The 7 Building Blocks for Monetization: Part 1
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Product-Led Growth (PLG) is product’s ability to self-acquire, self-activate, and self-monetize users.
Today, we’ll dive into the ‘self-monetize’ part of PLG. What does it mean when your product can essentially sell itself?
While you can run campaigns to monetize users, it's even more effective if your product is inherently built for product-led growth and, ultimately, monetization.
If this sounds intriguing but too good to be true, keep on reading.
In this blog post, we'll explore the first out of seven fundamental elements for successful monetization.
The 7 Building Blocks for Monetization
The seven building blocks for monetization with Product-Led Growth (PLG) that I learned from Reforge's PLG course with Elena Verna are as follows:
Pick your conversion tactics
Define your use cases
Assess your use cases against the 4 factors: willingness-to-pay, motivation, ability, and permission.
Build your growth hypothesis or growth motion mix
Identify your value metrics
Build your pricing & packaging (P&P) matrix
Understand how you’ll escalate users
Pick Your Conversion Metrics
Conversion tactic is a way to move users from one pricing tier to another.
The most commonly used conversion tactic is offering a free tier. But why would you give a part of your product for free to everyone?
It turns out free tier is the most effective conversion tactic that helps users to go though activation, escalate users and eventually monetize them.
Activation is a critical stage in the user journey, that consists of 4 steps: sign up, set up, aha moment, habit formation.
Having a free tier paves the path for your users to get to the aha moment and build a habit around the value proposition of your product.
There are 3 main benefits of having a free tier:
Lower acquisition cost (CAC) compared to traditional channels like paid marketing
A larger user base to grow and monetize
Helps a user to get to the aha moment, build a habit around the value proposition of your product, improve retention and monetization.
The 4 Conversion Tactics
There are 4 conversion tactics:
Free tier
Freemium
Reverse trial
Opt-In Trial
The choice of conversion tactic depends on two factors: time-to-value and cost-to-serve.
Time-to-value refers to how quickly a user can get value from your product.
Rippling has a slow time-to-value since it’s not self-serve and requires a lengthy implementation process.
On the contrary, Miro has a fast time-to-value as users can sign up and start using the product immediately.
Cost-to-serve refers to the expenses associated with serving each user.
For example, a product like Leap incurs GPU costs for every generated image. Consequently, it probably wouldn’t be smart choosing a freemium conversion tactic, as it would be way to expensive.
When time-to-value is slow, and cost-to-serve is low, freemium is an excellent choice.
If time-to-value is fast but cost-to-serve is high, options like a free trial or reverse trial make more sense.
Wrapping Up
These 4 conversion tactics are designed to help increase your top-of funnel user base, helping your users go through activation, fostering a habit around your product's value proposition, and ultimately leading to monetization.
Picking the right conversion tactic for your product is a critical decision, hinging on two key factors: time-to-value and cost-to-serve.
When time-to-value is slow and cost-to-serve is low, embracing a freemium model can be the most effective approach. On the other hand, if your product offers a fast time-to-value but entails high serving costs, opting for a free trial or reverse trial can be the smarter choice.
Stay tuned for part 2 ✌️