Recession Pricing Strategies With Patrick Campbell

Chris Ronzio (00:33):

What's up everyone? Welcome, welcome, welcome back to another episode of Organized Chaos Live. Today's conversation is going to be all about pricing, particularly, how you price your product during this kind of recessionary environment that we're in. We'll talk about whether or not we're actually in a recession. We're going to have a specific emphasis on SaaS products, software as a service, because our guest specializes in that. But if you're not in SaaS, there will be tons of applications, gems, takeaways that you can apply to your business. To kick things off, if you're watching live in the comments I would love to know, has your business, or the company that you work for, made any changes to your pricing because of what's happening in the macro market? If so, I want to know what's the change that you've made? What's been the impact so far? Because we'll work that into our conversation.

(01:24):

All right. Joining me today, Patrick Campbell. Patrick is a CEO of ProfitWell, recently acquired by Paddle and we'll talk about that too. It's a software for helping subscription companies with their monetization and retention strategies. We've been using it for years and years and years. In fact, I have ProfitWell t-shirts that I still wear all the time. Patrick, when you come in, I feel like they're almost a t-shirt of my own company because I just look at my dashboards and metrics. It feels like an internal tool. That's how much I love ProfitWell/ prior to ProfitWell, Patrick led strategic initiatives for Boston-based Gemvara and he was an economist at Google and with the US Intelligence Community. So super smart guy. Patrick, so glad to have you here.

Patrick Campbell (02:10):

What's up man? It's good to see you, it's been a while. I love the production. You've come a long way Chris. You've come a long way. It's exciting.

Chris Ronzio (02:20):

Stepping it up. Stepping it up. You were on I think probably the first 10 or 20 episodes that we ever did. It was a different podcast name, but if anyone wants to go back, you can see a super early interview with me and Patrick. I think I've got a wrinkled logo, like a bed sheet behind me maybe [inaudible 00:02:39].

Patrick Campbell (02:39):

That's how it is. You've got to start small. You got us to jam and then eventually get some stream yard and he get some good live stuff going. Excited to be here, man.

Chris Ronzio (02:49):

We fancy now. You're fancier than me because of your recent acquisition. Where are you calling in from? You told me before we jumped on here.

Patrick Campbell (02:57):

Yeah. I'm in San Juan, Puerto Rico. Moved here slightly before the acquisition and been enjoying the beaches, all that kind of stuff. I was in Utah and then I was in Boston for about a decade. I'm enjoying the beach life a little bit, although I've never really been in a beach life before, so it's a little different.

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Are We In A Recession?

Chris Ronzio (03:15):

Well in Arizona we say we have lots of beach, but no water, just all sand. It's all sand part of the beach. All right. Let's get into the topic at hand here. I'm sure you get asked about this a lot. I saw a blog post that you wrote about a recession. Are we in a recession? Are we headed into a recession? What's your take on this?

Patrick Campbell (03:37):

Yeah. My take is the answer doesn't really matter, because at a macro level, if we're sitting around drinking coffee and arguing about what's going to happen in the world and no ability to affect it, yeah, I think technically we're in a recession. It's a really weak one right now. The reason I said it doesn't really matter is because I think people think we're in a recession. It's kind of like traffic. If everyone just agreed to not think they were in a recession, we wouldn't make it worse, but everyone's kind of been cutting. We've seen this in the data, people have been cutting, very similar to when COVID started. Extremely similar relationship in terms of the data where you're seeing these three waves that are happening.

(04:28):

This is the bad news. The bad news is the first wave started around February, March, and this is when people start looking at their expenses, their balance sheets and just start ... Do we need this? Do we need this? Do we need to let people go? Et cetera. Those are the people who are typically very experienced who did that first. Then the second wave was all the people who didn't do it going, "Yeah. We probably should do that now." That was a few months later. Then the third wave are finally the people who either didn't cut as deep as they should have earlier, or people who are finally getting around to making some cuts.

(05:00):

The good news is that, historically, and we have data for those that don't know our business, we have access to a large bevy of financial data. It's all B2B data so we can see what consumers are doing and obviously what business are doing. The good news is when we looked at the past four or five recessions, we basically found that historically the three cuts is always what happens. What I'm trying to say is, we're at the end of the three cuts. It doesn't mean we're at the end of a recession. It doesn't mean that the global economy will not have problems. It doesn't mean that this won't change. But it does mean that if your business "survived" up until probably I would argue the end of September, just to be safe, your existing customers will be staying with you because they've kind of chosen to keep you when they're thinking of cutting.

(05:54):

If you're a consumer company, meaning you sell directly to consumers, it's going to be a little bit sketchy. It just kind of depends on the government. The student loan thing will bevy up some folks, the canceled student loans. There will be some different changes that happen as we get into an election season. There might be some stimulus or something that won't necessarily be direct, but it'll affect things. Long story short, I think that we're not at the end or anything, but we're now in a very stable place. I can get into what I think people should do, but hopefully that answers your questions about it doesn't really matter, we're in it. We're kind of on an upswing or at least a stable place, which I think is good.

Chris Ronzio (06:35):

Yeah. Thank you for saying that, because when I see all the headlines, it's like who cares about the technicality? Are people pulling back their spending?

Patrick Campbell (06:43):

Yeah. What the definition of recession is, yeah, technically we are on the definition, but on one hand, yes, it's kind of stupid to say, "Well, technically that it's not the definition," as the administration has. But on the other hand, they're also partially right, that it's more than just this number definition. I think things aren't great, but they're not as bad as news cycles will let us believe. The numbers will tell the story in the next couple of quarters.

Chris Ronzio (07:11):

When you talk about these three waves, did you see explicitly in the data, these spikes in churn or something or where people were just canceling and then it came back down and then another spike and then another?

Patrick Campbell (07:23):

Yep. They are spikes if you look at the data you're describing, but it's more just the growth will kind of stall, because the other thing to keep in mind for a lot of businesses is that ... This is something that I think it's really important for everyone to do is, if you're selling to other businesses, there are different verticals or segments or archetypes depending on who you sell to, that are affected differently. Beginning of the COVID situation, which is only a couple of years old, all of a sudden if you're selling to a company or type of company that has anything to do with in person, those were churning, you can't sell, you can't get new customers in those markets, hotel chains, hotel software, et cetera. But if you were selling to a company that built, in this case, remote work software or telehealth or you were a consumer brand selling telehealth or a consumer brand selling D2C, e-commerce goods that people normally get at the store, you were going crazy. You were growing crazy.

(08:29):

The first thing I always recommend to people when you're hitting a downturn, and this might happen again, the Fed said they're going to raise rates. To kind of explain this simply what that means is that, theoretically, they're trying to slow the economy a bit, because the economy has been going a little crazy, inflation's high. But really what they're trying to do is they're trying to control the unemployment number, rather than the inflation number. What that means for you, as a business, is it could get a little rocky. The point I'm trying to make is right now, or if it gets a little rockier, you should be reevaluating who you sell to. Not the exact person but the different segments. If you were selling a little bit more to, I don't know, let's just say ... The COVID example's so clean.

(09:12):

Right now, for example, I would go look at entertainment companies because in recessions entertainment companies, especially movie theaters, those types of entertainment class, they typically do really well, because it's rather cheap entertainment. If you're selling to maybe people who serve those going on vacations, they're probably going to get hit, because the gas prices and all that kind of stuff, it's a little bit harder to go on vacation. That's an example of just reevaluate your personas and just literally go down the line and be like, "Do we feel like these people are going to change or not?" Most aren't going to change, but then there's going to be some where you're like, "We should go after this market, because we think it's going to accelerate," or, "We should stop going after this market because it's going to go flat."

Chris Ronzio (09:51):

I thought you were going to say that the movie theaters were going to get hit again. I was like, oh those poor movie theaters.

Patrick Campbell (09:57):

There's some other things going on there just with the streaming stuff being so good. The concept of cheap entertainment, what is a replacement for going to Orlando? It's doing some stuff around the local city. Campsites will probably do really well, as they do typically in recessions and things like that.

Chris Ronzio (10:19):

Did you see that Disney Plus subscriptions passed Netflix or their revenue passed Netflix?

Patrick Campbell (10:23):

I didn't see that actually, but I believe it. Yeah. We did a big study on this for some content. The thing that people don't realize is that nostalgia factor is so strong in content like media. When you have Marvel, when you have Star Wars, when you have all the kids movies going up against good content on Netflix, great content, but kind of the equivalent of watching a TNT movie. It's definitely better than a TNT movie, but that's what that is compared to Star Wars and Marvel. It's kind of hard to compete with that. That's why when everyone was crapping on Disney Plus, I was like, "Just wait. Just wait. They're not idiots. They're not dumb. They've been storytellers for a century."

Chris Ronzio (11:07):

They know what they're doing.

Patrick Campbell (11:07):

Yeah. Exactly.

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Chris Ronzio (11:10):

That's why we're so rooted in nineties R&B and pop culture. Nostalgia is valuable.

Patrick Campbell (11:16):

Yeah. Totally, man.

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Struggling Industries Right Now

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Chris Ronzio (11:17):

All right. The COVID examples were easier. Are there any verticals you're seeing that are particularly struggling right now?

Patrick Campbell (11:26):

I think most verticals that serve, they're called basically the under banked ... Think of it this way, any vertical that serves wealthy individuals, you're kind of in protected markets. That's why when they talk about the real estate market, the highest part of the real estate market, maybe the prices come down, but the volume doesn't necessarily go down. Whereas, the volume of common or low end residential units, those will tank. There's some consumer companies that were selling more nice to have D2C subscription, E-commerce products that ... Maybe I go to the corner store to get my razor or my deodorant or my vitamins, because getting them through this e-commerce site is actually double the price. I like those better, but it's not worth the price. Then software companies that are serving consumers are getting hit, or that are serving other businesses that serve direct consumers are getting hit.

(12:31):

B2B is doing relatively well. B2B is undefeated, typically, in terms of these types of things. In COVID, yes, there were the obvious winners and losers. Same thing with right now with this little blip, but 80% of the group is just keep going, keep going. I think that's the big thing to keep in mind is, if you're in an obvious hit in either direction, that sucks, but most of us there's just no excuse for continuing to execute.

Chris Ronzio (13:04):

Then when you're looking at the data for SaaS companies, are there any metrics that just feel like they're bottoming out or that they keep tanking and you're like, "Oh. This doesn't look good." Is LTV going down across the board? Are conversions going down or trials? Is there anything that you're seeing macro?

Patrick Campbell (13:28):

It's kind of hard because it's not always a perfect spike when we're looking at aggregate data. I will say that some of the bloodletting or the churn that was happening has paused. Now, that doesn't mean that all of a sudden we're going back to no one churning. It just means it's getting better. COVID and the B2B market, there were three weeks where things stalled. Didn't go down, just stalled with B2B and then B2B just went right back at it. Whereas, e-commerce basically you had a three week stall because everyone was like, "Am I going to have a job or not?" And then it just exploded. Then because they suck at retention, even right after that Black Friday Cyber Monday of 2020, it just kind of started leveling off cause there was so much more churn.

(14:20):

I think that there's no more spiking, but it's not, "Great. We're back to normal." We're not quite there. It's like we're stable across the board. Certain verticals like we were talking about, we're starting to see some spiking in the right directions and wrong directions, but it's just a little too early to tell. This is why economists, they're really great at predictions only in the past though. They're really, really great at being like, "Oh. A quarter from now I can tell you what happened today." It's partially because these things don't move as quickly on a daily basis. It's more of you have to see three weeks and you're like, "Oh. That's what was happening." We try to be a month rather than two quarters in terms of predictability and things like that.

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How To Price In A Recession?

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Chris Ronzio (15:06):

Yeah. All right. Last time we talked, we talked a lot about pricing. I mean that's a big part of your expertise. I'm curious, is there any advice that you would be giving differently, given this market, about how SaaS businesses should be pricing what they do?

Patrick Campbell (15:23):

Yeah. Great question. I think that there's a couple of things. I think, one, you need to realize that, again, as I was saying before, if you have your customers now, especially in B2B, those customers are with you. Historically, these kind of little blips or downturns come in a couple of flavors. This is really early two thousands flavor. We haven't really seen this in a long time, a little bit and even in 2008, but new customers will go zero. Meaning you just will stop getting as many new customers and then your existing customers, because they've chosen you, are more than willing to pay more and they're more than willing to check and look at your pricing or take a look at new offerings that you offer. I think that one big thing to keep in mind is I don't think we're quite there.

(16:14):

I think if you reevaluate your segments, what you'll notice is, is people will cut, maybe some people churned. Then all of a sudden, again, those people who are with you chose you and then your new revenue will continue at the clip that it was going. I think that it's one of those things where ... The thing I'm trying to say is because of that phenomenon, you should be raising prices on your existing customers, not because they're with you and they chose loyalty, but because you probably haven't changed your prices in years, because most people don't. You should be changing and basically raising your price on your existing product at least once a year, assuming that you're making progress on it. Assuming your NPS or whatever you measure is over 20, and NPS over 20 is pretty weak actually, then you should be raising your price.

(17:05):

I think that's a really big thing that's hard for people to understand, because they're scared right now. When the market was good, you also were scared. You're just constantly scared to change your pricing. I get it, because it sits at the intersection of important and uncomfortable and whenever we have things at the intersection of important and uncomfortable, that's what happens. I think, ultimately, the big thing you've got to think about is it's a good time to do it, you have to do it in the right way, which we're happy to get into.

(17:31):

The second thing is finding different avenues to upgrade folks. Add-ons, additional products, localization, meaning just internationalizing your price, meaning you have different prices in different regions. Even if only 20% of your customer base is in a different region, it's a really good thing to start implementing, because you'll start getting higher volume, in certain places where you're priced too high. You'll start getting more revenue in certain places where you're priced too low. Then I think that, I would say we can go deeper on any of these, if you get really scared or you're like, "I'm unique, I'm a beautiful snowflake," which everyone typically thinks, which is fine, the biggest hack that you should be doing is how do I get more community and more free?

(18:18):

One of the big things we saw during COVID is that some folks would try freemium offerings or community based offerings, because everyone's looking for information or everyone's getting a little skittish, especially B2B customers, during kind of recessions or things like this. If you can find a way to bring as many of those people into you now and take advantage of that feeling, even though it's a negative feeling, whoever holds on to the most customers at the end of this ends up winning.

(18:46):

One of the most successful things that we saw was one company, they did these competitive offerings because B2B companies are looking to cut. They went to people who are with giant offerings, that just were sucky anyways, but they didn't have an excuse to leave. They said, "We will basically buy out your existing contract if you come to our offering," which really just meant we'll give it to you for free until your contract with that company is up and then you'll start paying us. It was a really bold move. They were well capitalized to do it, but they came out of COVID, in this case, just roaring, because they all of a sudden have these customers who started paying them that they had acquired when everyone was really scared. Those are some things to kind of think about.

Chris Ronzio (19:30):

I want to dig into a lot of these things, but that particular example, I've talked about that with mentors and toy with the idea. You see big companies, big brands doing it like Verizon buyout AT&T contracts or whatever. When they're in a marketplace like that, where there's a couple very obvious competitors, it makes sense. You want to just target them directly. When you're in a growing market or you've got some kind of startup competitors, do you want to cast a wide net and kind of point out all these other brands or do you think that's a ... What do you think about that strategy?

Patrick Campbell (20:06):

You don't have to point out the brands. I mean you can just say, "We'll buy out your contract." You don't have to say AT&T. One of the reasons you might not be converting is because you have an existing contract or an annual plan with your current help desk provider? Great. Doesn't matter who it is, we'll buy it out. The thing about pricing and the thing about competition and some of these other concepts, and I'm going to rant for a second here, is a lot of these things, it's like we should never infantilize our customers. I think what we think sometimes is like, "Well, what if we let them know about a competitor?" They know there's other solutions, they know they maybe found you and they love your product, but they know that ... Maybe they don't know the names of them, but they're like, "Chris, can't be the only person doing this. Maybe he's the best person doing this, but he can't be the only person on earth doing this thing."

(21:04):

Same thing with pricing. Oh, I'm scared to talk to them about pricing, because what if they're scared away? People know things cost money, they know things cost money. Yes, they're not doing a magic calculus of, well if it's this much value, it's this price. It's one of those things where I think that we're just kind of scared to push things forward. One of our early pricing pages, we put our competitor logos on our pricing pages. We were just like, "You're going to do the research, so we've done it for you. Go check out our competitors, we know you'll be back." It's a nice little flex because you have to make sure your product can back it up. But also it's like, "Hey. We know these people exist. Here's who they are. Awesome. Just check it out."

(21:51):

Yeah. Little rant, not exactly what you were saying, but I think it's [inaudible 00:21:55].

Chris Ronzio (21:54):

Don't infantilize your customers. Is that what you said?

Patrick Campbell (21:57):

Yeah. Don't infantilize them.

Chris Ronzio (22:00):

I feel like I'm going to forget how to say infantilize by next week.

Patrick Campbell (22:02):

Yeah. Don't treat them babies. Treat them like adults. They're not always going to act like adults, but treat your customers like adults.

Chris Ronzio (22:09):

Yeah, totally.

Patrick Campbell (22:09):

I don't know, it's just kind of funny with some of this stuff.

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Pricing Strategies

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Chris Ronzio (22:13):

All right. Raising prices, like you said, it's kind of a taboo thing. You're afraid to do it in good times or in bad times. But I think particularly now, the more you can get the right customers and hold onto the right customers, the stronger you'll come out of this. If those right customers are willing to pay more, because they really value your solution, then it makes sense to try to push price a little. If you go down that path, do you have a recommendation on how much to increase pricing? If you're just dipping your toe in the water, where do you start?

Patrick Campbell (22:44):

Yeah. When you're doing this right, you would go out and you would talk to some customers and you'd do it in a proper manner, which I'm happy to get into. Or you'd send and collect some data. You would not only talk to your current customers, who are obviously anchored at your existing price, but you would go talk to people who are in your target customer base who have never heard of you. You'd kind of go to that crowd and then compare and contrast. If you're, let's say less than 10 million in revenue, we're not thinking about am I a $10 product versus an $11 product that's not what we're worried about. We're worried about are we a $10 product, are we a $15 product. Really, are we a $10 or a $50 product or a $100 product or so on and so forth.

(23:26):

I think people get too caught up in it needs to be this really precise measure. No, you're going to use some judgment because you're going to get a bunch of information and you're going to earn your paycheck, which is to take all that information in and then make a decision. When it comes to pricing, what you'll end up doing is ... I'll just get into some of the questions that I'll collect data on, but you'll go collect data on ... Human beings, we think about price as a spectrum. Psychologists and economists have studied this for a really long time. We know that this water bottle is worth less than this camera, because we've purchased these things in the past, we were anchored. We also naturally understand one provides a different or higher level of value, because water is presumably commoditized and this camera's not. But all of a sudden, you put me in the desert for three days, my value calculus changes. There's context that ends up happening.

(24:19):

It's a lot easier for us to answer these ranged questions, like, "Which one's worth more," rather than something like, "How much is this worth?" There was a couple of folks who came up with some interesting questions like, at what point is this way too expensive? You would never consider purchasing it. If I'm on a sales call and someone's asking me about price, I'd be like, "Hey. At what point is it so expensive that you wouldn't return my next call?" Then questions like, at what point is this such a good deal, you'll sign today? These range type of questions. I'll go do a little bit research [inaudible 00:24:51]. There you go.

Chris Ronzio (24:57):

At what price do you have to buy it today? All right. Sorry, I interrupted.

Patrick Campbell (24:58):

Yeah. No, but it's important. The reason they're doing that, it's obviously more of a sales tactic in that particular sense, but you're able to ... That's an easier question because you can think of that rather than what would you pay for this? It's just harder. It's not an easy, but it's an easier question. I'd go collect some data from at least 10 qualitative people and then maybe send a survey to get 100, 150 responses and then kind of compare and contrast the numbers. There's some other questions you should ask. We're not doing an exhaustive research method class here. What you normally find, and what I typically find is that 90% of the companies that do this research, they discover they're under priced, with their existing customer base even. They find out their existing customer base is willing to pay more, not always that much more, because, again, they're anchored.

(25:49):

Then the people who have never heard of them and haven't used the product, but are in their target customer base, are willing to pay a lot more typically, because they never did this research. They got into a room and they went, "What should the price be? I don't know. So and so's charging this much, we should just charge that much. Okay." Then they didn't visit it for another three to five years. It takes three to five years for another price increase, typically, to happen. If a PE firm buys you tomorrow, first thing they're going to do, raise the price. Every time. The founder is too much of a wuss to do it and the PE firm's like, "I don't care." They'll just go do it.

(26:21):

Now, presumably we found a number, so we have a number. If it's over a hundred percent of where we are now, you're at 50 and it's $100, that's probably the limit of raising a price. Even then, that's a little high. Normally, you don't want to do more than a 50% price increase at once, because emotionally, it's just too much for customers, even if they're willing to pay it. What I would do in that situation is I would raise my price on my existing customer base over time. Maybe over three years or two years or whatever, how many years depending on what it is. Then for new customers, I would basically change the price immediately.

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How To Communicate Price Changes With Customers

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(27:07):

Now, the thing that people get wrong is normally the communication strategy. If someone's receiving a 50% increase, they probably need a different conversation or a more personalized conversation. You've got to use your judgment. Going from $1 to $2 is very different than going from 50 to $500. But everyone should receive communication in the context of them. What I mean by that is here's a little email for everybody. I'm going to start an email out where I'm going to say something along the lines of, "Over the past year we have gotten you this many contacts, you've inserted this many trainings inside Trainual. We've recovered this much revenue using ProfitWell. We added this feature and you use this feature every day." I'm pulling in actual data about that specific customer.

(27:55):

Then I'm going to say, for us to continue to invest in making ProfitWell great for Trainual, great for you, great for your company, we need to raise our prices." I'm saying I'm raising my prices because I'm going to increase the value for them. I want to reinvest for them. It's always a shock, doesn't matter how much they love you, it doesn't matter how much value you did.

(28:17):

The next section is going to be, but because you've been so loyal, because you've been with us 3.5 years or 3.2 years or whatever it is, we are going to raise prices on everyone else, on everyone new, all those disloyal people. You're not going to say this dramatically, but we're going to raise prices on all new customers, but for you, because you've been with us for so long, you're going to keep your existing price for the next six months, which is x dollar value and then afterwards we'll increase your price. If you have any questions, let me know. Then, the PS is super, super crucial. The PS is, if this materially impacts your business or you, let me know and we'll figure something out. The reason you do that, PS is for two types of people.

(29:02):

One for people who are actually impacted, it's a great brand opportunity. Oh my gosh. Sorry, I'm going through these hardships, blah, blah, blah. Most people will try to negotiate with you. Most people will probably try to meet you in the middle. You can just go, "Hey, don't worry about it. You figure your stuff out. We'll reach out next year. Don't even worry about it." It's a great brand opportunity. The other type of person it's for, is for guys like you and me. We see expenses. We don't want anything to go up, even if it's valuable. But when you've laid out the value, you're giving me this little legacy discount, as it's called, and then all of a sudden you're like, "Let me know and I'll work something out." I'm like, "Ah. I don't want to make it hard on so and so. I get it. Okay, fine." Or I don't believe you and I don't believe the value provided, I'm going to respond and be like, "Yeah. Your apps buggy and everything sucks," and then you have an opportunity to have a conversation with me.

(29:50):

That copy or that message notice it's about them, it's not about us. It's not about us at all. It's all about them. It's about the value. Too many price increase emails I see it's like, "Our costs went up, inflation. Blah, blah, blah." Your customers do not give too hoots about your content or your costs. They care about their costs and so it's got to be about them. Yeah. That's my little [inaudible 00:30:13].

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How Often Should You Raise Prices?

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Chris Ronzio (30:13):

That was gold. The email that you just laid out there, anybody that's listening to this needs to just take notes or replay that email, write down the script, because basically you just laid it out. That was a template for any time you're raising prices. You mentioned that if you haven't done this before, maybe you want do this on an annual kind of cadence. Is there ever a time when you should be raising prices more frequently, quarterly, or just watching NPS.

Patrick Campbell (30:42):

You should be changing something about your price or your pricing, your monetization, every quarter, but not necessarily the price. What I mean by that is, you have three ways to grow your business; acquisition, acquiring new customers, monetizing them better, meaning your revenue per customer, and then retaining your customers. Within a subscription business, that means actually retaining them within other businesses it's repeat purchase rates. The funny part is you have a lot of teams and a lot of horsepower dedicated acquiring customers. You have maybe a little bit of resources based on your retention. You're doing stuff every quarter. We're going to build this new feature, come out with this new thing, whatever it is. You probably have very, very little focused on your revenue per customer, which is your pricing, your monetization.

(31:28):

But there's a lot of levers. We do price localization one quarter. We experiment with our discounting strategy the next quarter. We change and raise our price the quarter after that, we come out with this new add on the quarter after that. There's a lot of different things that you can do. You should be changing something about your price or your monetization every quarter, but really only raising the actual number once per year. Now, you might have effective increases, like we're going to change how much we give away in each package, or we're going to move this feature from one tier to another. But I think that a straight up price increase once a year, because almost probably 99% of people listening are not like we're six months before an IPO. HubSpot prior to the IPO was raising their price every six months. It's just a lot to handle and you have to have a lot of production on top of it, to make sure that things don't mess up.

(32:25):

Now, one thing they did find though, and this is something you should add to your price increase, they would go to the existing customers, which depending on how you're going to communicate this, might not be a good idea if you're going to use the email I just described. They would say, "Hey. A price increase is coming and if you are on our annual plan, we will keep your existing price for that next year." They changed it up a little bit and then they went to their pipeline and they said, "Hey. The price increase is coming. If you sign up by X date, end of the quarter or whatever, you will keep the existing price for the next year." That basically cleared the decks and helped their retention. You can kind of combine some of those concepts with what I was just talking about.

Chris Ronzio (33:09):

Such smart strategies. In the chat, Isaiah mentioned that retention's going to be a key component. I think having a lower price at entry, lots of volume could be big in the next few quarters. You mentioned that just getting more people freemium or ending up with the most users is a good strategy. Do you think that a lower price is a similar strategy to just get more people in?

Patrick Campbell (33:33):

No. Well, so again, Isaiah, you're not here to defend or explain your question further. I'm reading into your question and you're going to go, "That's not what I meant," which is totally valid and fine. There's two things here. One, the thing that you just said about, okay, we're looking at our customer base, we're realizing they're hurting a lot or they're not going to be the ones who are doing okay, so we need to retain them as much as possible. Well, that retention plus adding a bunch of freemium, adding a bunch of community, getting a bunch of logos is really important. The thing I quibbled with there is that a lower price does not necessarily mean more volume. I know you're like, "But I took an econ class and supply and demand curves."

(34:15):

The thing is, is that software, it doesn't act like a commodity good. What I mean by that is there are times, and just to give you an example, one of the questions we also like to ask with pricing research is, at what point is it too cheap that you question the quality of it? Because what ends up happening with software, or I would say a lot of products, there's a lot of, "Hey. This particular product is claiming X, but they're only $50. That doesn't make any sense." We have plenty of examples where people would 10X their price 50 to 500, and their revenue obviously goes up, but their conversion rate goes up, which is insane.

(34:57):

Isaiah, I think it was, is not wrong, but it's not a blunt instrument, it's not a sledgehammer. What it means is, in that case, I wouldn't lower my price., I might have salvage offers on my cancellation flows where basically cool, someone's trying to cancel, maybe I have a maintenance plan, or maybe I have a, "Hey. We'll give you the next six months at $10 off."You just have to determine based on your own situation. But just because I lower my price does not mean my conversion's necessarily going to go up. There are some consumer products that that will happen, but even ... I don't know. There's plenty of consumer products I've seen the inside of where they're like, "We're going to go from $10 to $9," and it did nothing. We're going to go $10 to $5, did nothing to conversion rate. You just have to be conscious of that sensitivity of your user base. If it's a commodity, yeah, you'll definitely see increased volume, but we're not selling commodities, typically.

Chris Ronzio (35:51):

Yeah. No, it's a great point, because you're right, supply and demand, it almost feels counterintuitive. If I reduce the price, I should get a wave of new customers and I don't think it works that way. We've seen the same thing.

Patrick Campbell (36:04):

Backgrounds in econometrics and math, and I think the thing that it's kind of ... Remember in elementary school they told us Christopher Columbus discovered America, and then in high school it's like, "Well, actually it's a little more complicated. Native Americans, Vikings, et cetera." Then in college they're like, "Yeah. It's actually a little more complicated. Not only is that all true, but also Columbus was kind of an asshole." It's different levels based on education. Same thing with supply and demand curves. Supply and demand curves are not straight lines. They curve, they backward bend, they go all around. At the end of the day, supply and demand is true. It's not a one-to-one relationship. It might flatten out for a little bit and then it might go down and it might go back up again. I think that's the thing, the mental model's totally right, it's just the sensitivity of willingness to pay is normally not as much as we think based on the mental model. This allows me to use my overpriced degree. Excuse my indulgence there. Yeah.

Chris Ronzio (37:02):

I love it. I love it. All right. Outside of free, you mentioned community, you mentioned experience, these are other things different than price. What practical kind of tips would you offer for really leaning into those areas?

Patrick Campbell (37:18):

It's a little hard because COVID everyone was scared. I feel bad saying it was easy, but it was kind of easy to be like ... We got a bunch of index data, we took all the profitable users and we started an index, like a stock index to track every single day, how's it going in terms of the ups and downs. In hindsight, it's a little cringe, but at the time it was really well appreciated. We started this stimulus partnership thing where basically we got a bunch of software companies together to offer deals. Basically, if anyone signs up, they can get $10 off here a month. They can get this for free, they can do whatever. Just to help our community. Obviously, we wanted more leads and we wanted customers still, but it was also we wanted to help our community. There's stuff like that.

(38:09):

I know HubSpot, during COVID, they really upped the number of events that they did, webinars, events, because people were looking for that connection. Normally, in stimulus, people are looking for content like this. Hey, I heard there's a recession, I'm hearing about it. I have uncertainty. I'm not necessarily scared, but what should I do? What should I not do? This type of content is really, really useful typically. Doing stuff like that I think is helpful.

(38:31):

If you haven't tried free, I don't know if this is the time to try free. COVID Was definitely the time to do it, but it's now probably if you're an affected area getting freemium, as Isaiah was talking about, getting those folks in, because eventually they'll be monetized as we get into better times the next 18 to 24 months, or at least we realize we're in better times, which is probably more accurate. There's a lot of things that you can do there just to boost things. This is the time maybe to, I don't know, start that podcast for your customer base, stuff like that, that I think a lot of people, they always put off and then now they're probably not going to do it a lot because they're like, "Oh. I've got to worry about this other stuff," but now's the time when people are really craving information and craving that type of stuff.

‍

Paddle Acquires ProfitWell

‍

Chris Ronzio (39:16):

Yeah. Totally. Well, you guys put out a ton of content. I'd shout out to all the content and podcasts and everything that you put out. If anyone listening has not seen all of their information, just check it out, profitwell.com. You guys were acquired recently. Can we talk about that a little bit?

Patrick Campbell (39:35):

Whatever you want, Chris. You have the friend card, so whatever you want.

Chris Ronzio (39:39):

It was announced, I think you put out an email and a blog post, a LinkedIn post. It was over 200 million, is that right?

Patrick Campbell (39:47):

That's right. We're a bootstrap company. We went from bootstrap to selling for over 200 million. Can't be public about the specific number because that's just how this works now that I have a boss and we're part of a heavily venture backed company and all that kind of fun stuff. Yeah, it's been interesting. It was definitely a learning experience. I think that's the most generic, but also most apt thing I can say about it.

Chris Ronzio (40:19):

How long ago did you know that you were headed in that direction? Did you just wake up one day and there's a deal and it came together in a few months? Or how long did it take to evolve?

Patrick Campbell (40:31):

Yeah. We did not want to sell, which from what I'm told, is when the best time to sell is because you're not wanting it. A watched pot doesn't boil or whatever. As you know we were in bootstrap for a long time. We were going to raise money for the first time. We were like, "All right. At this point in the business, we are now having lots of $10,000 arguments." Meaning, we have five initiatives, not necessarily five, but we have five initiatives all make perfect sense. All should get funded, but we can't fund them all.Some of them were like 25,000, a hundred thousand ... It's more the principle of what I'm saying. All of a sudden we're like, that doesn't make any sense. We were underpaying ourselves and everyone for a long time. It was fine, but we knew it was going to start holding us back a lot more than it was.

(41:27):

All of a sudden it was like, "Well, we figured so much out about our business and we want to keep growing. It's time to raise money," which I think is the right time. I think we should have raised money probably earlier, given our ambitions. That probably would've prevented this specific outcome, but maybe would've given us another outcome. It's a little harder to Monday morning quarterback here. Long story short, we were like, "Cool, we're going to raise money."

(41:51):

I knew Christian, the CEO of Paddle for a while, went and talked to him and was like, "Hey. Give me some advice." He was like, "What if we bought you?"

Chris Ronzio (42:02):

He just proposed it casually?

Patrick Campbell (42:05):

Yeah.

Chris Ronzio (42:05):

[inaudible 00:42:06] raising money.

Patrick Campbell (42:06):

Well, what's funny is, I had mentioned it January of last year, so over 18 months ago as a joke in a meeting we had just about content and partnering up and stuff. Then in late October, early November, I think right around there this last year, so almost about a year ago, he was like, "Well, what if we bought you." I was like, "Well, I don't know," because it's like my baby. We didn't want to stop. We weren't looking to sell. Then we got over that within a week and we went, "Well, if they can meet all these check boxes, which they won't, because this is the under circumstances we'll sell, then we'll sell."

(42:49):

We started having the conversations, started thinking through things and started a process as well. We didn't hire a banker, we ended up going to all of our strategic partners and talking to them, and we made sure to ... We didn't really go to PE, which may have been a mistake. We were under the impression that we wanted to partner and keep going. That was another way to get resources. Went through that process. I was supposed to take January off, I hadn't had a vacation in five years. I was like, "I'm going to take January off." Well, basically the first paper we got was mid-December, an LOI kind of a thing. Then all of a sudden other paper was coming. It just turned into this game between mid-December,. January 15th is when we signed the LOI officially. We had a number of offers, which was exciting and very blessed to have. Then January 15th to April 28th was diligence and stuff and then we closed April 28th.

(43:55):

Yeah. It probably was the best first time to go through this, meaning it was a terrible time in the markets, Ukraine, all this stuff was happening. We were like, "Is this going to all fall apart?" Probably the best first marriage to have here because both parties were so earnest to get it done, there was no renegotiation of stuff, there was no squirliness. There was no jerks or anything like that. There were 80 some lawyers, that's always fun. It's the founder rewriting history that's going on in my head where I'm like, "It wasn't that bad. Let's do it again." That's happening. At the time I was like, "Oh my God, this sucks." Yeah. That's kind of the overview of the experience.

Chris Ronzio (44:41):

When people go through an acquisition, it can either be a PE firm, it can be a strategic buyer. Why Paddle? What was strategic about that? What did you like about that, that felt like you fit together?

Patrick Campbell (44:52):

Yeah. One, I really like Christian. Christian and I think about the world almost scarily the same way. We were on a call this week and I made a comment, we were just talking about a bunch of stuff and I went, "Yeah. I think we should actually think about doing X and Y." He's like, "This is scary." I was like, "What do you mean?" He's like, "I just came from a meeting where I suggested that," and it was something that we had not talked about. Very similar. That's not always a good thing in partnerships, but it's a good thing in terms of the vision that we had. The vision he had was very, this is easy to come together because it's just more gun powder and more wider playground.

(45:36):

I think that, for us, it was, was the best for our users as well. We actually cared about those things. I'm not saying everyone doesn't, but a lot of people don't. It was really good for our customers because we were like, "Oh, if we had access to this part of the stack, there's so much more things we could do, that we couldn't do unless we joined forces with a company like this." Then I think it was also role fit. We're not ready to stop in this space, I think we will be at some point, but we were like, "No. We want to keep going." Therefore, I'm on the board, Faco runs product, Pete runs a major part of the sales team. Everyone had a home. They really wanted all of our team.

(46:21):

One of the LOIs, they were probably going to let go one of our teams, because it just didn't make sense to bring them along, which would've been fine, they would've been taken care of and everything like that. All the boxes were checked and then some of the other offers, not all the boxes were checked. I think we definitely got a more lucrative offer or well, time will tell because stock components and stuff like that. That might be, or probably will be more lucrative, but I don't know. How much is enough? This was a very, very good outcome for myself and the rest of the team.

‍

Advice For Founders Looking To Get Acquired

Chris Ronzio (46:55):

That's amazing. When you talk about the boxes that were checked from the buyer and for the deal to go through, what boxes do you think had to be checked, for you, in order to be in the position of being purchased? If you had advice to any other founders out there to set themselves up, what do you think the most important factors were?

Patrick Campbell (47:20):

There's a couple of things that are tangential to your question I think are really important and then a couple of things that are ... Growth has to be in the right place. One of our products was doubling, another product was growing 70%. We have this free customer base. I think the way I think about it is you need clear, measurable value, aka your growth and your revenue and stuff. Then I think you also need, I don't know what the right word for this is, but you need a couple of other tokens. For us, we have all this value, but then on top of it, we have a really good content arm. We have one of the best content arms in our space, not just our competitors, but our whole industry. We have really good content for what we have.

(48:04):

We have this free customer base, which you can't really value, because there's not revenue or you can put a lead value on it, I guess, but it's not as measurable. There's another little token. You have myself who's in the industry and known in the industry and has lots of context in the industry. These are all these little tokens that I think the reason those are important is because even a PE firm cares about some of those things, because they can put in a model of what they think that that's going to bring to some sort of outcome. When things get hard, there's always stuff that comes up in diligence, no matter how good you are. Those things pad the calculus a little bit, because it's like, "Well, this number turned out to be a little bit lower than we thought it was. Not because anyone was lying, but because we finally got really updated numbers. Oh, it's not as good as we thought, but there's more of these things over here. Everything's fine." I think that helped a lot.

(49:10):

I also think having multiple suitors helped a lot. It was mildly awkward towards the end, or even when it closed, because it was like, "Yeah. We totally dated other people and you were the first one to talk to us." But they noticed the game. There was definitely the ability to put the confidence that I had just to be like, "Well, we got an LOI from someone else. Okay. Are you guys going to crap or get off the pot?" You know what I mean? That type of a thing.

(49:42):

I will say some of the mistakes we made, I don't know if we would've hired a banker if we did this 10 times over, but looking at more options there's a couple people that we didn't talk to, in terms of deal. I was like, "Oh, crap. That was an oversight. That was definitely an oversight not talking to them." It all worked out. We have one person who runs all of finance and ops, all of it. Definitely it was not in tip top shape. There was stuff that they asked for like audited financials and we're like, "We're not venture backed, we don't have audited financials. We're not lying about it, but we don't have this thing you need." There's stuff like that they're like, "Yeah. It's fine, whatever." But then there was other stuff where they were like, "Do you have these things?" We're like, "Oh, crap." We had to go chase down a bunch of people. Not behind their back, but we're just like, we will go chase down whoever's needed for those things.

(50:39):

I think the mistake we made is someone gave us really good advice that we were like, "Yeah, that's really smart. Let's go do that," where they said, "You should tell a operations person to prep the company for sale." The problem is we didn't ask anyone what that specifically meant. We just kind of logically went off and well, we think all the DocuSign should be in the same place. That makes sense. We'd do stuff like that. But what we should have done, and this is what anyone should do, go to a lawyer, your corporate lawyer, your in-house, if you have one and just be like, "Can you send me the last diligence list that you sent someone or your firm sent someone that just went through everything?"

(51:15):

Because then what we would've done is we would've been like, "Oh. Here's these 300 prompts. A lot of them aren't applicable, but we should get that in one place. They're going to ask for this." Then you can create a nice little folder so that it makes it easier. If you've raised money, you've done a lot of this stuff probably already, but for the rest of us, it's just one of those useful things.

Chris Ronzio (51:34):

That's such a good tip. Just ask your lawyer, send me the last diligence list. We have raised money, but I agree putting together the diligence docs for that, that's when you feel like the company's kind of in tiptop shape because you've got everything buttoned up and you're ready to go. Why not operate for that all the time? Great tip. All right. I want to get you out of here on time I promised we'd be together for an hour, so I know you got to get back to your beautiful San Juan sunset.

(52:00):

To my beach, baby.

Patrick Campbell (52:02):

Your beach over there. Thank you so much. This was cool. I appreciate all the pricing tips. If anyone joined late, go back to the beginning where he said September, it's over, we're all good, I think. At least that's how I interpreted it. No more [inaudible 00:52:17].

(52:16):

Yeah. Don't worry about it. Everything's fine. Yeah. Yeah. Yeah.

Chris Ronzio (52:18):

Cool.

Patrick Campbell (52:18):

No, we're in a pretty good place. I think there might be some more blips, but we'll see. It's a lot shallower than I think people are thinking, but who knows? There's a lot of things happening in the world that could screw stuff up, China, Ukraine, all kinds of things. You've got to keep yourself on your toes.

Chris Ronzio (52:36):

All right. Well, I'll stay on my toes. I look forward to watching your continued progress with Paddle. Thanks again, man. So good to see you.