How To Raise Prices (the Right Way) — Reid DeRamus, Substack

David Barnard:

Welcome to the Sub Club Podcast, a show dedicated to the best practices for building and growing app businesses. We sit down with the entrepreneurs, investors, and builders behind the most successful apps in the world to learn from their successes and failures.

Sub Club is brought to you by RevenueCat, thousands of the world's best apps trust RevenueCat to power in-app purchases, manage customers, and grow revenue across iOS, Android, and the web. You can learn more@revenuecat.com. Let's get into the show.

Hello, I'm your host, David Barnard, and my guest today is Reid DeRamus, Growth Product Manager at Substack. Prior to joining Substack, Reid helped grow subscriptions at Hulu, Crunchyroll and HBO Max.

On the podcast, I talked with Reid about whether or not to increase your price, how to execute if you do, and why price increases often impact growth more than retention. Hey Reid, thanks so much for joining me on the podcast today.

Reid DeRamus:

Thanks for having me. Really excited to be here.

David Barnard:

So, I wanted to have you on, I have read a bunch of your posts this year. And anytime I read a great post, I think, "Gosh, more people need to read this." So, now, where my colleagues publish a Sub Club newsletter, so I've shared your posts I think in three different newsletters and then I always think we're reading a great post, I wonder what else is behind this, what would they say about this situation that wasn't covered?

I said, "Hey, I've got a podcast." I figured I'd have you on and we could talk through some of your posts. So, we'll link to the posts and your Growth Croissant blog in the show notes so people can go follow along if they want. Really great stuff.

We're not going to read the posts. We're not going to cover everything, but I want to hit some of these major topics. So, the most recent one you wrote and I think is super applicable right now that a lot of apps are thinking, should I increase my prize?

And then, if I am going to increase my prize, how do I do it and not get the backlash and everything. So, I wanted to kick off talking about that. So, let's just start with should you raise your price.

Reid DeRamus:

Well, thanks again for having me on and really appreciate the kind words. A lot of the times, you'll write a newsletter post and you don't know if it lands or not, so really appreciate you sharing it. The price one was one that was timely because Spotify, which I've subscribed to for the past decade is doing their first price increase, and I think they've made it through by now.

And there was a lot of writing out there and it was something that we wrestled with a lot in the streaming world because it's one of the most impactful ways to drive up customer lifetime value and drive-up revenue, but there's this really hard balancing act with executing a price increase well.

And the trade-offs are usually like how much near-term revenue gain can I try to capture and without sacrificing your long-term growth potential. Because if you go too hard into the price increase, you may get a lot of revenue early on, but it could erode your growth velocity.

One specific metric to think about is your year-over-year growth in paid subscribers. That's the one that you want to pay attention to after you do these price increases. And we can go a lot of different ways from there, but-

David Barnard:

I'm actually curious to get your take on Disney Plus and how this has played out. So, they actually again announced a price increase recently, lambasted in the press, worst time ever to do a price increase. Everybody's complaining about Disney Plus quality going downhill.

But it's interesting because they actually started at $5 and that what you were saying and what you talk about in the post about growth versus profitability starting at $5 is probably a big reason why they grew so big so quick. It was just a no-brainer, cheap decision for a lot of families and people to stream.

But now, they're at that phase where, okay, growth is over, where's revenue growth going to come from, more price raises. So, do you think Disney Plus got it right even with the backlash they're getting today in raising their prices now versus maybe having charged more early on?

Reid DeRamus:

And it wasn't just Disney Plus. I think when we were at Crunchyroll, even Hulu too, the primary metric was paid subscribers, and baked into that was this assumption that over time you could gradually increase price. I think Disney launched at a really low price point.

And a lot of people were getting Disney Plus for free as part of Verizon. They had a pretty big partnership with them. They had really discounted annual plans at launch, if I remember correctly. And of course, they bundled it with ESPN Plus and Hulu, which I think a lot of people bought that as well.

So, when Disney Plus launched, there was a lot of, oh, my gosh, they got to a hundred million subscribers so quickly, but you got to dig into the numbers there and look at revenue per subscriber and really try to figure out are they actually catching up with Netflix or are they still pretty far behind?

And I think if you looked under the covers, the revenue per subscription wasn't quite there. Whether they're doing the right thing now, it's what they have to do. If you look at the streaming space probably right now, it's not the easiest space to be operating in.

It's been fascinating over the past decade watching a lot of these traditional media companies try to move from cable TV into streaming video where the skill sets needed to grow those products are very different. You have to think about direct-to-consumer relationships and how to grow subscribers that way versus doing carrier deals with a handful or more paid TV operators.

Totally different skillset and the economics are really different. So, I think it's been a wild west and there's a lot of volatility right now. There's a lot of M&A. I think that consolidation will continue. Whether they handled it right or not, I don't really know and I don't know if it really matters, I think they're doing what they have to do at this point along with a lot of other streamers too.

David Barnard:

And you talk about this in your post, is that you will get some level of pushback. And I mean anytime, somebody has to pay more for what they perceive to already be getting there is going to be pushback. I'm a father of four kids and inflation's hitting pretty hard.

I mean, I'm getting a little more sympathetic to maybe always raising prices isn't the best idea. How do you think about the consumer sentiment part of the decision of whether to raise prices or not?

Reid DeRamus:

Well, one thing you mentioned there that I think is important is if you're asking them to pay more for what they perceive as the same product, it's a tough sell. Maybe a marginal price increase will go through, okay, like a $1 price increase, $2 price increase, that seems to be the standard set by Spotify and Netflix.

Each time they raise price, they're not doubling their price in one swing, they're marginally going up. The thing that we've seen consumer products do well when they're doing a price increase is reaffirm the value prop that people are paying for.

And you can also tease any upcoming changes that would materially improve the product, the value prop, and I think that can really help get you through these price increases. And so, I think communications are really, really important.

David Barnard:

And one of the things you mentioned in the post too was actually not just teasing future features but maybe trying to coordinate the launch of a big new feature with the price increase. How would you pull that off?

Reid DeRamus:

Exactly. If you were Disney and you had some huge Star Wars series in the pipeline, I would try to time the price increase roughly around when those shows are going to premiere. And you could say in the comms, this is what we're doing with, we're not just asking you for more money for the sake of it.

And don't blame a price increase on inflation or something that consumers can't control. That's one of those uncontrollable factors. Cost of gas is going up, sorry, we got to increase our price. It's usually best to focus on your product and how it's getting better and how you're going to use this extra money to continue to make the product better.

And keep in mind the people who are paying for it already definitely value your product in some way, so they're going to be usually thrilled with that idea of you trying to make a concerted effort to continue to improve.

David Barnard:

The thing Disney I think actually did really well maybe is that they timed the press announcement before two big series. So, Asoka was just released this week as we're recording, and then they have a big Marvel show coming out I think in the next three or four weeks.

So, they announced it two or three weeks ahead of that. They don't go into effect until mid-series with these big new shows. And so, they did what you're suggesting and they took the PR lumps ahead. And now, people are excited again because these big shows are coming on.

And by the time the price increase actually takes effect, they're going to be mid-show on these exciting new shows that I think Disney had a lot of confidence that we're going to be very attractive to their subscribers.

Reid DeRamus:

That's exactly right. I mean that's the best way to do it. If you're Spotify, you don't want to lose major podcasts or Led Zeppelin or the Beatles catalog right before you do a price increase. The timing piece is really important. The communication is really important.

David Barnard:

So, we've been talking about huge players, Disney, Spotify, a $1 increase in Spotify. At this point, most people listen to music, the way they listen to music is streaming. So, there's not really that much question of, "Am I going to cancel Spotify?" It's maybe more, "Am I going to switch from Spotify to Apple Music?"

And there's only really two or three big players out there. I mean, what do you think? And have you done much thought on these smaller subscription apps where they don't have the brand name, they don't necessarily have, they'll default, people are going to stick around. Are there any tips in how a smaller app should think about a price increase?

Reid DeRamus:

Let me bring it into the Substack world because these are effectively all their own subscription media business. And one thing that we've talked with writers about, sometimes we'll do these reviews.

And we'll go in and we'll look at their retention metrics, their growth rate, all these metrics to evaluate the health of their business. And sometimes we'll say, "Hey, your paid retention rates are through the roof. They're incredible, they're way better than your peers."

And what we'll usually see is they're like, "Hell yeah." and then just totally tune out and feel reassured. But there's a flip side to that which is that can also mean that your product is underpriced or that you're not being aggressive enough trying to grow your audience.

And so, the phrase that we try to hammer home is your health metrics are too good. It's like going into the doctor's office and they're like, "Look, you need to eat a cheeseburger or something." I think that's actually one thing.

I see a lot of writers on Substack that I think are underpriced and they're not realizing their full earnings potential in part because they set their price a long time ago, it's a hard intimidating decision.

And after you make that decision, you don't really want to think about it again. So, you just see a lot of prices not changed even over the course of multiple years. And I feel like they're not realizing their full earnings potential.

David Barnard:

That's a great way to think about it because if in our consumer subscription app world that we mostly talk about here on the podcast, if you're seeing way above median retention rates, if you're seeing way above median conversion to subscription rates, that might actually be the sign that you're leaving money on the table.

But then on the flip side, if you're seeing 20% retention, which at RevenueCat we shared a state of subscription apps report where median retention for a consumer subscription app on an annual plan is somewhere in the 30% range. So, there's a lot of apps that have way lower than that, but then there's also a lot of apps that have way higher retention.

But if you're in that 20% retention on your annual subscription, probably signal that you're not in a good place to raise prices on your existing subscribers. I hadn't really thought about looking at those sorts of metrics as part of the decision-making process and whether to raise a price or not.

Reid DeRamus:

We see some writers on Substack retaining 90% of their subscribers after one year, which to me is just totally bonkers. And I want to give a shout-out to Antenna, which is a data product that really looks at retention for the streamers and they have some really great retention data.

If you are operating like a bigger consumer subscription product, that can be a good source of information to compare and contrast. It's obviously awesome. If your retention is above your peers or above normal, that's great news, but I too often see people put their feet on the table and be like, "Nice, let's let it cruise." I think it's good to think about, "Well, maybe we are leaving some money on the table, maybe we're a little underpriced."

David Barnard:

And then, that's actually the next thing I wanted to get into is like how do you model out whether or not you are leaving money on the table and then how do you think about the potential for churn when you do raise your price? I mean can't show Excel spreadsheets in a podcast.

But I mean talk me through the high-level thinking of how to drop that into a data warehouse or a spreadsheet or how do you model this out to see if it's really worth it in the long run? Are you sacrificing growth in the short term? Are you sacrificing retention in the long run? I mean there's a lot of factors here.

Reid DeRamus:

The easiest avenues to break it out at the highest level is to think about your existing subscribers. Let's assume you're adjusting the price for your existing subscribers. A lot of people when they do a price increase, they only do it for new subscribers in the future.

And that's a fine approach but just know that you're leaving the vast majority of the impact from a price increase on the table. To really realize the revenue gain from a price increase, it's important to figure out a way to increase price for existing subscribers.

David Barnard:

I would caveat that to say if you're really early in your journey and there's not that many subscribers, that's the best time to just grandfather people in and not people off, not mess with your churn later stages when that's maybe most applicable, but that's part of the calculation like how many existing subscribers do I have. And if I raise price on all of them, is it actually meaningful revenue and worth doing?

Reid DeRamus:

That's a great point. Keep in mind too, the people who you're talking about in that early stage are people who are your founding members. I remember the first person who paid for my newsletter, I'm like, "You're God's gift to earth. Thank you so much."

I would happily never increase their price. That's an important dimension to think about your early supporters and to make sure you're taking care of them. But I think at a certain point, if you're at a Netflix scale or a Spotify scale, even Strava, Duolingo, you have probably enough paid subscribers at that point to think about most of the value of a price increase coming from your existing subscribers.

If you assume we're in that world, it's good to break out the impact by the revenue gain from existing subscribers versus future flow of new subscribers coming in. What we typically see when we've done price increases in the past is that they usually impact subscriber acquisition way more than subscriber retention.

Now, that's assuming you execute the price increase well and that you're not going bonkers with it. You're not doubling your price, you're doing the more incremental approach. But usually, if you execute well, you won't see much churn from your existing subscriber base, but you will see a little pressure on new subscriber acquisition.

So, say you're adding 100,000 new subscribers per month and you increase the price by 10%, it's not crazy to see a little bit of a step function drop down, maybe 90,000 a month or 80,000 a month, just pulling numbers out of thin air here. But the point being the expectation should be that you're going to see a little bit of slowdown on acquisition.

Whereas retention, you might not see too much of an impact. And again, that's why it's important to figure out a way to thoughtfully increase price on existing subscribers.

David Barnard:

The basic equation is like do you want fewer subscribers paying you more money or do you want more subscribers paying you less money? And then, there's really a very few who can achieve the more subscribers paying you more money. It does happen.

One of the things a Spotify and Disney Plus and others can't do because they are such a big brand is actually test the price increase on new users before they actually raise a price on existing users.

And maybe that's actually a great way to think about it for apps that can get away with that is if you're not a brand name, if people don't know your price offhand, if the press isn't going to write about your price.

Then, you can actually go ahead and see first what the impact is on new subscribers. And then if you find that sweet spot, maybe that's the time to then start thinking about rolling that price out to all the existing subscribers.

Reid DeRamus:

There's a lot of different ways to go about it. Testing price increases is really hard If one person sees two different prices and they figure out what you're doing that can make its way to X or Reddit and then you got a thing to deal with.

But I mean, any signal there can be helpful. Surveys can sometimes be somewhat helpful, but people say different things than what they end up doing, so I wouldn't put all your trust in those results.

David Barnard:

In those cases where you have raised prices in the past, have you done surveys? Is there price elasticity surveying that you've done and was it helpful or do you feel like you really just have to experiment?

Reid DeRamus:

We've definitely done a lot of surveys. And not only to find what our core price should be, but to think about what our most passionate fans would pay relative to your core subscriber. It's like you want to separate out what the top 1% are willing to pay.

They maybe have more price elasticity or a higher willingness to pay a higher price for maybe not even that much different of a product relative to your core product, which is what most people are buying. The equivalent on Substack would be we have a founding member tier.

And if people choose that option, they can actually fill in their own price. And we see a lot of people go way above and beyond what the retail price is on the founding member. And some of those people just really want to support the writer. That's great to see.

David Barnard:

I was actually going to bring that up, that one other option. And we even see this in streaming, in Spotify and others is that one way to raise your price without raising your price is to add a higher tier. So, we were talking earlier about adding a big new feature at the same time you're raising your price.

Well, another way to potentially do that is add that big new feature as a new premium tier on top of the existing tiers. I wonder if that's actually a better option than raising your price for some apps. It's actually starting to do the tiering thing.

Do you have any thoughts there? And I mean the problem with tiering is complexity is how many prices are you showing, your paywall gets confusing. What are your thoughts on tiering as a way to raise prices?

Reid DeRamus:

I think tiers make a ton of sense. Without them, you're forcing one price on everybody when you know that people have different willingness to pay. I think it's good to keep it as simple as possible. More than three tiers, the consumer's brain might start to break.

The other thing that we're seeing in streaming is the introduction of ad-based subscription tiers at the lower end. I think a lot of this is just reaffirming your point around you're trying to think about how many paid subscribers you can realistically get and what the revenue per subscriber is and how they break that out across different tiers, subscription tiers.

And so, if you're somebody like Netflix in the US and you're really bumping up against what could be your total addressable market, then introducing a lower price ad tier could make sense. Same thing with the other streamers.

What we see in more of a passion driven world like the Substacks of the world or the Patreons of the world, there's this element of the top 1% of fans who have a much stronger set of feelings about their subscription to a certain product. We saw this at Crunchyroll.

We had this thing called the t-shirt test, which was like if you wear the t-shirt of that brand, then it's saying something about who you are, about your identity. And when you see somebody else wearing that crunchy roll t-shirt, you have this immediate connection, this immediate trust, and it's a great symbol for the depth of relationship, somebody feels about a brand.

And so, not all subscriptions are created equal. And so, I think something like Crunchyroll probably has a better shot at a higher priced subscription tier that has some other stuff in it, whereas Netflix as high as priced here is more like a family plan. It's a functional value prop.

David Barnard:

I think that point you just brought up about Netflix hitting their potential total addressable market in the US is actually something a lot of apps are maybe hitting and not quite realizing what wall they're hitting. I've heard a lot of folks in the industry say for everything from fitness apps to other apps in the space that you hit this 10 to 20 million a year ARR and very few apps can break beyond that.

And maybe that's that you're not Netflix, you're not going to have a hundred million subscribers or whatever it is. So, these apps may be hitting that total serviceable market. Like yes, everybody works out, but realistically your fitness app is not going to be subscribed.

There's so much competition in that space. People have so many different needs. Once you hit that $10 million, $20 million a year, you might actually be bumping up against it. And so, then that's the time to then start thinking, "Okay, what are these tiers? How do we start letting people who are willing to pay more pay more?"

VSCO is an app I use all the time and they raise prices and I still think it's cheap because that's just where I go when I have a photo I really like. I've been using the Fitbod app and it's just been so perfect for my at-home workouts and it's $60 a year.

I've paid trainers $60 an hour to come train me. I would pay so much more because of how well that product is fitting my needs. So, I wonder if that total serviceable market is what some apps are starting to bump up against and need to start looking at how these bigger players are starting to diversify income streams.

Reid DeRamus:

I think that's exactly right. It's hard to know when you're bumping up against that ceiling. The question we always got hit with at Crunchyroll was like, how many people will actually pay for an anime only streaming service? When we got there, we had 200,000 subs.

And I remember us being so skeptical of ever getting beyond where we were, the idea of getting to a million mind blowingly hard. There was weeks where we would lose a thousand subs or really slow inching along pacing, and we just kept getting that question, how many people will actually pay for this?

Fast forward to today, and I think there are over 12 million paid subscribers. And we didn't increase price for a long time. We really wanted to exhaust all the possible ways of bringing on new subscribers. Not to mention we tried to launch other products that were like solving tangential needs for people who were canceling crunchy roll.

So, we tried a bunch of different things and only got to a price increase pretty deep into my time there, after six or seven years of really focusing on paid subscribers and scaling that up as much as possible.

David Barnard:

I'm honestly shocked that Crunchyroll did get to 12 million subscribers. I think there are maybe two things going on simultaneously here. And I want to hear one about how you at Crunchyroll started to solve this and found new ways to grow and expanded that audience.

But I think there's a second thing at play here that's the rising tide lifts all boats that consumers are more and more willing to pay via subscriptions for things they care about for things they value. And yes, there is subscription fatigue. People complain about how many subscriptions they have, but then look at the industry is growing.

Because when you deliver value, people are willing to pay. So, I think I wonder if some of Crunchyroll's growth was part of that rising tide. But then, I'm sure you all must've done a lot of work. So, tell me about what it took to get from those tens of thousands of subscribers and not even believing you could hit a million to 12 million subscribers, which is just incredible.

Reid DeRamus:

I mean, we could talk for full day.

David Barnard:

Give me the highlights.

Reid DeRamus:

So, the highest level, we thought a lot about how do we acquire more subscribers, how do we retain our existing subscribers? There's a lot of sub-bullets in both of those. We did a lot of marketing stuff, a lot of partnership stuff and those were really important.

But at the end of the day, what's the most important was like what shows we had on the service? And then, we tried to build a strong brand around that. And back to the t-shirt thing, it wasn't always about building the best video player or the best payments engine or the best website or apps.

We were able to compete on a different dimension because of the deeper relationship we had with our audience. And so, we thought a lot about how do we build out a business around our subscribers and introduce other revenue streams like merch and events and gaming and a bunch of different things. And so, that was useful because we didn't have to have the best video player in line with Netflix or Amazon Prime of the world.

David Barnard:

But one of the things you mentioned there is expanding shows. And you talk about this in a lot of your blog posts including the price increase is that ultimately the amount of money you're going to be able to charge.

And the revenue you're going to get per customer just really boils down to how much value you're delivering. So, it sounds like a lot of that growth had to do with just how do we deliver more and more and more value?

Reid DeRamus:

That's exactly right. And I know that's opaque and flippant to say, but it really is all that matters. And so, what do you do from that? You got to really figure out why people are buying your product and try to double down as much as possible on that.

But the hard part is you also got to keep an eye on why some of your audience is canceling and whether you can start trying to solve some of their problems and gradually expand from your core of your subscriber base. One example from Crunchyroll.

When we got there, most of the people who were paid subscribers to Crunchyroll at that time were the most hardcore anime fans in the world. And we had to adjust how we welcomed new anime fans, and that's like a branding and vibe thing, and that showed up in some of the marketing stuff we did.

But that was a big change. And honestly, it took a little bit of a change within the company from a cultural perspective because the company was all diehard anime fans. And so, I think there is mechanics like that to be mindful of and to think about, okay, I need to figure out the value that my existing subscribers are getting.

I need to make sure I'm reinforcing that, but I also need to be mindful of how to slowly expand from my core audience today too if I want to continue driving subscriber growth.

David Barnard:

How do you figure that out? I mean, you actually talked about this in several other posts, but let's talk through aspects of that. You survey your users. You product analytics. How did you all figure out who those core users were and what kept them and then how did you figure out what those lighter users, who they were and then how to bring them deeper into the Crunchyroll experience?

Reid DeRamus:

Surveys are crucial and there's different ways to do that. You could do live interviews, pick up the phone, talk to some of your most passionate, longest tenured subscribers. Figure out why they have been around for a while. You could talk to people who are canceling right away and try to get a sense of what's the difference here.

One easy analysis we did pretty consistently in the streaming world was, this is back when free trials were a thing, you could do it with the first billing month as well. But look at the people who are canceling their subscription early on.

Look at the people who are making it through that period and look for the behavior that is different about those two groups and try to figure out early on what is indicative of risky behavior? What is signaling valuable behavior? Try to bend the product in those directions.

That onboarding period is the most crucial part of a subscriber journey, and that could be the first day, the first app session or the first month that somebody is using your product.

That's usually the place to focus if you're really trying to figure out why people are getting value from what you're providing and trying to figure out how to bend the product more toward that direction, that's a more objective data analysis exercise.

But I would definitely do the surveys. And you could do that as part of onboarding or just ad hoc to your whole audience. And there's different flavors of that. You could just send them a Google form or you could literally hop on a Zoom and talk to some people and really dig into what they value and what they would like to see from your product.

David Barnard:

So, for the people who are canceling, how do you really suss out? There's cohorts that are just never going to subscribe. So, I think you say in one of your posters three buckets, it's like the people who subscribe and say subscribe. The people who cancel, but you actually have potential with them and the other people who are just not worth chasing.

But how do you figure out who is who? And then, especially I think a lot of people will be thinking, okay, the people who cancel but are actually winnable. How do you suss out what's actually going to be valuable enough to keep them subscribed and go after that market?

Reid DeRamus:

There's gradients here, I guess. There's some people who maybe try your product and they ask for something that's totally abstract, totally different than what you're trying to do. And a lot of those cases, I think you just got to say, "Okay, well, thanks for coming by. We'll see you later."

Then, there are people who are asking for things that are not totally different than what you're doing today. For example, with Crunchyroll, we'd get a lot of requests for popular shows or shows that were under the radar that we could reasonably try to go get and we'd go try to get it.

If we got it, we'd email and say, "Hey, this is now on the service. Do you want to come back?" and maybe potentially offer some discount to come back or trial period. It's an intuition thing.

I think most operators will probably be able to suss out, okay, this person just probably accidentally signed up or totally misunderstood our value prop before they signed up. This person's pretty close and I think we could win them back if we just made some slight adjustments or slightly bent our product in this direction.

David Barnard:

It's fascinating too in the consumer space, just how big the numbers can be is that if you have product markets fit adjacency where people are coming in for some reason, but you're just not quite solving their problem. If you figure that out and go from 10%, 20% trial start rate to 25%, 30% trial start rate, it can just make such a dramatic difference in your business, and it's not like growth hacking your paywall.

You have to actually deliver the value. You actually have to figure out what they need and solve those problems. It feels like there's just so many competing things there like how much effort you put into new features, how much you're testing your paywall, how much you're offering discounts. There's just so many things to be thinking about.

Reid DeRamus:

I mean, the thing about writing the newsletter has been this is all just like a balancing act, and it just takes high judgment. There's no universal right answer to balancing between all these pieces. I think it's getting a strong sense of your business and what is driving revenue growth.

And then, being mindful when things start ticking in different directions. One thing that we talked a lot about in the streaming world, it's like this pendulum swinging between different business priorities and growth and profitability and all these counter forces.

And you're always just trying to fine tune and tweak things and choose the right path, but it's all a balancing act and there's no universal right answer. And that's why it's been fun to write about the frameworks, because I'm just trying to write out the constructs of how we made certain really hard but important decisions.

David Barnard:

And one of the things you keep coming back to in a lot of your posts is that it really does depend on stage. If you're early and pre-product market fit, maybe don't worry as much about retention, which is counter advice to what a lot of people would expect.

Like, oh, you need to solve the leaky bucket first through all these retention tactics and win back campaigns and all that. But when you're early, probably better to keep focus on product. It's interesting how you end up in these frameworks talking about the context around those different growth stages.

Reid DeRamus:

When you're pre-product market fit, you should really just be focused on trying to really find the sweet spot of what you want to do and the product you want to build and an audience. You should not be really worried about what your cancel flow looks like or overthinking price.

It's really about a relentless focus on finding product market fit. And I know that's another opaque phrase, but that's all that really matters early on. And so, one of the risks I have with writing the newsletter is there's a bunch of, I think early-stage writers on Substack reading it.

And I really don't want them thinking about running paid ads out of the gate or thinking about how to better retain long-term subscribers. It's a total different set of priorities and it's about just finding that initial traction, which is extremely difficult.

David Barnard:

Interestingly though, one of your posts, you do mention that when retention is super low, it might actually be time to just completely rethink things. I mean, it's going to vary business to business.

And Netflix looks way different than the, like I was talking about, the media and subscription app does have fairly low retention. But how do you decide is retention reasonable and there's a path to more value? Or is it just so low you need to rethink things.

Reid DeRamus:

If you have a bunch of people downloading your app using it once and never using it again, I think you don't have product market fit at that point. It doesn't even have to be that extreme. If they use it three times in the first week but then never come back, that could work for some consumer products, but for most probably not.

So, I think retention is a part of evaluating whether or not you have found traction, but I don't think it's worth thinking too hard about don't beat yourself up about some of the retention stuff that we've written about, especially those growth tactics.

It's like offering discounts in the cancel flow or trying to solve the problem and the cancel flow. There's different growthy tactics which are really aimed at catching people on the fence about canceling before they actually cancel. I would put all that stuff out into the future after you have enough subscribers for that to be meaningful.

David Barnard:

And that's a good point too. I mean, I hadn't thought about it quite this way. But it's like early on, your product should be what retains not growth hacks. If you're having to work so hard on subscriber lifecycle marketing and doing all these win-back campaigns and offering discounts, then that's actually probably a sign that you need to double down and figure out what's wrong with the product. The value you're actually delivering is not what's retaining them.

Reid DeRamus:

Exactly.

David Barnard:

All right, Reid, we could talk for four more hours and maybe I'll have you back on at some point to talk through 10 more blog posts because they're all so good. And we got through one and a half or one and two quarters, but it was so fun. And we'll link to all these blog posts that we mentioned and the Growth Croissant. Anything else you want to share as we're wrapping up?

Reid DeRamus:

No, this was awesome. I would love to come back. Thank you for sharing the newsletter and thanks for having me on. It's been a blast.

David Barnard:

Thank you so much for listening. If you have a minute, please leave a review in your favorite podcast player. You can also stop by chat.subclub.com to join our private community.