Swipe Files - 📂 The most overlooked growth strategy

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Brian Balfour explores the idea of Model-Market Fit in his series on 4 Frameworks to Grow to $100M+.

Model-Market Fit is the concept that your market influences your model (i.e. pricing model and strategy) and is derived from Christoph Janz’s Five ways to build a $100 million business.

In it, he explores the relationship between ARPU and the number of customers you need to reach your revenue goal.

Now, not everyone is trying to build a $100M+ business. But the principles remain. Delete one or two zeros from the number of customers you need for each ARPU threshold and you can translate this same framework for your business.

Want to build a $1M+ business? A low ARPU means you need a large number of customers, which also dictates the way that you go acquire and subsequently retain those customers. A high ARPU means you don’t need so many customers, but they may be harder to acquire and more critical to retain.

Am I suggesting that you simply choose your target ARPU, set a price that matches the ARPU you want to see, and then magically find Model-Market Fit?

Not so fast. As Brian explores with Model-Market Fit, your market dictates your model, you don’t.

Introducing a free plan to attract more users won’t solve your startup woes. Charging more won’t solve your startup woes. “Going upmarket” won’t solve your startup woes either.

The market determines the value of your product, it’s your job to find out what that value is and then decide on the Value/Price Ratio you want to deliver — which we’ll get into below.

Pricing your product at $100,000/year would never make sense for a stay-at-home mom selling earrings online, but for a national jewelry retailer? It’s probably normal. In fact, it could be a bargain.

This is why your model is so key. You don't want to leave money on the table. And you also don't want to be tweaking your pricing when maybe it's your activation model that's not right, or vice versa.

Let's look at a few examples of how you can use your model to engineer growth.

Superhuman

Superhuman costs $30/month. Does that mean that you can sign up and get started for free? Nope!

They meet and onboard every single customer, in fact, you’ll probably have to wait in line to even book a meeting to sign up. Because that’s what they’ve found results in the most happy customers.

Superhuman requires some training and some practice and so they help you configure your inbox, practice keyboard shortcuts, and go over what you need to know to really see the value of the product.

Even with a relatively low price and elusive “prosumer” market, Superhuman has managed to create scarcity and demand for their product through a waitlist that ultimately requires a personal onboarding meeting. Unorthodox, but also very effective at educating and creating a personal relationship with each and every user.

They have multiple employees focused on onboarding customers who have done over a thousand onboarding sessions. Not scalable? Think again.

Databox

A dashboarding tool called Databox ran an experiment where they removed the free trial. Customers would sign up directly and start paying from day one of using the product.

The result?

Their churn doubled. Now, the free trial actually has very little to do with how well customers retained.

The simple fact was that no matter if Databox offered a free trial or not, customers were going to treat their first couple of weeks like a trial anyways.

This is a powerful lesson to align your activation model with how your customers are already behaving.

Mailchimp

Mailchimp is probably the quintessential example of freemium as they were one of the early pioneers.

Years ago, email marketing was dominated by a few expensive players. There were no free plans offered by any of them and freemium really wasn't a common strategy back then.

Then comes Mailchimp, a young product with a small customer base being run as a side project at the time. The founders decided to make a critical decision that would alter their trajectory forever: introduce a "free forever" plan.

It immediately attracted a host of small businesses switching off of competitors in favor of Mailchimp to take advantage of their generous freemium offering.

The rest is history. It's been the single largest driver of growth facilitating organic word of mouth, being the main CTA across advertising efforts, and establishing a reputation as the "go-to" email marketing tool of choice.

We're barely scratching the surface here.

—Corey

p.s. over the holidays I created a short course on How To Beat Your Friends At Poker just for fun. Would love for you to check it out!

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