Champagne Problems

Packaging, Pricing & Payments

Author

Andrew Davies
May 10, 2024

Founding and scaling a business is hard - I’ve been there. You need to be ok with getting up every morning, getting hit in the face, ducking a few other punches, and then going to bed ready to wake up again the next day for more.

In my first SaaS business, we quickly faced what we called ‘champagne problems’. Problems that you only face when you have a product that someone wants to buy.

We wanted to focus on the product and the customer - but these ‘invisible barriers to growth’ kept popping up in our way: a key team member gets ill, you get hit with a frivolous lawsuit, your CRM gets too messy to use, or a client fights you on payment terms. None of these are things you dreamt about solving. But every one is critical to your growth.

When I joined Paddle as CMO, it was because I could see how they solved a bunch of champagne problems for founders. And it also gave me access to super insightful data on the financial growth of the startup industry (we currently derive insight from around $36bn of ARR!).

So let’s dive in on three of the boring, complicated, champagne problems that you face when you finally have a product that someone wants to buy… 

Pricing

Pricing matters. But it’s complicated and you risk pissing people off. The easiest approach is to copy a competitor. But that doesn’t mean it’s a smart approach. Start by finding your value metric - this is your unit of exchange: seats, megabytes, emails sent etc.

You might not have the resources to conduct a proper willingness-to-pay study. So think about this: in a perfect world, what would be your ideal value metric? For a wellness app, it might be ‘decreasing anxiety’, and for a sales tool it might be ‘revenue earned’. Those are unlikely to be measured easily and provably, but starting from that point and working back to a proxy for this ideal outcome is a helpful way to think beyond ‘cost per seat’ (which is probably what your competitors are doing). Then, there are three conditions for a good value metric: 

  1. Growth - does it grow as the customer’s company grows

  2. Value - does it grow as the received value grows

  3. Simple - is it easy to understand

Pro tips: 

  • Localize your pricing: 50% aren’t even attempting to localize pricing, yet in our data it correlates with a 30% revenue increase. 

  • Bake in an inflationary price increase in the renewal clause. Even 5% will boost your NRR automatically!

  • Experiment - challenge yourself to a pricing or packaging tweak every quarter. Our data shows this correlates with 103% average revenue per user growth vs those who don’t change pricing and packaging.

Packaging

Your pricing strategy is indivisible from your packaging. So think about how you can frame up your value proposition. ‘Good, Better, Best’ is a simple place to start - although we are saying a trend towards more options (22% now use 6+ packaging options!).

And, start with ‘why’. When you simply copy a competitor, you miss the reason for each package - every one should have a purpose (to appeal to a specific persona, use case, or to anchor pricing to promote another package). 

The most popular (44%) starting point for ‘free’ now is a Premium Tier Free Trial. This is where you offer your best package for a week or month period free. But if your proposition is hard to understand and use, perhaps a simpler starting point is necessary. This is a classic case of not necessarily giving customers what they want. Too many of our customers have died on the hill of free offerings that never show value, and never convert to paid.

Pro-tip:

Think carefully about add-ons. These should be features that are niche value drivers - they don’t appeal to many customers, but those who want them are really willing to pay! Popular add-ons include enterprise-grade features, niche integrations, and onboarding support. They can drive significant ARPU and margin!

Payments

If you are taking payments on your site, you should consider payments as part of your core product experience. It should be frictionless (optimised checkout), it should be compliant (local taxes and fraud checks), and it should be localised (local currencies and payment methods). 

It all sounds obvious, until you start seeing customers from multiple regions, need to test local payment methods, and have to start calculating and remitting local sales taxes. It makes intuitive sense - if I see a currency and a payment method I use daily, with a correct local tax rate, I’ll be more likely to click “Buy”!

Ok, Dirk’s word limit has hit me. But grab me on Linkedin if I can help in any other way. It’s the great privilege of my role that I get to chew over challenges like these with founders every day. 

Expect the champagne problems - and the invisible barriers to growth. Cuddle with the chaos and keep moving forwards. You got this!

Reports cited: