7 Considerations for a Successful Monetization Strategy
Let’s assume that you created an amazing, innovative product that solves a key, unmet customer need. You figured out product-to-market fit, your key competitors and your differentiators. And yet, when it comes to monetizing that product — there is not a one-size fits all answer. Creating a monetization strategy that actually works requires knowledge, experience, and the ability to think in broad, holistic, strategic terms.
A few weeks ago, some of my students (who are experienced working professionals from different backgrounds) at Stanford University asked me about monetization in a small group coaching session — and that made me realize that while I’m no expert on this topic, I do have a lot of knowledge in this from leading products at different companies and learning what are the key things to consider to successfully monetize your products.
Key considerations for monetization:
1. Are you ready to monetize?
Maybe there is a market or industry shift that you want to take advantage of, or perhaps your product has reached a point where users are willing to pay for it, as opposed to using the free version. In any case, it is helpful to do a “readiness-check” on whether you are ready to monetize.
Consider changing market conditions, or customer behavior/engagement, or a merger/acquisition, or a new innovation becoming mainstream and being adopted by customers, there maybe many signs that you are ready to monetize — learn to monitor these and know when you’re ready.
For example — AirBnB realized that even though they did not charge hosts in the beginning, as the concept of “allowing strangers to stay in your homes” became more mainstream, and more commercial hosts such as property managers joined, they were able to monitor, observe and take advantage of this shift in customer sentiment by charging business hosts a fee and creating a new revenue stream!
2. Think of monetization holistically
Monetization does not work in a vacuum. Customers do not buy the product based on price alone — for example, they will consider their customers success and support experience after they buy the product too, and if that sucks, they may not renew, or buy the product again.
Monetization strategy needs to be developed hand-in-hand and alongside your product strategy, growth strategy, customer retention strategy and other key pillars in the organization that support it.
Even if your products are driving a strong revenue growth, and in theory it might look like your “monetization strategy” is working, but if your costs of customer acquisition (CAC), or costs of building the product are too high, compared to your revenue, you will run into problems as a company, and your monetization strategy will not go down in history as successful.
It also matters whose job it is to think about monetization — is this integral to the product team, or product marketing team, or is this more of an afterthought where another team works on product pricing without fully understanding customer needs and how the products deliver customer value.
3. Monetization strategy is not a one and done thing
Customer needs and market needs are constantly changing - not to mention, your competitors are keeping up with these changes and evolving how they monetize! So it is important to:
Continually (every quarter for example, or even every month) review and revise your monetization strategy, after working with key internal stakeholders such as marketing, product marketing, sales, customer success, engineering/technology teams as well as with key executives in your company.
For example, are your competitors raising prices? And meanwhile, is your company dealing with old discounts that were given to customers for years as part of their subscription or renewal terms, and have made it difficult for you to raise prices? Well, if the industry and your competitors are doing it, then it might be a good time for you to do it too, because customers will be less resistant to it now, since they’re seeing that price increase across the market.
Review and adjust your monetization strategy frequently and consistently.
4. Use your two key levers well — a.) Gaining new customers and b.) Retaining existing customers
Monetization is a big and complex thing, more worth fitting in a book than in a blog. So if you do get lost while working on this, then you can come back to the two important but simple pillars of creating a monetization strategy:
a.) Gaining new customers: This relates to your customer acquisition and engagement strategy — as a product leader you may work closely with your marketing team on this. If you have a strong top of the funnel (i.e. more customers are aware of your product), and you have a way to demonstrate value to your customers — for example, via a robust trial product/process, then ultimately more leads and prospects will convert to actual, paying customers at the bottom of the funnel.
b.) Retaining existing customers (and upselling to expand their product portfolio) : This is related to the customer success and onboarding experience, ease of use of your product, how easy is your pricing model to understand, does your product solve customer problems and deliver value, your support experience, how easy is it for customers to renew products or buy again, and many other factors.
In 2022, I often heard the phrase — “Renewals is the new Sales” — and this is more true now than ever, with the economy slowing down it is much harder to gain new customers, but you can still focus your efforts on retaining and expanding your existing customers.
5. Customer engagement and touch points in the buyer journey
Think about your customer or buyer journey, and all the different points at which you interact with customers in the process —including awareness, interest, engagement, becoming a customer, and after-sales or post-buyer journey. If you want to invest in this, you can hire a UX researcher, or a 3rd party design consulting firm to do an in-depth analysis on your customer journey, and gaps. Such an exercise can be very helpful when thinking about monetization, and also when building your product strategy and roadmap.
Once you know what is your customer or buyer journey, you can then think about monetization from this perspective. For example, let’s say your customers have to talk to a sales rep to buy their product licenses (B2B example). This is an example of a specific “touch point” in that buyer journey.
Now, if you enable/launch an “online sales” process for some customers (say for contracts less than $100K), that could reduce the friction in the buying process, and hence increase your sales and revenue, and your sales reps can focus on converting those larger customers.
You can also think about opportunities to upsell products — for example, if a customer expresses interest in another product during their onboarding call with a customer success manager, do you have amazing internal processes and tools that enable the CSM to swiftly, directly communicate that to an account or sales manager who can do a follow-up outreach to that customer?
Your investment in spending time understanding and documenting that customer journey can pay off well by providing insights into gaps and opportunities for monetization.
6. Create better usage and price transparency for customers
This is not talked about enough, but in my opinion can certainly help enable your monetization strategy.
Customers have limited budgets. Often, for B2B products, it is so difficult for customers to even know their own usage metrics! “How much of our existing products are we using, and how much are we paying for it?” — it is often hard for customers to answer these basic questions, even though it should not be! For B2C products, for example, on your iPhone or Google phone, it might be a little easier to see all your subscriptions and how much you are paying each month, but even that is not always easy.
If you can provide more transparency to your customers on what products they are currently using, their usage metrics and what they are paying for, they might be willing to re-invest their money saved (stop paying for products they don’t use) and invest it in a new product that actually provides value.
7. Instead of short-term monetization “tactics”, think about long term gains for your whole company
It is often very enticing as a product leader to think about short term tactics that can make it look like you have an awesome monetization strategy, however these do not typically work in the longer term, and may erode profits and revenue overtime, and hence are very important to avoid.
Discounts are a good example of a short-term monetization tactic. They may seem like a great way to increase revenue in the short term, by increasing your product sales, however overtime customers may get used to paying lower prices, and don’t associate your product value with that higher price point, and it may become hard to take away the discounts later, eroding your long term profit margins.
Another example of this is over-investing in your customer acquisition costs, be it marketing or other related costs, which can work in the short term to attract, engage and convert more customers, however it might not be sustainable to over-invest in this, and is not a good monetization strategy by itself. Of course, marketing can help your product and company reach more customers, and you should invest in it, it is just important to evaluate the total cost of that against the revenue generated, and make sure you have other strategies and methods to monetize.
In summary: When creating a monetization strategy — think about whether you are ready to monetize, think of it in context of your customer engagement strategy and product strategy, don’t forget to revise it regularly, use your two key monetization levers well (gaining new customers or retaining + expanding existing customers), consider the touch points in the customer/buyer journey, create better transparency on the price and usage for your customers, and last but not the least, think about long term monetization strategies instead of short term tactics that won’t scale.
I hope you found this blog helpful — please leave me a comment below on how you thought about your monetization strategy! If you would like to learn more about this or any other product or leadership related topic, please book time with me here — https://www.criya.site/productwithpri.
