How To Optimize Churn | With Expert Laith Dahiyat

And you mentioned kind of churn data. I think, you know, churn is one of the most important problems or metrics, you know, every B2B SaaS founders need to to pay attention to, they struggle with. And as an expert, you mentioned they should be also thinking about pricing strategically to reduce churn. How and why should they be thinking about, you know, their focus on pricing to optimize churn? And I wonder how that was affected when you guys made that shift on your side. Did you guys see any change on churn specifically when you made that change in pricing model?

Yeah, I mean, potentially, yeah. I mean, pricing is huge. And I think, you know, particularly with developer-driven tools, really sort of high-tech tools, the technology changes really, really quickly. The competitive landscape can change really, really quickly. So products and services that once demanded a huge premium now are table stakes, are really, really cheap. And where I'm getting at is customers that were willing to pay, I'm making this up, $800 a month for a certain platform or suddenly have more options. Maybe it's easier to build on your own. Maybe it's a competitor who's doing something similar for $200 a month, right? So I think, again, you need to look at your pricing and you need to be able to evolve and bob and weave, so to speak, really, really quickly because your competitors are going to come and eat your lunch, right? I mean, things change quick. Things that used to cost a lot of money are now free, just in general. So pricing is a big lever to battle churn. But, you know, what goes along with that is how you market the value of your product, right? And in some cases, I think companies are too willing to slash their prices or give free months or, you know, do churn mitigation around price where, you know, you need to also spend time working with your prospects and your customers on showing the actual value of your product, right?

Mm-hmm.

Again, it's more common to undercharge than overcharge for your product sometimes when you're younger as a company. So, but, but, you know, going back to the evolution, you need to, you need to evolve your pricing model too, right? So where it might've been a per seat, per seat model, or, you know, just a flat per month in the industry, Again, it's now all evolving to usage-based models. In a lot of markets, customers are now getting used to just paying for what they use. Why do I need to pay you $800 a month? I want to pay you a 10th of a cent per second. So having a kind of a dinosaur pricing model can definitely hurt your growth and cause churn. Because again, I don't care if you're in marketing automation tools, DevOps tools, sales intelligence, it doesn't matter what SaaS subcategory you're in. Pricing models and the pricing model customers want changes really quickly. And like I said, I'm not just saying this because we do usage-based models really well. The entire industry is going to usage-based models. And if you're not able to evolve and change your models and do it in a way to experiment, do it quickly, You'll get left behind.

So I guess the point there is, you know, continuous change, continuously to test, continuously to optimize, and don't stick to your old model thinking that it's working just because it's working. That's the best kind of model to optimize your churn.

Yeah, absolutely. I mean, what worked a year ago may not work now. And again, you got to be really cognizant of looking outside your walls and see where the similar markets or where your competitors are going. It's also talking to your customers and understanding how are they getting used to paying. If you talk to a developer CTO, they're used to paying per use. Well, when I used— I pay Datadog $8,000 a month, that's all usage-based. I pay AWS tens of thousands a month, that's all usage-based. Why are you guys charging me for seats? So you've got to be in the position to move quickly on these things. And again, if you're building it in-house, your billing solution in-house, you're gonna be in a world of hurt. Again, I'm not just saying that because I'm charged by it. Like, with a purpose-built tool, you can stand up new billing models nearly overnight. We're launching a new experimentation tool later in the year that lets you actually implement side-by-side in a staging sort of way a different pricing model.

Mm-hmm.

Side-by-side with your live one. And like, so you can experiment. Well, I think I should change the way I I charge, but how do I know without doing it? And that's going to take me months and like that could crush your business. So being able to experiment, uh, I think is critical as well.

Can you share any of those? Like, have you guys ran different kinds of pricing tests or experiments with whether Chargify, Keen, or other kinds of companies, um, that helped kind of reduce churn and any values on net increase of the business that, uh, what that led from that experiment?

Yeah, I mean, not necessarily like specific values I can share with you, but, um, you know, I think, um, experimenting with different models based on, on, on the market is key. I'll give you an example with Keen. We, we totally changed our pricing model around last year because we realized that it's particularly developers and startups, you know, technology-focused startups They want to pay for what they use, but they also want to ramp up their usage, right? So we're like, hmm, okay. So, and you'll see this a lot in different, different, different SaaS products. It's free up to a certain period. It's free up to a certain volume of usage. So for example, with Keen, it's free for, I'll make this up, 50,000 events streamed and 1,000 queries.

Right.

It'll always be free. But once you go over a certain a certain level, you pay as you go. And you can do that forever if you want, but after a certain point, it's more expensive to pay as you go, and it's better to go into a higher tier that includes usage and has overages.

Right.

So you need to do the data analysis to help try to draw your customers up into the higher and higher tiers. You know, we always, we always preach about usage-based models, but customers sometimes want Predictable, you know, predictable costs. So you can kind of blend the two models to say, listen, if you stayed on pure pay-as-you-go, here's the chart. If you— once you go over a million events, it's way more expensive for you to stay pure à la carte. Why don't you go into this plan that's X hundred or X thousand a month that includes some usage but then lets you pay overages in real time? So again, to do that is really— you need a tool that gives you the flexibility to implement these blended sort of models, and that helps not only mitigate churn but also Helps onboard new customers.

Yeah, it makes sense.

Yeah. Yeah.

Yeah.

Things like that that we're doing to experiment. I think with our new experimentation tool that'll come out, it'll, again, it'll speed time to market and let you validate your assumptions. If you're an SMS as a service CEO and founder, you're an expert in that. Your assumptions are probably pretty spot on, but you don't really know that. So if you want to start charging different rates based on carrier network or based on country, because you know it'll optimize your costs and potentially customers would be willing to pay more for this premium service you're offering around international text, then wouldn't it be nice to go back and look at the last year of usage and extrapolate and actually see in the tool the changes?

Right.

So it's those sorts of things that a very, very large SaaS company that has 50 to 100 data scientists working for it, you know, one in each little marketing team can go and run these analyses for you, right? But if you're, if you're a, you know, 10, 20, 30, 50 person startup, that's a lot of work. You don't, you don't have necessarily dedicated resources to do like crazy regression analyses on pricing. You want your billing tool just to do it for you. And that's, that's our, that's our mindset around, around Chargify.

Very cool. I mean, yeah, I mentioned, I think we talked at the beginning of the show, I know Patrick from ProfitWell, we've had him as a guest as well. People who haven't checked him out should check out that episode, and we also talk a lot more about churn and a little bit about pricing as well. What are some other pricing trends that people should be kind of keeping an eye on and that rely on strong data? So, you know, you mentioned usage pricing and event-based billing. Any others that we should look at?

Yeah, absolutely. So usage-based models, usage-based billing is like the umbrella. Think of usage-based billing as umbrella, anything having to do with charging on usage. Now, the simplest one is every time you send an SMS, you pay a cent. Great. Well, there's a lot of flavors of that, right? And again, these are things because we're laser-focused on B2B SaaS, we build them out of the box. So A model that's becoming very prominent is what we call prepaid usage-based. So in other words, you fund— your customer funds their account with $500, and then based on the rate engine you set up in Chargify— so let's use the SMS example because it's simple. It's 1 cent per SMS sent. In real time, instantly when an SMS is sent, we know about it because you're streaming the data in real time, and it draws down your account in real time. As soon as you hit a threshold, It re-ups you. It's like if you're using like a toll, automated toll thing in your car, it automatically re-ups you to $500. Why that's compelling, A, customers want it. They want to only— they want to— they're okay with funding their account, but it also protects you as a business because if you don't— if they don't pay, you need to be able to know that and cut off their access to the platform immediately because you're on the hook for the SMSs. Like, you're paying for that.

So yeah.

It's protection, it's risk mitigation for your business. So prepaid subscription, what we call prepaid usage, we launched that towards the end of last year, second half of last year, and we've had a huge response for that because again, it's just out of the box. Prepaid is huge. Event-based billing, again, the real-time event-based billing. I've talked to death about that, but we've had a lot of traction for that, particularly developer tools, cloud database tools, anything that requires large matrices of variables and a massive amount of usage data. So if you're a cloud provider that does— we have customers that do video rendering services in the cloud. They want to charge based on cores of CPUs, numbers of CPUs, where the data center is, what type of video card, blah, blah, blah, and they want to charge it down to the second. When they realize all they have to do is stream the data and it happens, they love it. Those kinds of models are the biggies for us.