From Startup to IPO: Lessons from the pricing trenches - Brad Coffey of HubSpot

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From Startup to IPO Lessons from the pricing trenches @BradfordCoffey

Transcript of From Startup to IPO: Lessons from the pricing trenches - Brad Coffey of HubSpot

From Startup to IPOLessons from the pricing trenches

@BradfordCoffey

Brad CoffeyChief Strategy Officer @HubSpot

… started as HubSpot’s first intern

Yes, I dated my wife in high school

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Safe Harbor

This presentation includes certain “forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning our cash flow and margin improvement expectations, our position to execute on our growth strategy in the mid-market, and our ability to expand our leadership position and market opportunity for our inbound platform.  These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" or words of similar meaning.  These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made.  Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved.  Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, our history of losses, our ability to retain existing customers and add new customers, the continued growth of the market for an inbound platform; our ability to differentiate our platform from competing products and technologies; our ability to manage our growth effectively to maintain our high level of service; our ability to maintain and expand relationships with our marketing agency partners; our ability to successfully recruit and retain highly-qualified personnel; the price volatility of our common stock, and other risks set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q filed on November 2, 2016 and our other SEC filings.  We assume no obligation to update any forward-looking statements contained in this document as a result of new information, future events or otherwise.  

HubSpot’s journey

Product Market FitWell, we need to charge something, right?

HubSpot’s journey

Product Market FitWell, we need to charge something, right?

Math to WorkCan we even spell LTV:CAC?

HubSpot’s journey

10 seconds on CAC & LTV

PROSPECTS

LEADS

DEMO

CUSTOMER

CACCost to Acquire a Customer

LTVLifetime Total Value

10 Seconds on CAC & LTV

$

For illustrative purposes

BEFORE

Customer Retention 65%

Revenue Retention 70%

CAC $10k

LTV $25k

LTV:CAC 2.5

Reps x

As reported in HubSpot S1

Who are our best (and worst) customers?

What is our stickiest (and least stick) apps?

Looking at retention

PROBLEM

Marketing to (some) non-sticky users

Selling non-sticky features

Onboarding poorly to sticky features

No upsell for successful customers

Driving retention through pricing

PROBLEM PRICING SOLUTION

Marketing to (some) non-sticky users Add requirements to buyMinimum of 5 pages on existing websiteNo website redesign currently in flight

Selling non-sticky features Adjusted sales compensationPersonal retention goals for promotion, Bonus on personal install base growth

Onboarding poorly to sticky features Required paid services fee on new salesAnnual payment (moving us up market),Required 8 hours of paid training

No upsell for successful customers Created contact tier pricingUpgrade based on size of contact list, not just edition

Contacts in HubSpot

BEFORE AFTER

Customer Retention 65% ~82%

Revenue Retention 70% ~100%

CAC $10k $11k

LTV $25k $52k

LTV:CAC 2.5x 4.7x

Reps x ~10x

As reported in HubSpot S1

Advice on how to change prices

1. It’s easier to raise prices than lower them

2. Be generous with your existing customers -- plan to grandfather them in to favorable pricing

3. Focus on creating great new cohorts of customers

Product Market FitWell, we need to charge something, right?

Math to WorkCan we even spell LTV:CAC?

Scale the MathHow do we keep going?

HubSpot’s journey

One Customer

$

For illustrative purposes

One Customer

$

For illustrative purposes

One Sales Rep

$

For illustrative purposes

MRR

NEW

CHURN

MRR

Y1 Y2

Dependent on Sales Team size

Dependent on Install Base size

MRR

UPGRADE

NEW

CHURN

MRR

Y1 Y2

Dependent on Install Base size

Dependent on Sales Team size

HubSpot in 2014 ONE

PlatformONE

ExperienceONE

Target

Marketing Yes Yes Yes

HubSpot in 2015ONE

PlatformONE

ExperienceONE

Target

Marketing Yes Yes Yes

CRM [new] Yes ehh kinda No (Ollie)

Sidekick [new] No No No-ish (Anyone)

Leadin [new] No No No (Solopreneur)

HubSpot in 2016+ONE

PlatformONE

ExperienceONE

Target

Marketing Yes Yes Yes

CRM Yes Yes Yes

Sales (Sidekick) Yes Yes Yes

Mkt Free (Leadin) Yes Yes Yes

100% FREE Starts at $0 Starts at $0

Thanks.

@BradfordCoffey