with long-term customer lifetime value.

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Are You Too Accessible?

Accessible Post

Many founders started their companies because they saw a problem in the market and took the initiative to create something that would solve it. 

They envisioned their solution helping communities and society – big impact at scale. 

To achieve this, here is how the thinking tend to go with founders and early startup teams: 

  • The product is for everyone (big mistake).  (Use this instead to figure out who your product is really for.)
  • To capture the largest market possible, the product must be accessible. 
  • To make the product accessible, price will undoubtedly be an important factor. 
  • Charge too “too high” or anything at all is going to scare off would-be customers, and therefore is no longer accessible. 
  • Conclusion – either don’t charge or charge even lower. 

Is this something you’ve considered?

Now to be fair, this can work in certain situations. What I more often see is the anticipated benefits of being more “accessible” do not materialize. 

Costly pitfalls of accessibility 

Instead, some costly pitfalls emerge. Here are three: 

  • Acquisition costs increase: Even at free, users don’t understand or find value in the offer (e.g. pricing package, product, communication)
  • Smaller bump in demand: While the basic principles of supply and demand hold true for price changes, I often see startups over-estimating the price sensitivity of their market. In other words, the perception is if the price is a lot lower then there will be a relative bump in demand. This rarely happens without external influence – namely a substantial increase in acquisition spending or some moment of virality. 
  • Revenue opportunity cost: By focusing on “accessible”, what is lost is discovering what drives actual willingness to pay. That means you may be getting only a fraction of what customers were actually willing to pay. I find startups are getting less than 65% of what their customers are willing to pay, and this is for startups that are actually charging for their product or service. 

Unfortunately the unsexy stuff like unit economics, profitability, and cash flow still play a role in whether this dynamic is plausible, let alone attainable. 

How to assess if you’re too accessible 

  • Identify gaps in your strategy: This starts by stress-testing the assumptions you have about your customer, what drives value for them, and their willingness to pay. What insights have you collected that validates this strategy? 
  • Identify wastes in your go-to-market approach: Here you want to see how your go-to-market resources are being used and the results they drive. For example, are you seeing low conversion on site visitors or trial users? In other cases, are you seeing high churn from your customers? The goal of this exercise is to determine how much waste is created, and offer an initial view of the financial impact of continuing with an accessibility strategy.
  • Think experimentation even not for scale: You should be looking for experiments to determine not only the validity of increasing accessibility through price, but also different ways pricing can be shipped (via offers, packages, discounts) that create financial opportunities. 

The bottom line is this decision is an important one, and should not be made hastily. Fear of rejection is real, but should not be the basis to shy away from defending your (pricing) value.  Patience is critical, but a thoughtful approach will pay dividends as the numerous success stories demonstrate.

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Fundamentals Of A Winning Business Model

At the core of every successful company is a strong business model.  

Your business model is the blueprint for how your business will make money (or not). But for many companies starting out, not enough time or effort is put into identifying the right business model for their business.

This can turn out to be a very costly mistake.

In a study by CB Insights on the top reasons why startups fail, a top ten reason (coming in at #7) is going to market with a product without a business model. 

It doesn’t have to be this way.

Designing the right business model for your company, product and goals are very much in your control. From our experience working with fast-growing startups to global corporations, we cover core elements to building a successful business model.  

 

What Is A Business Model?

Let’s level set by making sure we understand what a business model is, and is not.

According to John Elkington and Richard Johnson, “business models are what connects technology potential with real market needs and consumer demand”.

Another definition from management theorist Peter Drucker is that a business model is “assumptions about what a company gets paid for”. 

So there are two vital parts to understanding what a business model means for your business:

  • A connection between your product or services and the needs of your customer and market; and
  • A structure that defines your customer’s willingness to pay.

This is important because to build the right business model it will depend on how much we know about our customer, market, value proposition, prices, and financial requirements and resources.  

This requires information – the right information – to help us assess and inform the right business model for our company.

No small task, but all work within your control.

 

Why Your Business Model Is Critical To Your Company’s Success

Entrepreneurs and businesses understand that they need a business model, but too many do not understand what makes a good business model for their business.

A good business model answers core questions about how your business will operate, as well as the viability prospects of the company. A great business model creates a competitive advantage embraced by customers and differentiated to the competition.

Given the high stakes, your business model should not be left to guesswork and chance.  

 

Create and deliver value: How you bridge the gap between your solution and customers

Why your customers need a new product – more specifically your product – is not always obvious. This is especially relevant for new technologies and innovations.

Your business model is the bridge between the solution your company offers, and the needs and willingness to pay of customers. It is how customers make sense of your value proposition and the pathway to acquiring the proposed solution. 

 

Financial viability: How your company makes money

At the core of any business model is how a company intends to make money and profit from its products. The quality of the business model for a company and its product reflect whether enough money will be generated (read: profits) to achieve viability.

The business model also reflects how well the company understands its customer and market, to make a commercial enterprise capable of generating revenue and eventual profits. If the business model isn’t right, this can wreak havoc on the financial viability of your company.

 

Strategy: How your company wins customers and the competition

Too many companies – big and small – have a tendency for a ‘follow-the- leader’ mindset when selecting a business model. This can be an actual market leader with a commanding market lead and is setting perceptions on the value and prices.

Then there is the perceived market leader, where within an industry – often in nascent or technology-driven industries – there are companies competing with one another despite the vast majority of prospective customers don’t know the company let alone the value proposition or pricing competitors.

What this means is there is business model complacency that occur for many companies, leaving potential profits on the table, but also a missed opportunity to differentiate from competition. By creating business models that are like everyone else, there is greater pressure to justify the value proposition and the pricing question of “is it worth it?” – a tall order for many startups and new ventures.

 

Key Components Of A Business Model

Like pricing, a good business model doesn’t start by simply selecting between a menu of models. No, a good business model starts by understanding your customers for your product created by your company. A great business model is designed for the company, it’s customers, and the goals the company aims to achieve.

 

Your value proposition   

Developing an effective business model requires a clear identification of the value proposition and how you can differentiate yourself in an often-times crowded market.

As Peter Drucker famously says, ”Customers don’t buy products, they buy the benefits that these products and their suppliers offer to them.”

We often take for granted what our product actually does for our customers, leading to business models built on assumptions. Companies that are attempting to disrupt an industry, are particularly prone to this because they hold the belief that the disruption itself is the benefit.

Yet human nature is often resistant to change if not rejects change outright in favor of the familiar. That’s why when you go to the purchase page of some software companies you see a long list of features and benefits – a list made for everyone, and thereby for no one.

 

Your customer

The process of defining the value proposition and the benefit your product aims to deliver, the next question is, “who is the benefit for?”.

In our project experience working with companies from high-growth startups to large market leaders, the question of who is actually the company’s customer is commonly overlooked.

We take a tiered approach to the customer question that is based on the degree of connectedness the customer segment has with your product.

Imagine a series of concentric circles – like the rings of a tree trunk – where each circle gets smaller as you get closer to the center. While in aggregate, all the circles combined represent your desired market, it is those circles closest to the center that care most about your product and ideally, your brand and company.

Defining who those customers are, what they value most and the benefits they need to derive – whether through your product or a different solution – is critical. This enables you to create a business model aligned to your customer; not someone else’s customer.

 

Your pricing

The best companies are pricing experts because one of the most important parts of your business model is the pricing strategy.

An effective pricing strategy maximizes revenue and demonstrates that you really understand how your customers value your offering. The amount of resources dedicated to developing a pricing strategy also reflects how much time a company has spent trying to extract value out of its products. This involves monetizing different aspects of the product to serve the largest possible audience.

More advanced pricing strategies may use tools such as targeted discounts or promotions to increase revenue, and the use of other pricing design tactics. A good pricing strategy that captures the value out of your offering increases the odds that your business will be sustainable in the long run.

 

Your goals and resources

Creating a business model for your customer and company means self-discovery by your company of what it wants and needs to achieve. This can be to maximize revenue. It can be to penetrate the market and win market share. Creating a proxy for success steers how the business model is designed but also make changes as needed.

Creating a good business model also needs to account for resources needed to achieve your defined success. This may mean to make changes on how your company sources materials or talent, how your company acquires customers or shifting the business model.

When companies adopt a business model of market leader or look-a-like company, many input and output assumptions are made often to the detriment of the company. Rather than methodically evaluating inside on what is and is not available, attempts are made to fit their square (the company) into a circle (competitor’s business model).

 

Building The Right Business Model For Your Company

The types of business models available to you depend on the results of your work on the different components outlined above. This means a great deal more time spent on research and discovery as it is on selecting from a menu.

Even businesses that look similar at first glance could have dramatically different business models. Consider video game developers such as Electronic Arts and Epic Games. Electronic Arts have a traditional gaming business model and charge $60 per game up front. Epic Games uses a “freemium” model where games such as “Fortnite” are free to download and gamers then pay for in-game upgrades.

This has proven to be an effective strategy as Fortnite earned $300 million in April 2018, almost six times the first-month sales of EA’s highly anticipated Star Wars Battlefront II. Epic Games’ business model requires the company to engage customers over an extended period of time but Electronic Arts just need to make that first sale. Their respective business models don’t exist in a vacuum and are designed to achieve commercial objectives

It is also important to be mindful of potential pitfalls when building a business model. If the price is wrong, the analysis that follows will be fundamentally flawed. Targeting the wrong customers means that the business model will emphasize the wrong product attributes. Every assumption in a business model needs to be checked and rechecked.

 

Final Thoughts

A company’s business model is a key success factor in both the short- and long-term.

A good business model identifies the core customer, their pain points, and how specific products or services can address those issues. The best and most disruptive companies create not only amazing products but a business model that connect paying customers to their solution.

But success comes not only through the ultimate model these companies chose, but the fact that the model was uniquely their own, for their product and customers.

Business models might serve as a blueprint for a company’s future but those plans aren’t static. Business models evolve over time as companies better understand their customers, the value of their offerings, and their competitive positioning. Evolution doesn’t necessarily mean a complete overhaul. It is a commitment to making actionable adjustments (e.g. pricing, product offering) that meet the needs of the market for now and beyond.

 

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Lessons Of Growth: Clutter’s Saad Shahzad

Clutter startup growth

Growing a company is hard enough, especially when you are disrupting a $50B/year industry — which is exactly what Clutter is doing to the storage industry today. 

Clutter is a tech-enabled, on-demand storage company that manages the pickup, storage, and retrieval of your belongings. The company was co-founded by  Ari Mir and Brian Thomas in 2013, and has since grown to become one of the largest on-demand storage providers in the world. 

Over the last six years, Clutter has expanded its footprint significantly, now operating in over 1,000 cities and eight states across the U.S., including Los Angeles, New York, San Francisco and the Bay Area, Seattle, Chicago, Philadelphia, New Jersey, San Diego, Orange County, and Delaware.

To accelerate growth and expansion into new markets, Clutter has raised nearly $300M in total funding from notable investors, including Sequoia Capital, Atomico, Google Ventures, and most recently Softbank. The company also recently acquired Omni’s storage business, which is Clutter’s second acquisition (last year they acquired Handy).

saad startup growth

We had the opportunity to chat with Saad Shahzad, Clutter’s General Manager of Enterprise and former VP of Sales and Customer Care, to learn more about Clutter and his advice on growing and scaling a startup. 

Saad joined Clutter in early 2016 to build out the sales organization and help grow the business. 

Saad started his career in finance and venture capital, which led to an opportunity to join Gusto, a high-growth HR startup, where he helped grow the business from  800 to more than 50,000 customers. 

Saad made the decision to move back to Los Angeles and join the Clutter team because he saw a startup with a highly addressable market with a massively underserved customer base.  

The vision, potential and value of Clutter were clear. Self-storage is an industry that’s never focused on the customer. After meeting with Ari, he realized Clutter had the potential to completely disrupt the space and offer consumers a much more convenient solution at price parity with the incumbents. As Saad explains, “We make people’s lives more convenient so they can spend time doing what they love.”

Since joining Clutter, Saad has been part of the executive team that has helped grow the company from its Series A to Series D rounds. 

Saad is sharing four pieces of advice for startup founders and entrepreneurs as they build their businesses.


#1: Invest In People 

As cliche as it may sound, a big part of Clutter’s early success was the company’s approach to people. It was more than a focus on building the right culture, but building the right processes to help create the right culture. 

One of the first initiatives Saad worked on when joining Clutter was working with the CEO Ari on the company’s hiring philosophy. They re-imagined Clutter’s approach to people management — including everything from how job specifications are written to candidate offers and onboarding for new hires.

This was all designed to bring not only the best but also the right people for Clutter. Saad shares, “As your business starts to scale in the early days, you need to make sure that people understand the DNA of your company and are aligned with your core values. At any high-growth company, your team has to have the adaptability to problem-solve in high-pressure situations.” 

A practice that Clutter started in the early days — and continues today — is celebrating failure and empowering team members to be more right than wrong. 

Saad continued, “Build a strong culture and be vocal about who you are and what you stand for. Sometimes, that means you’ll have to walk away from great talent. And that’s okay. One of the riskiest things a high-growth company can do is bring on people who are extremely talented, but not culture fits.” 


#2: Ruthlessly Prioritize  

In the early days of a startup, wearing multiple hats is a given. As Saad recalls, there were times when Ari would be out in the field driving trucks and working in the warehouse until 2am. 

As they started scaling and hitting milestones, it became critical for Ari and his team to ruthlessly prioritize their time and identify roles/functions that required bringing in outside expertise. 

Building the right team includes both internal leaders and external stakeholders who are involved with the business. According to Saad, when thinking about scaling and growth one of the best resources is the VC fund that you take capital from and the specific partner who will sit on your board.

A lot of companies in the early stages often prioritize valuation. For Clutter, it was all about finding the right partner — one that would help them reach the next level of growth. As Saad explains, “The best advice we can give [to founders] is focus on the partner who will be joining your board, because he or she will become your best resource and sounding board. Your partner will ask the difficult questions, and hopefully the right questions — they will be with you throughout the entire journey.” 


#3: Optimize for learning

As Clutter grew, its leadership team prioritized “optimizing for learning rapidly.”

One of the ways they did this was by encouraging senior leaders to seek out their own advisors. As Saad explained, “One of the things that makes Clutter unique is that we give each one our leaders the ability to go find their own advisors, who would get equity in Clutter to align incentives and interests.”

Saad brought on a  former Chief Revenue Officer of a public SaaS company as an advisor and mentor to serve as a sounding board and resource for the challenges he was facing. It gave him the opportunity to work through challenges with someone who’s been there and come up with solutions.


#4: Be intellectually honest  

Starting and growing a startup is often a lonely road. Many startup founders are going against the status quo, and a degree of resilience is required. 

But as Saad explains, staying focused shouldn’t cloud intellectual honesty: “ As you start out, you have to be intellectually honest with yourself and other stakeholders on success, failure, and more importantly, why.” 

This often translates into difficult decisions and iterating on things that are not working. It also means being okay with cutting your losses and trying a different strategy or direction.

To ensure they were approaching everything with intellectual honesty, Saad and the leadership team looked to data — even at the earliest of stages — to inform decisions and grow faster.


Final Thoughts

One of the key takeaways from  Saad is not to underestimate the importance of your company’s foundation — you have to be very deliberate about culture. 

While Clutter constantly iterated, it was more than trial than error. The approach Clutter took was structured, methodical, and purposeful. This permeated across all off Clutter, which Saad referred to as “radical transparency”. 

Be intentional about how you grow your company. In true growth fashion, there is always more to achieve and Saad, reflecting back, continues to challenge himself and his team to “raise the bar even higher.”


Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company and hustle.

If you or your team is interested in learning more about rethinking how your company can grow, visit our blog for a range of articles from pricing to sales effectiveness or contact us to schedule a chat: contact@helloadvisr.com

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How To Use Pricing As A Growth Strategy

You’ve got a great product that your customers love, a growing reputation, and team members who are passionate about what they do — yet you’re struggling to grow. Why?

Most businesses in this position would knuckle down and work harder, confident that a breakthrough is just around the corner. And it might be. But what many of these businesses don’t realize is that that breakthrough could be made today (and with potentially a lot less effort).

So, what’s the secret?

It’s your pricing strategy.

Most businesses start by setting a price that they think is about right and then leaving it to see what happens. Normally, customers are happy to buy (because it’s a good product), and so the business assumes that the price is right. Once they’ve found something that “works,” businesses tend to stick with that price, only altering it as manufacturing costs go up.

This set-it-and-forget-it mentality leaves value on the table and restricts growth. Most businesses guilty of this strategy are setting their prices too low; they receive enough to continue running but not enough to grow.

Marc Andreesen Pricing Quote

The time to focus on your pricing is now: let’s get started.

 

Pricing As A Growth Strategy

Designing and executing a pricing driven growth strategy requires an “inside-out” approach. By starting with your company and your growth objectives, you can set out a sustainable strategy that delivers value to your customers without compromising your growth.

Step 1: Establish Your Goals

It appears obvious, but the first step is to look at your growth goals for your company. Where do you want your business to be in one year’s time? How about in five years?

Many companies forget what it means to build goals – stretch and attainable – that reflect the ambition and new reality for your company and market. Your pricing is a vital part of this growth story because it starts to identify the levers available, how hard you want to push these levers, and the impact these decisions will have in your company’s future state (e.g. can you become profitable?).

Step 2: What Do Your Customers Value?

Your customers purchase your products or services because they provide value. Perhaps your service saves them time or provides them with access to something they can’t get anywhere else. Whatever it is, you need to figure it out — because it’s this value (and its relationship to price) that decides whether they make a purchase decision or not.

Not sure why customers value your product? Ask them!

Step 3: Determining Worth

To price correctly, you need to put a number on the value you provide your customers. This value might change depending on which customers you look at — and this might have important implications for your sales and marketing strategy.

For example, say you provide an online service that saves users an average of four hours per month on a boring and monotonous task. How much is that worth? Executives might value that time at $250 per hour. Students, on the other hand, might value their time at a fraction of that. Understanding what customer value and what drives that value is critical to determining worth — while not giving up on potential monetary opportunities.

Step 4: Evaluate Your Market

The value your competitors offer (and the prices they offer it at) may shed light on which pricing strategy will work best for you. Some industries are very “flat” with little difference in pricing between firms, while in others there is a huge difference (like the motor industry).

Your task is to consider how your value measures up against your competitors and decide what that means for how much your customers are willing to pay.

Step 5: Align Pricing and Goals

Your aim is to hit the sweet spot — a price that reflects the value your customers receive and that they’re willing to pay, and that allows your company to hit its growth goals.

Sometimes this isn’t possible, in which case you either need to revise your growth goals, improve the value you provide (and potentially increase the amount customers are willing to pay) or both. What is important is not to put pricing or growth into silos, but see where pricing can enhance goal achievement.

Step 6: Test Your Price Design

Remember when we mentioned the “set-it-and-forget-it” mentality? You’re not going to make that mistake again.

Test your pricing strategy by running trials or conduct pricing research. This can be easily achieved online by driving traffic to a sales page and then splitting the traffic so that viewers receive the same sales message but different prices. Often, the most profitable price will result from fewer sales at a higher value — but you won’t know unless you test.

Step 7: Launch, Measure, Refine, Repeat

Once you’ve completed testing, launch your pricing strategy and measure its progress. Conduct regular reviews of your pricing strategy, taking into account customer opinion, sales progress and your growth goals. This is not the responsibility of a single team member, but a core leadership topic — pricing is a reflection of the value created for customers. In addition to refining your price design, you will enable your sales and marketing teams to better design ways to defend the pricing with stronger communication, messaging and processes.

 

Final Thoughts

Used correctly, your pricing strategy is an incredible tool for supporting and enabling the growth of your company — but you have to have a plan. By being clear about your goals and values, evaluating your market, and implementing thorough trials and testing, you can find the ideal price, keep your customers happy and grow your business.

 

Interested in learning more?
If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us at:contact@helloadvisr.com 

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Stop Wasting This Powerful Growth Tool: It’s Hurting Your Company

trash waste

Entrepreneurs and startups are innovators. They operate outside of the box because they believe the status quo isn’t good enough.

When it comes to building a growth strategy, many entrepreneurs and companies look to ‘de-risk’ by choosing the path most traveled. In the startup world, this can mean adopting strategies that fail 80% or more of the time.

By comparison, you have approximately a 46% chance of winning (or 54% chance of losing if you’re a glass half-empty type) by selecting at random red or black at a Vegas roulette table.

No, taking the road most traveled isn’t the only path.

Look deeper into your growth toolkit and you’ll find one of the most under-utilized – yet powerful – growth tools: pricing.

 

“Voluntarily conceding powerful growth tools shouldn’t be a option.”

 

For entrepreneurs and business leaders there are a lot of things that are out of their control. Pricing shouldn’t be one of them.

I’ve seen too many companies concede pricing to the forces of ‘that’s how it is’ or ‘it’s good enough’.

That’ is NOT good enough.

Leveraging your pricing now empowers you to monetize, market and sell your products better, and take a smarter approach to capture the value you’ve created. Here’s my advice on where to start.

 

Why Pricing is a Powerful Growth Tool 

The path to successful growth and success is varied. For every Snapchat there is Kickstarter who took more than 8 years to just launch let alone succeed.

One prominent VC, whom I highly respect, shared his view on assessing the potential of startups and fast-growing companies. He focuses on revenue growth drivers to gauge the financial and commercial health including units sold, the trend of units sold,….

Makes sense, right?

Except there is something missing in this revenue growth assessment: price.

 

  • Is the price right for the product or service?
  • Is the company capturing the value customers find in the product?
  • What future pricing opportunities does this company have?
  • How does the company know?

 

The list of questions go on and on.

Ironically, one of the things new ventures are able to control – pricing – is cited as one of the top reason why most startups fail. Yet receives surprisingly little attention relative to other factors whether it is price setting or management.

So let’s get back to basics: revenue is a function of volume (users/units) and price.

 

 

By this definition, to grow revenue, entrepreneurs have two drivers at their disposal.

Let’s take for example two growing companies A and B. They’re both growing revenue at about 50% per period, but company B is priced 50% higher.

 

 

The example is simplified but begins to illustrate the various paths to growth. The question you should be asking is which pathway is best for your company.

 

“All businesses should be asking: ‘does our growth 

reflect the value created by the company?’”

 

Pricing is a powerful growth driver and when used properly, materially impact your results.

 

Define Company Goals Needed Now (and Later)

In the chaos of growing a company, too often the goal is simply to ‘do better’ or ‘grow more’. While the spirit is in the right place, articulating clear goals and targets is crucial to designing the pricing strategy appropriate for your company’s stage.

If it’s not clear how your pricing is helping you achieve that, you run the risk of losing value – customer perceived and monetary – as you grow.

Here are some useful questions to help get you started to define your goals:

  • What strategy will get me to the next level (e.g. new markets, new round of funding)?
  • What strategy will get me to 100% revenue growth?
  • What strategy will get me ‘influential’ growth?
  • What strategy will get me to profitability?
  • …

One common question for growing companies setting goals is the question of profitability – how, when and how much.

It is neither unusual nor necessarily undesirable to sacrifice profitability – especially in the early days – for reinvestment. The poster child often cited for high growth, low profitability is Amazon. This reinvestment can be critical to product development, staffing, and marketing and sales.

What is critical to setting a goal of low or no profitability is what happens after the shorter-term reinvestments and goals are achieved. Some questions include:

  • How has your company defended your price position?
  • What can be done to regain any lost pricing power?
  • How can monetization of your products or services change to improve profitability?

My company recently worked with a national consumer products brand building a fast-growing range of healthy foods and snacks. Working with the company’s CEO, we were identifying opportunities through the company’s price and consumer strategy for the next stages of growth.

The company’s mission is simple but powerful: increase health and wellness in the daily lives of consumers by making healthy foods fun and accessible for all ages.

In 24 months, the company has increased its retail distribution and footprint across the U.S., partnering with some of the largest supermarkets and developed a strong and growing fan base.

For this company, the founder set out from the very beginning the company will grow, but grow profitably. Every growth decision took into account the short- and long-term profitability impact. This was the crucial executive direction that fed into the pricing strategy and defined early on a key measure of success.

This strategy is the right business model and strategy for this particular company. It doesn’t mean it’s right for every company. What’s valuable is setting specific goals early on and starting to anticipate the long-term impact of those goals later on.

 

Focus the Team to Start Work on Pricing Today

Acquiring and maximizing resources is the challenge companies of all sizes face, so it makes little sense to give up resources before having the chance to properly use it. Unfortunately, pricing is often used in this way.

I often talk about the critical role leadership has on pricing and high-impact companies. This includes the vision leaders have about their product and service pricing, competitive positioning and the communication with customers.

This leadership also includes rallying the troops to work on pricing now, because pricing only gets harder with growth.

Spotify, founded in 2006, has become the world’s leading music streaming service with over 140 million users. In the early days, Spotify needed to accelerate adoption, so in addition to positive word-of-mouth, also introduced a freemium price model to decrease sign-up barriers.

In the early days, Spotify needed to accelerate adoption, so in addition to positive word-of-mouth, the company also introduced a freemium price model to decrease sign-up barriers. Adoption was rapid and investors jumped on board.

Fast-forward 11 years and Spotify has been able to increase their paid user base to 40% or about 56 million users. After a decade – and millions of dollars invested on pricing tactics such as incentives and discounts – a majority of Spotify users still does not pay for the service.

The paying customer base is not immaterial, though. As of June 2017, Spotify’s paid user base is 100% greater than their nearest competitor, Apple Music. Yet to reach this level has taken considerable resources – and will continue to do so – to convert and retain paid users. It was a decision to take this volume-driven path, but one they continued down with few alternatives.

Most companies don’t have a decade (or the runway) to figure out what works. Most companies are lucky if they have half that time. Which is all the more reason why pricing and monetization must play an earlier role in the development and launch of the product or service.

For entrepreneurs looking to a “pivot later” pricing strategy, can reference companies like Spotify and assess the scale and conditions required to reach a similar position.

 

Final thoughts: Don’t Make the Mistake of Overlooking Your Pricing 

Pricing is a strategic and tactical tool to achieve a range of outcomes from profitability to growth. What is vital is not to overlook or concede pricing as a tool to achieve desired end goals.

As entrepreneurs examine the next steps for growth, some important areas to examine:

  • Think about pricing early and often. If you don’t, your competitors will.
  • Pricing helps to position the product. It’s always easier to go down than up.
  • Pricing influences the direction of growth. There is more than one way to drive growth, but achieving value-driven growth is harder at later stages.
  • Pricing capture customer insight and helps identify value. Knowing your customer better your competitors is a competitive advantage, and better pricing methods help better capture this insight.

 

“Victorious warriors win first and then go to war.”

– Sun Tze

The power of pricing starts with the practice of being proactive. I’ve seen too many companies concede this power too early on, making recovery difficult at best and company crippling at worst. Don’t let this happen to you. Better pricing is a powerful tool that can help your company thrive and sets you apart from the crowd, but it starts with now.

Interested in learning more?
If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at:contact@helloadvisr.com 

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.