Mailchimp has been around for 17 years. They have a user base of more than 16 million users, they are attracting 14000 new users every day, and they have generated an impressive $525 million in revenue till 2017.
They are doing pretty well for themselves and are growing year by year. But what makes them such a successful player in the e-commerce landscape?
A combination of factors plays a role in mailchimp’s success. The most apparent is their inbound marketing and pricing strategy.
In this post, we’ll have a look at some basic pricing techniques, how mailchimp approaches pricing and then we’ll see which of those practices are replicable to help your company grow.
Mailchimp’s Pricing Efficiency
PriceIntelligently conducted research which proved that pricing as a growth lever is 2 times more effective than improving retention and 4 times more efficient than improving acquisition.
What this simply means is that while most companies, when they think of growth, are thinking of acquiring new customers and retaining old ones, they can expect better growth in terms of total revenue with a focus on pricing.
So what exactly do we mean by focus on pricing? Haven’t companies already set the prices for products? And has mailchimp found the winning formula??
By focus on pricing we mean two things. First, the frequency with which you evaluate the prices and second, the method for evaluating product prices. Then we’ll see how these factors apply to Mailchimp’s case.
On the first point, PriceIntelligently discovered a correlation between pricing frequency and efficiency, Here’s what they found:
This graph shows that you can improve your customer lifetime value (average $ amount earned per customer) in relation to the cost it takes to acquire a customer (cost of marketing and sales), by increasing the frequency of price reviews.
There are 3 basic pricing methods, each has their pros and cons and most companies use them exactly or a variant of them to price their offerings. They are:
- Cost-Based Pricing: Selling price is the cost per product + markup
- Competitor Based Pricing: Selling price set by using competitor prices as a benchmark
- Value-Based Pricing: Selling price is based on consumer perception of pricing
Each Method has its pros and cons.
|Cost Plus Pricing||It’s a simple technique and you will probably cover your costs.||You can’t know exactly what costs go into producing a product and you could lose out on additional profits.|
|Competitor Based Pricing||It’s a simple method and is a close estimate of value if competition offers very similar products.||It’s not your own pricing strategy but borrowed from the competition. What works for them might not work for you.|
|Value-Based Pricing||You can learn about your customer and price becomes a differentiation tactic||Takes a lot of time and quantified data to calculate prices.|
Mailchimp Pricing Frequency and Method
mailchimp seemingly follows a yearly pricing review model. The evidence comes from the fact that they alter their bundle prices every year or so.
For example, right now mailchimp offers three basic plans; Free, Grow and Pro, with options to scale as your subscriber list also scales. But just two years ago, this is what their pricing page looked like:
You can see in 2016 they offered 4 pricing options, bundled for slightly different segments. Since then they have reviewed their pricing and optimized it for current market conditions. This pricing change has allowed them to improve their revenue collection efficiency and has helped them to get to where they stand now, i.e. at par with $525 million.
Secondly, it is safe to say that mailchimp follows a Value-Based pricing methodology. A simple Google search will reveal that they don’t follow the prices of their competition. They can’t use a cost-plus method because it’s almost impossible to quantify the cost of each subscriber given the collaborative nature of work from beginning to end to acquire a customer. Each customer has a different cost.
The evidence for value-based pricing comes from the fact that mailchimp constantly alters their bundles to reflect evolving willingness to pay of each segment their bundles are targeted towards. This practice helps them optimize the revenue they can generate through their services.
Implications for You as a Business
It goes without saying that it’s not enough to spend 30 minutes on setting your prices on gut feeling and then forgetting about them until your next fiscal year, or studying the landscape just to come up with a copycat price.
If you price your product too high, you are not going to capture true demand. If you price it too low, you are loosing out on potential revenue.
You want to follow a value-based model like mailchimp to set prices that reflect the true value of your brand. For this, you’ll have to invest in market studies and learning more about your buyer. The investment is worth it, with such data you can set yourself apart in pricing and optimize your revenue.
Mailchimp’s use of Buyer Personas
The above images show two ideal aggregate personality types that represent mailchimp users. Not only do these personas come in handy for marketing purposes, but they help devise pricing strategies for different target markets.
Buyer personas actually are about numbers and not words. When you have quantified your qualitative buyer personas, you’re in a position to make actionable changes to pricing to boost your revenue.
To quantify your buyer types, you divide your customers into 3-5 segments and then ask them questions to understand their willingness to pay. Some common questions to ask are:
- Type of industry and size of the company
- Role in company
- Which features they value in your product
- At what point do they think your product is too cheap/too expensive
These are some basic questions that will help you understand your customers and what they value in your product. When you aggregate the answers to these questions, patterns will emerge that will show you what type of person values what type of features and to what extent. To learn in-depth about how to quantify your buyer types, refer to this guide.
When you’ve figured out willingness to pay for each segment, you can accurately price different bundles for different target groups to maximize your earnings. Your buyer personas will also help you with future planning, and when you decide to introduce new products/packages.
To really understand pricing, one should have a clearly laid out business strategy. Once this is established, a business has a better understand of how they can use price as yet another tool to grow themselves.
Mailchimp Offers a Free Plan
mailchimp offers a ‘Forever Free’ plan. It basically allows you to send up to 12000 emails a month and build lists with 2000 subscribers across all lists.
This is a great tactic from mailchimp. They allow you to get your foot through the door to figure out what mailchimp is about. In fact, when mailchimp introduced a free version of their software in 2009, their user base grew from 85,000 to 450,000 users!
The Forever Free plan is a great way to get a customer to enter mailchimp’s acquisition funnel. By signing up for free, a customer has already established awareness and familiarity with the product. And because mailchimp offer a good reliable product, the probability of a customer making a ‘buy’ decision increases greatly.
How is this pricing relevant to you?
Well, if you’re selling software, you can offer a freemium bundle for your services and if the customer likes what they see, they can then upgrade to your standard packages. A free plan attracts a lot more prospects, serious and otherwise, who have the potential to become paying customers.
If you’re running an e-commerce store. You probably don’t want to be handing out free products.
What you can do instead is entice customers with deals, discounts and lead magnets to get them to buy more from you.
Mailchimp’s Pricing Page
Mailchimp does a good job to showcase its packaging and positioning with a simple pricing page. The Free, Grow and Pro plans represent mailchimp’s different target groups and the description below each plan provides an apt summary of the value the consumer will derive by using them. They have designed a brilliant pricing landing page.
Their value metric (the key feature to set the price on) is the size of the subscriber list. They make it plainly understood that you only have to pay more if your list grows.
All your marketing and sales efforts finally lead a customer to your pricing page. If it is designed like mailchimp’s, i.e easy to navigate and easy to understand, you can expect to see more prospects turn into customers.
Again, if you’re in the business of selling a core product online, these steps are easily replicable to make your user’s journey smooth.
If you run an e-commerce store, instead of bundling your products by features, you can bundle categories (like apparel, footwear etc) and instead of mentioning a price (because each product will vary in price), you can briefly describe what they can expect from each segment of your store.
MailMunch has grown to an enormous size and profitability in its 17 years of existence. A big factor that reflects their success is their pricing strategy.
They understand their customers, review pricing often and understand how people perceive their product’s value.
Such practice and knowledge have allowed them to maximize their profits and a lot of their pricing is replicable for other businesses. Some takeaway points for your business are:
- Evaluate your prices frequently to update them for changing conditions
- Base your price on perceived value rather than following competition or covering costs
- Use freemiums or lead magnets to attract more prospects
- Have a pricing page that summarizes your packages and bundles, along with the value of each segment