Phil Carter: Growth Loops, CAC + LTV Benchmarks, Pricing, Discounts, Paywalls... | E1204

Consumer Subscription App Churn

• Consumer subscription apps have a high churn rate with more than half of annual subscribers leaving within the first year and over 50% of monthly subscribers leaving in the first 3 months. (15s)
• RevenueCat data shows that the average consumer subscription app loses over 50% of annual subscribers in the first year and over 50% of monthly subscribers in the first three months. (25m22s)

Building a Growth Team

• When building a growth team, it's crucial to first understand what drives business growth, considering factors like target customers and product type, rather than just focusing on growth as a buzzword. (3m2s)
• Companies should hire their first growth leader around the time they achieve strong product-market fit. (5m21s)

Early-Stage Growth Strategies

• Early-stage companies should focus on big swings and impactful changes rather than small optimizations. (7m46s)
• Early-stage startups are advised to prioritize organic growth through strong product-market fit and explore paid acquisition channels strategically through testing and focusing on maximizing efficiency on the most effective channel. (29m36s)

Hiring for Growth Roles

• When hiring for product management roles, including growth PMs, prioritize generalist skills, intellectual curiosity, a bias for action, and a willingness to take calculated risks over specialized skill sets or prior experience. (10m6s)
• To avoid bias in a homework assignment for a growth role, the assignment should be a hypothetical scenario or about a well-known company like Uber or Airbnb and should not take more than one to two hours to complete. (12m25s)

Interview Questions for Growth Roles

• Two good interview questions for a growth role are: 1) What are one or two other growth teams at other companies that you really admire? and 2) Tell me about an A/B test that completely failed where your hypothesis was proven completely wrong but in a way you didn't expect that actually then led to a huge win. (13m26s)
• At Quizlet, some of the biggest wins came on the heels of failed A/B tests where something new was learned about the customer, leading to a second A/B test that unlocked a new opportunity. (15m9s)

Quizlet's International Growth Challenges

• Quizlet's growth was primarily driven by SEO (over 70%), but the company aimed to expand beyond the US and replicate this success in international markets like the UK, France, and Germany. (16m10s)
• Initially, Quizlet hypothesized that the slow international SEO growth was due to a lack of relevant content in those markets. However, upon analyzing content creation metrics, they discovered that these metrics were actually higher in the UK than in the US. (16m25s)
• Further investigation revealed that the issue stemmed from poor technical SEO metrics internationally. For instance, the percentage of new content sets (Quizlet's atomic unit of content) being crawled, indexed, and ranked highly enough on Google for user discovery was significantly lower in the UK compared to the US. (17m43s)

Challenges of Scaling Consumer Subscription Apps

• Consumer subscription apps are easy to launch because they often operate in mature categories with customers who understand the product. (22m33s)
• Consumer subscription apps are difficult to scale because they lack control over distribution, face high acquisition costs due to reliance on paid channels, and experience low average revenue per user (ARPU) and high churn rates. (23m44s)

Customer Acquisition Costs (CAC)

• Customer acquisition costs (CAC) generally increase over time for most companies as they expand beyond their core market and tap out their highest-intent early adopters. (27m36s)
• Companies like Duolingo, Tinder, and Strava are outliers where CAC can decrease due to product quality and virality, leading to mainstream adoption and organic growth. (26m51s)

Optimizing Marketing Channels

• Businesses should focus on maximizing the efficiency of their dominant marketing channel and closely monitor input metrics throughout the conversion funnel to identify and address bottlenecks. (31m48s)
• For consumer subscription apps, a payback period of six months is considered good, while one month is great. (33m25s)

Investor Considerations for Consumer Subscription Apps

• When evaluating consumer subscription apps, investors should analyze monthly subscriber retention over the first six months and annual subscriber retention over the first two to three years. (35m58s)
• Consumer subscription businesses often experience high churn rates, particularly in the early stages, making it challenging to achieve significant scale. (37m2s)
• Venture capitalists may find consumer subscription businesses less attractive due to the limited number of companies that have reached billion-dollar valuations. (39m18s)
• While historical performance justifies the lower revenue multiples assigned to consumer subscription businesses, factors like potential reductions in app store fees and the emergence of AI-driven growth opportunities could improve the long-term outlook for this sector. (40m14s)

Core Value Proposition

• A strong core value proposition in any business means offering a product or service that is either unavailable elsewhere or significantly more affordable. (42m12s)

User Engagement Strategies

• Companies like Oura and Whoop maintain user engagement by selling hardware devices, which provide upfront revenue and increase user commitment, and by frequently introducing new features and insights. (44m13s)
• Gamification tactics, such as stats, streaks, badges, and leaderboards, leverage human motivation drivers like achievement, accomplishment, ownership, and social influence to enhance user engagement and retention. (45m47s)
• It is important to understand the core motivational drives of users, such as accomplishment, ownership, social influence, and avoidance, to inform the specific motivation tactics built into a product. (47m29s)

Notification Optimization

• Overusing notifications can lead to notification overload and kill the channel, so it is crucial to ensure that every incremental notification is significant enough to earn its place in the product experience and fits within the holistic user experience. (48m42s)
• Duolingo effectively uses notifications by calibrating them to the user's natural usage frequency, throttling them when users are inactive, and resuming them when users return, demonstrating a nuanced understanding of notification optimization. (51m11s)

Avoiding Fear Tactics

• Companies should avoid using fear tactics like scarcity and urgency to coerce users into taking actions that benefit the business but not the user. Overuse of these tactics can damage credibility with users. (52m54s)

Paywall View Rate

• Paywall view rate is an important metric for early-stage consumer subscription businesses. It is the percentage of users who install an app and view the paywall at least once. A high paywall view rate, ideally over 80%, is recommended, especially within the user's first session or week. (54m24s)
• The optimal paywall positioning (hard or soft) depends on factors like the product, target customer, willingness to pay, competition, and price point. (54m58s)

Subscription Tiers

• The vast majority of consumer subscription businesses should only have a single tier until they become very large and mature businesses. (58m23s)
• Most consumer subscription businesses trend toward monthly and annual plans. (59m7s)

Tinder's Subscription Tiers

• Tinder has three subscription tiers: Tinder Plus, which elevates the visibility of a user's profile; Tinder Gold, which leads to more and higher quality matches; and Tinder Platinum, which allows users to communicate with potential matches before they match. (1h2m0s)
• Tender is a company that has multiple subscription tiers, but their product marketing does not clearly differentiate the value proposition of each tier. (1h2m53s)

Noom's Onboarding Process

• Noom, on the other hand, has a lengthy onboarding process with over 100 screens, which may seem counterintuitive but can actually increase user engagement and conversion rates, especially in categories like health and wellness where personalized experiences are highly valued. (1h4m42s)

Strategic Discounting

• Strategic discounting can be a powerful tool for subscription businesses, especially those with a single subscription tier, as it allows them to tailor pricing to different users' willingness to pay and potentially increase subscriber conversion rates and revenue growth. (1h7m31s)

Discounting Strategies

• Activity-based discounts, often 15-30% off, are used to encourage users to convert to a trial or subscription within the first 24-48 hours of installing an app. (1h8m35s)
• Specialized plans, such as family or student plans, can be an effective strategy for modulating the average price per subscriber. (1h9m19s)
• Seasonal promotions, while potentially effective, are more hit-or-miss and require a deep understanding of user psychology and key periods for specific industries, such as back-to-school for education apps. (1h9m44s)

Avoiding Early Fundraising

• Founders should avoid raising capital too quickly, before they have a clear understanding of their product and target market. (1h13m36s)

Importance of Distribution and Marketing

• The idea that "if you build it, they will come" is a myth, as distribution and marketing are crucial for product growth, especially in the age of AI. (1h14m9s)
• While paid acquisition can be effective in certain situations, relying solely on it for growth, particularly for consumer subscription apps, can be unsustainable in the long run. (1h14m48s)

Ladder's Growth Strategies

• The fitness app Ladder has seen success by using a group coaching product that helps users stay motivated and achieve better fitness outcomes. This approach has led to higher subscriber retention rates for the company. (1h19m7s)
• Ladder leverages TikTok by having its coaches, many of whom are influencers, create organic content that showcases the app's benefits. The company then promotes the best-performing content through Spark ads and brand ads to reach a wider audience. (1h19m57s)
• Ladder has implemented a sophisticated web-based onboarding process that allows them to collect valuable user data and predict the lifetime value (LTV) of new subscribers. This data-driven approach enables them to personalize the user experience and optimize their marketing efforts. (1h20m26s)