ProfitWell's CEO, Patrick Campbell, spills the tea in this interview about how Profitwell doubled down on their subscription business with a freemium model that drastically lowered customer acquisition costs. The secret sauce? Providing a free subscription to their financial metrics offering that boasted 100% accuracy. Campbell shares how accuracy was their top priority—dedicating 18 months to ensure that their numbers trumped the competition. It paid off, and helped them grow 10 times bigger than their closest competitor.
But, beware! Campbell warns that freemium is a scalpel, not a sledgehammer, and must be better than the competition to be successful. Listen to his full interview to get even more warnings, tips, and best practices.
You can read the full transcript from Patrick's interview below:
Margaret Kelsey:
Welcome, everyone to Voice of the Produc,t an interview series where we're talking to leaders of organizations that are embracing product-led growth. Today, we have Patrick Campbell, CEO of ProfitWell. Patrick started ProfitWell seven years ago and before that, had strategic roles at both Google and a company called Gemvara.
Patrick Campbell:
Yep.
Margaret Kelsey:
And also a stint at the Department of Defense.
Patrick Campbell:
Yeah. Fun stories from that, but I can't tell you or I'd have to kill you. No, I'm just kidding. Yeah, yeah. Anyways.
Margaret Kelsey:
Welcome. I'm so glad to have you here today.
Patrick Campbell:
Yeah, absolutely. Awesome to be here.
Margaret Kelsey:
I saw a really interesting thing that you did on Twitter the other day that I wanted to talk to you about. You tweeted out to your community and said, "Hey, everyone. What does ProfitWell do?"
Patrick Campbell:
Oh my God.
Margaret Kelsey:
How did that go?
Patrick Campbell:
This was terrifying. It was so bad. I mean, it was good just to kind of get the truth because our business, and if you don't know anything about our business, I won't go deep into exactly what we do, but we're a multi-product company, so there's that problem where people are like, "Well, I know this one thing that you guys do, but you seem to do this other stuff." Then, there's this whole other problem where our product line and just our product presence has evolved so much over the past seven years. A lot of people, they know us from our first product, which was Price Intelligently, and they don't know us with all of our other ProfitWell products. That was terrifying because some people got it because they were people who only knew us from a short while ago. Other people, they were like, "Oh, you do this," and they just give such cringey, like their answers were true, but their answers weren't true right now, if that makes sense.
Margaret Kelsey:
It's interesting. Almost the less a person knows about ProfitWell, maybe the more they understand about what the company does.
Patrick Campbell:
Yeah. Well, a little bit, and not if someone comes in, theoretically, and hopefully, we've gotten better at our product marketing. I don't think we're good at product marketing right now, and we're working on that. We're finally like that's the biggest fire, as everyone here knows. You always focus on the biggest fire, unfortunately and sometimes that fire means that other fires are burning. What ends up happening is now we're getting better and better at describing this holistic company and honestly, we're getting better at trying to define exactly what this suite of products do, which is tough because if we were just one product, it would still be hard, but it would be a lot more straightforward and we're trying not to just make it such a generic description that it's one of those enterprise companies where you go to the website.
Margaret Kelsey:
Yeah, you do better.
Patrick Campbell:
Yeah, I know but what does that even mean, right? Or we're a platform for blah, blah, blah, blah, blah which doesn't make any sense to people.
Margaret Kelsey:
Interesting. What I've seen is that you all have been doubling down on subscription and pricing and that sort of thing. In the world of product-led growth, obviously to be a product-led company, most often, companies have a subscription that users can purchase.
Patrick Campbell:
Yeah.
Margaret Kelsey:
You've made a big bet that that is important enough to build a company on. Can you talk about how you've seen that kind of grow and evolve?
Patrick Campbell:
Yeah. The subscription piece specifically or just in general?
Margaret Kelsey:
Sure, yeah.
Patrick Campbell:
Yeah. It was really funny. I just had a conversation this morning about what product-led growth actually means, which I think we're in kind of that struggle phase of, we're trying to define that. A lot of folks, when they talk about the definition, you're like so building product? So just building a product? Whereas other people, they've never even thought of this concept of having some sort of a product like lead the growth of your company. For us, we've doubled down on focusing on subscription businesses. Just to maybe step back, we have a free subscription financial metrics product, so you plug it into your billing system, Zuora, Stripe, whatever you're using, and basically get free access to all of your financial metrics. They're a hundred percent accurate. They're really, really in depth.
Then, the way we make money is we show you problems, and then we have a bunch of products that help you lower your churn, optimize your pricing, do your revenue recognition, things like that. What's been fascinating is, as soon as we double down on subscription specifically, that was a really, really big thing for us because all of a sudden, it wasn't, oh, we can help all different types of companies, but you have the natural thing that happens where it's like, oh, I'm like that person. Maybe they can help me as well. But I think the other thing that was really powerful was really utilizing the freemium model. This is a big piece of product-led growth companies. Freemium, it's something that I hated in the past. I wrote against it in the past and then just looking at the data, I realized how important freemium is and now I'm kind of a freemium zealot, where every company I think on the face of the planet is going to have some sort of freemium product or some sort of freemium aspect of their product in order to succeed.
This just comes from customer acquisition cost is up 70% over the past five years on every single channel. Doesn't matter if you're B2B or B2C. Value of features and product is actually going down because there's just so much more out there. Software and products just aren't as magical as they once were. Then ultimately, it's like, how do you get over that gap? Well, we can produce dope content like you guys are, and a lot of folks are doing that, but ultimately, you have to lower that activation energy in the best way to do that for a customer or potential customers through a free product.
Now, it's been kind of fascinating with freemium, is that it can't be a bad product, and a lot of people think it can be a bad product just to get the user in the door. It has to be better than the competition, and so we realized early on, when we were talking to our bigger users that accuracy was going to be the number one thing. If any of you have tried to build an accurate metrics product or an internal tool that was metrics-based, it's a terrible, terrible experience, hundreds of edge cases, so many things going on. What we ended up doing is we basically had to bite the bullet and for 18 months, dedicate all of our resources to accuracy. We had these fast follow competitors who were better designed than us coming out with all these different features every single month and we just got all of these support tickets.
We're like, "Yeah, you're free, but you don't have this feature." "Oh, you don't look as good as them." That kind of stuff. We were like, "But our numbers are better, our numbers are better." But no one really cared about that in the context of all the other features. In the long run, it was the right decision, but it was a really, really grueling 18 months that you had to dedicate time to. Thankfully, it worked out because now we're 10X bigger than our next closest competitor in terms of the number of users and companies using ProfitWell, which is obviously good for the growth of our business.
Margaret Kelsey:
Patrick.
Patrick Campbell:
Yeah.
Margaret Kelsey:
I read a very interesting article that-
Patrick Campbell:
Oh-oh.
Margaret Kelsey:
... kind of divided the internet in terms of you put your stake in the ground before about forget freemium.
Patrick Campbell:
Way too long ago.
Margaret Kelsey:
It's a terrible model for growth.
Patrick Campbell:
Yeah, yeah, yeah.
Margaret Kelsey:
And now ProfitWell has a freemium experience.
Patrick Campbell:
I know. I'm the biggest flip fluffer.
Margaret Kelsey:
Can you tell me about what came about with the change?
Patrick Campbell:
Yeah. I talked about this a little bit. Freemium, a lot of people approach it as the old adage of it's a sledgehammer and really it's a scalpel. I think a lot of people when they use freemium, they use it at the wrong time, they use it in the wrong way and they don't support everything around it in order to make it successful.
To give you a couple of anecdotes. The most successful freemium-performing companies that we see, they don't introduce freemium until three to four years into the business because they figured out what's going on with their persona, they're figuring out what's going on with their product, they're figuring out that precipice between how to convert a customer and then all of a sudden, it becomes a top of the funnel problem where basically they just want more leads.
The way you have to think about freemium is it's a little bit more of like a premium ebook. It's not a revenue model. It's an acquisition strategy. When I wrote that article, it was just a lot of people, there's definitely some things that I got wrong in that article and data has proved me wrong. But there's a couple of things in there about making sure you're approaching freemium as something that makes sense for your business. Again, if you don't know enough about that customer, it's not going to work.
Now freemium is something that I think is so crucial based on understanding your customer and there's a couple of different types of free, and the reason ProfitWell's free is we did a lot of research and we were going to use it as a paid product. What we discovered is that the willingness to pay for analytics products is typically terrible. That's why most of these companies go up market. In addition to that, what we discovered is that retention for analytics product is actually really bad. Because you don't really log in every day, multiple times a day. You really need it probably about once a month. If you're a little bit more focused on your business, you'll look in it every day, but that's not going to be your average user.
We started to put two and two together, low willingness to pay, bad retention, but still valuable. The free that we use is basically a forever free. We also call it pool free. What that means is that basically you're creating a pool of these users and ultimately what that allows you to do is sell into them, but it also allows you to own the lead. I think that's what freemium really is powerful, is that when you own that lead, it allows you to basically respect that lead, have a really, really good experience, and there's no clock that you're forcing on that user to convert.
If you're respectful and you send maybe one email drip like a month or a couple of CTAs per quarter, that's fine. They could still use the product forever for free. But for us, it allows us to own that lead so that when they're all of a sudden going, "Oh, we have this problem with our retention, or we have this problem with pricing," we've gained so much goodwill by providing them a product for free that they have to pay for elsewhere, that they're willing to talk to us. There's a couple other types of free as well.
Margaret Kelsey:
I'm willing to think about you guys first.
Patrick Campbell:
Yeah. Yeah, totally. Exactly. It's a brand a play ultimately.
Margaret Kelsey:
Yeah. Sorry. And I cut you off. You were saying that there's a couple of other types of free.
Patrick Campbell:
Oh, no. Yeah, just to finish the point. There's two other types of free. One is like the faux free trial, which is basically you give, if you think of like an email tracking piece of software, you give them a hundred email opens per month, and as soon as they get over that, you want to time it so that they're over that within 14 days for your target persona. If they don't go over that, basically they get refreshed but you still own that lead essentially. Then there's tangential free, which is like HubSpot went after marketing, that was their big product and they created the free CRM because they want to start going after the rest of the organization and they have a bunch of their paid products they sell on top of it.
Margaret Kelsey:
Cool. I have a question to you about where you see this going in the future. You say, obviously software is becoming cheaper to make than ever so it's becoming more competitive because people can spin up competitive products.
Patrick Campbell:
Yeah.
Margaret Kelsey:
Willingness to pay is going down.
Patrick Campbell:
Yeah.
Margaret Kelsey:
But actually, cost of software is also kind of going up, right? Didn't you have something about-
Patrick Campbell:
Yeah. There's a couple of things that are going up. I think that what you're finding is that switching costs are so low right now. If you wanted to rip out one product, go to another, it's not as hard as it was 10 years ago, right? If you think about how product was built, the past like 10 or so years, everything was focused on speed because there weren't a lot of competitors, there wasn't a lot going on so your competitive advantage as a product team was like, can we ship faster? Not even that cheaper, but like just can we ship faster? Now, what happened is we were successful as an industry, and so we're just shipping, shipping, shipping, shipping, shipping. Then all of a sudden, what ended up happening is we basically saw all this value go down. The secret from a product company perspective is like how do you find the things where willingness to pay is going up, right?
That becomes super difficult. You have to do a lot more customer research. You have to own that lead so that you have enough time to basically nurture them to being a convert to your product. But ultimately, what we're also noticing in the context of all that is that the willingness to pay from free is actually going up. What I mean by that is used to be that free was such a bad anchor for a lot of products, where you saw it with something like a Facebook, which is free, and then they monetize through something like ads. But you would even see this in products where they give you a free product and then you have to upgrade to the premium version, that type of a thing. But it was 10 bucks a month, right? Now the willingness to pay from free is in the thousands of dollars.
It's one of those things where you're not getting those negative anchors. Ultimately what you're doing is now, you're noticing a lot of companies go towards more value-driven type pricing models, or at least the successful ones. The willingness to pay for the actual value is actually going up because people are more than willing, if I'm like, "Hey, I'm going to solve a thousand dollars of churn for you, how much are you willing to pay me?" Well, theoretically it's not going to be 999, but you're willing to pay probably 200 bucks, right?
Margaret Kelsey:
Yeah.
Patrick Campbell:
If that's the case, then all of a sudden, I can sell you that particular product and I'm not selling just based on features.
Margaret Kelsey:
Yeah. Even in 10 years from now, or let's say five because it's probably a little bit more in the realm of understanding, do you think these trends will continue? Do you think that more people will start selling into the value of the products and then what does that mean if everyone's hopping on that bandwagon?
Patrick Campbell:
Totally. I think that what you're going to notice, you're going to notice a couple things. I think maybe not in the next five years, but I think you're going to notice the most successful companies, we have the data to support this. They're going to be using what's called a value metric for how they charge. The best value metrics are like how much money I save you, how much money I bring you, et cetera. Sometimes that's really hard to measure, really hard to agree on that I brought you that money, and so you're going to find a proxy. Number of users, number of widgets, a hundred videos, whatever it is. Those folks that are pricing based on a proxy for value, they're going to continue to do so much better than the people pricing based on features.
Now when it comes to free. I think free's going to see a little bit of a dip in popularity. It kind of has gone in a little bit of a sinusoidal pattern because free's been around since like the '80s, but all of a sudden, what you're going to see is, is that we're going to have some sort of a downturn in the next five years. Maybe it won't be big, maybe it won't be that big of a deal. But what you'll notice is all of a sudden, people will stop pulling out their free products because they're going to be so focused on revenue.
But I think in long term, because of all the density that's happening in our marketing channels, and ultimately the fact that value of software is just declining overall because we're just so used to it, all of a sudden, you're going to see a situation where companies are going to have to have some sort of free product that might not even have to do with their paid product, but it might have to do with their customer, right? If I get you something for content, maybe it's a special micro site or something that's a community or something like that, that's a free product. It doesn't have exactly to do with my product, but I'm getting that type of customer that comes in and then there's avenues for me to sell that product to you.
Margaret Kelsey:
If you had to-
Patrick Campbell:
Had to.
Margaret Kelsey:
Had to.
Patrick Campbell:
Very last words, I know.
Margaret Kelsey:
Yes. Had to force rank a team to work on three different things or one of the three different things.
Patrick Campbell:
Okay.
Margaret Kelsey:
Acquisition, monetization, and retention. What would you force rank?
Patrick Campbell:
It's so hard. Hmm. I almost want to change the question to I have 10 units of time, how do I distribute it?
Margaret Kelsey:
Okay. Yeah, that's fair.
Patrick Campbell:
Because force ranking I think is so hard because the biggest problem is, and we have the data on this, when you look at a company... Just actually out of curiosity. If you took like a thousand companies and we categorize all their expenses, what percentage on average of their expenses do you think go to acquisition?
Margaret Kelsey:
Oh, 70%.
Patrick Campbell:
It's 63%. That's the median.
Margaret Kelsey:
Killed it!
Patrick Campbell:
Respect. That's awesome. That's scary, if you think about it.
Margaret Kelsey:
Yeah.
Patrick Campbell:
Acquisition-based stuff is easier, quote-unquote, to basically invest more in, right? Because you're just like, "Oh, let's just do more ads. Let's just do more this." I think that's really dangerous for a company because you get addicted to basically, it's kind of like sugar. You just get addicted to the bad stuff, rather than the good food. I think what ends up happening is acquisition just takes up way too much of our mind share. It probably still is going to be like 40 to 50%. It's going to be the largest single bucket. But I think we spend so little time focused on our retention and so little time focused on our monetization. The irony is if you fix your retention, or you fix your monetization or fix it more than it is, you will be so much better at acquisition because you'll understand your customer, you understand where you're going and you understand what's important, right?
If I was using 10 units of time, let's just say five units are automatically going to go to acquisition just because that's the nature of the beast. I think that I would take... I want to split. I want to split. I think that splitting is actually still more than what people are doing. I would say three monetize and two retain. Now, the reason is, is that monetization is so much more just than the number. I think a lot of people focus on like oh, it's just your price. Actuality, it's your packaging, it's your customer personas that you target, it's the jobs to be done, it's all those different things. Those three units, let's say, they're not necessarily going to go to adjusting your price constantly or something like that, but they're going to go to doing all the research that then is going to have a huge effect on your retention and your acquisition. It's almost like two retain, two monetize and like one straight up customer research. You're probably going to be focusing on retention, monetization and research more than 95% of companies out there if you split it that way.
Margaret Kelsey:
That's a scary thought.
Patrick Campbell:
Yeah, it's terrifying. I don't know exactly why. I've tried to get deeper on the why of why we don't do the... I mean, there's a lot of psychology on why we don't do the things that are going to help us. But a lot of the things I've thought about is I think it's if you really think about the past 15, 20 years in the industry, you've had brand new marketing channels opening up every quarter if not every year. Now we're not seeing that as much, right? That's why a lot of the marketing tech is going into revitalizing the old channels. You'll see like, oh, ABM, it's better email. That's really all it is. It's just better targeted inside sales and email.
Margaret Kelsey:
I heard somebody say it's better sales.
Patrick Campbell:
Yeah.
Margaret Kelsey:
ABM is just better sales.
Patrick Campbell:
I mean, it is. It's the same thing, right? You're seeing a lot of new ad tech go into just better display ads. You're not seeing, oh my gosh, there's this brand new channel where there's a ton of people that we can go acquire customers in. I think what's happened is we got really lazy, and I think that's the right word. We got really lazy with the state of the market. The effect of that is it's amazing how little research we do inside our organizations. I've tried to be like research, do your customer research, do all that stuff on the blog and everything. Some people do it, more people do it, but they're not going to do it until they're forced to. We should probably build products that get around them to help them do it. Kind of like mixing the vegetables in the sugary thing of some sort just to make them better and just to make it easier to swallow, if you will.
Margaret Kelsey:
I imagine that even focusing on the monetization, but also specifically on the retention will naturally help acquisition-
Patrick Campbell:
A hundred percent.
Margaret Kelsey:
... in terms of word of mouth and new customers and even some of that virality of if your product is inherently viral.
Patrick Campbell:
Yeah. I think that no matter if it's a funnel, and I know HubSpot killed the funnel or whatever funnel, I don't know, who knows? No matter what your framework for approaching growth is, I think the thing you have to understand is the only way to make it better is to deepen your understanding and get closer to the why. As you get deeper understanding, as you get closer to the why, it basically is able to permeate throughout all those different steps of the funnel or the flywheel or whatever you have. Each of those pieces, you're probably stronger at one than the other. Each of those pieces can speed up the other, which was really, really good.
Margaret Kelsey:
You talk a lot about relative pricing, anchoring. A lot of these things are borrowed from social psychology. How important is it for somebody who is in charge of a growth function at a software company to understand human psychology?
Patrick Campbell:
Yeah, that's a great question. I've never been asked something like that. You can tell by I don't have a answer for [inaudible 00:20:05]
Margaret Kelsey:
Yeah. Is this a stumper? Did I give you a stumper?
Patrick Campbell:
I think it's a stumper. It's all in definitions, right? I think it's less human psychology and it's more, I guess, the quantified version of that, which is economics. I think you should understand economics at like a non-beginner level in the world of growth and product level growth. Because if you think about it, and this is why I'm so happy for my econ background, it's kind of like a mini law degree where you learn how to think and you learn how to framework things. Now, you can go too far and model things too aggressively. But I think oftentimes in the world of growth, and not even just product-led growth, it's a game of I have this many resources and my most important resource is time, and I need to figure out how to allocate that properly. In order to figure that out, I need to understand what's going on with my customer, what's going on with a bunch of these different things.
You can theoretically test your way to success, but you only have so much time. There's only so many tests you can run. You have to have those good hypotheses and you have to have that good foundation, that good framework. Yeah, I think there's an element of heavy human psychology there, but I think it comes down to really getting at the truth and discovering the truth takes a lot of research and that research requires the right framework and the right understanding of those users and those right instincts that only comes through repetition.
Margaret Kelsey:
I'm going to force function again.
Patrick Campbell:
Let's do it.
Margaret Kelsey:
If you were going to give, let's say a fellow founder, a direction on something to focus on, and it was either human psychology or just prioritization, like pure prioritization skills.
Patrick Campbell:
Oh my gosh.
Margaret Kelsey:
Which one would you send them off to sort of-
Patrick Campbell:
That's scary.
Margaret Kelsey:
... go and double down on?
Patrick Campbell:
Oof. I think one follows the other so it might be a cop-out. Prioritization, I think, follows understanding things. This is a whole concept of just prioritize and go, like a decision is better than the wrong decision or something like that, right? I think ultimately prioritization is something that's so important and I'm not even sure we're great at that. But what's cool is there's ways that you can utilize different tools and different methodologies in order to help you get the data you need to make that decision.
Ultimately, as a founder, I think prioritization is really your number one goal that has nothing to do just with product. It has to do with everything, right? Because what's the big thing that you're going to go after next year? What are the three medium things you're going to go after? How are these different things that you're going to focus in on? I think that, if you don't have the right background in some aspects of instincts and psychology or even just frameworks for thinking, you're not going to be able to do that.
Margaret Kelsey:
Well, Patrick, thank you so much for being here with us today.
Patrick Campbell:
Yeah, absolutely. Happy to help.
Margaret Kelsey:
And thank you all for joining us today. Don't forget to check out the rest of the Product-Led Growth Collective for all of your information on product-led growth and have a great rest of your day.
