How Hop Online Used Paid Ads to Grow Output.com's SaaS Product from Zero to 100,000 Customers (Interview with Founder and CEO Paris Childress)

Introduction to Hop Online and Paris Childress

Nathan Latka

00:00Hello, everyone. My guest today is Paris Childress. Since 2009, he's founded and run Hop Online, which has pivoted in recent years to focus entirely on SaaS growth marketing. Services include SEO, content marketing, paid search, paid social CRO, data analytics, and creative. Paris, you ready to take us to the top?

Paris Childress

00:15>> Absolutely. Let's do it.

Nathan Latka

00:17I never have services people on my show. How the heck did you get me agree to have you on?

Paris Childress

00:21>> I don't know how I squeaked in, Nathan. I figured I wasn't gonna raise any alarm bells, but, yeah, we're an agency.

Nathan Latka

00:27It's because you buy the magazine, you buy the data, you buy all my stuff. So I said, I gotta have Paris on. Right? That's how it works.

Paris Childress

00:34>> That's probably what happened. Yeah.

Nathan Latka

00:35Alright. Well, let's here's what I'm gonna try and do today. Instead of focusing only on your business model, I'm gonna try and dig into a case study or two where you work with a B2B SaaS company so that our listeners can take some of those things away for free and maybe execute them. Sound good?

Paris Childress

00:47>> Yeah, perfect.

Why Hop Online Focuses on SaaS Growth Marketing

Nathan Latka

00:48All right, so now why are you qualified to help SaaS businesses do this? Did you have your own SaaS company that you grew and sold or what got you into SaaS?

Paris Childress

00:55>> Well, no, I did not have a SaaS business before this, but we have worked with SaaS companies for years. And through that experience, we've really learned a lot about the metrics that the marketing metrics that really drive these valuations and outcomes for SaaS. So what really helped us determine that we wanted to focus only on SaaS was the success of some of our current clients and the realization Can

Nathan Latka

01:21you name one or two of those?

Output.com as a Case Study Client

Paris Childress

01:22>> Sure. Output.com is one of our largest SaaS customers. They recently raised $45,000,000 from Summit Partners about a month and a half ago.

Nathan Latka

01:35And help me understand this is, they're developed innovating software and gear for musicians, composers and producers. Now, what percent of the revenue is true software versus margin on a hardware sale?

Paris Childress

01:48>> Right now, I'd say probably 70% of their revenue is SaaS.

Nathan Latka

01:52Oh, great. Okay, so when they hire you, are you focused exclusively on the SaaS side or do you focus on the gear sales side as well?

Output.com's SaaS Launch: Zero to 100,000 Customers

Paris Childress

01:58>> On both. When we started working with output.com, they were only traditional software and we helped them pivot and launch their SaaS product about eighteen months ago and basically got them from zero to a 100,000 customers in about sixteen months.

Nathan Latka

02:15So this is a fascinating story. So let's break this down. So they engaged with you eighteen months ago. They had no SaaS product at the time. They launched SaaS with you eighteen months ago?

Paris Childress

02:25>> Correct.

Nathan Latka

02:26And they passed a 100,000 paying subscribers, musicians on that SaaS product now today? Yes. Okay, so how did they do that? How'd you get the first 100 customers?

Paris Childress

02:36>> Well, the first 100 customers was through paid search and we thought we had maximized paid search, then we got into Facebook and into YouTube and there was some breakthrough moments. One was switching to data driven attribution which really unlocked the value of YouTube. And the other was Facebook ads, basically leveraging all the great creative content that they were producing to drive acquisition through Facebook.

Nathan Latka

03:07So in a month, what will they spend on paid through you?

Paris Childress

03:13>> High 6 figures.

Paid Search Strategy and Keyword Selection

Nathan Latka

03:15Okay, and about how many keywords are you covering? Hundreds of thousands. Hundreds of thousands. Okay, so let's talk about the first $100 in spend. How did you decide which keywords to go target?

Paris Childress

03:29>> The first keywords are the branded and competitor terms because this is a product that's a new category. It's basically a loop synthesizer. So people aren't really looking for this. So we went after competitors terms, platforms that are selling loops and samples that musicians use to make music. And we wanted to basically catch that adjacent search intent.

03:58>> After that,

04:00>> we started going after other types of keywords that had slightly less intent but we were just moving further away from the bull's eye, so to speak.

04:09>> And we continue to do this even now building out more and more keywords around the digital audio workstations and other popular brands that music producers are familiar with so that we know we have the audience.

Nathan Latka

04:23So how do you work through economics? So I'm looking at the top search terms. There was almost none a year ago, call it a 100. Today, I mean, you're ranking in terms of Ahrefs and what they see for over 5,500 keywords. And I'm sure when you do all the adjacent categories, it probably gets up to hundreds of thousands, but your most popular ones are StudioDesk, right? And the second one is Output Arcade. And when I go

04:45to Arcade product on Output, it says $10 a month, thirty days free. It looks like this is the digital product that's driving most of the revenue. Is that accurate?

Paris Childress

04:52>> Yeah, that's it.

Unit Economics: CPA, Conversion Rates, and Payback Period

Nathan Latka

04:53Yeah. Let's now, because you can't talk too much about them because I'm sure you have NDAs, but let's just talk about a SaaS product like Arcade charging $10 per month. What sort of unit economics are you looking for as you spend your first $10,000, $20,000, $100,000 in ads?

Paris Childress

05:08>> Well, right now we are optimizing for a cost per acquisition in the high twenties, let's say $27 to $28 And the trial conversion rate is about 60%. So they have a pretty good understanding of the maximum customer acquisition costs right now.

Nathan Latka

05:26Sorry, 20% convert to paid?

Paris Childress

05:29>> No, about 60%.

Nathan Latka

05:30Oh, 60% convert to paid. Okay, got it. So just to be clear there, you you can you can go spend you can go spend, let's just say, to get a 100 a 100 clicks. Right? You can go spend $2,800, a $28 cost per click. And then what you're saying is to get those 100 clicks, how many of them will actually sign up for the free trial version of Arcade?

Paris Childress

05:55>> Oh, the conversion rates are about between five to 7% from click.

Nathan Latka

06:00Okay, so of a 100 clicks, let's say, let's give you a benefit about seven of, let's just do 10. 10 of them convert to a paid account or sorry, the thirty day trial and 60%. So six of them convert to a new $10 a month account. So $68 a month or $60 a month in revenue, something like that.

Paris Childress

06:16>> Yes.

Nathan Latka

06:17So with all that funnel built out, how do you back into effectively a $30 cost per click

06:22as being effective?

Paris Childress

06:24>> Because 30, it's not $30 cost per click, it's cost per acquisition. It's cost per free trial.

Nathan Latka

06:31Oh, I think it's in CPC. Okay.

Paris Childress

06:33>> I'm sorry, I meant CPA cost per acquisition, which is in our definition, that's a free trial.

Nathan Latka

06:39I see. Okay, got it. So let me take that math back then. If you spend $3,000 right? So it's $28 cost per trial times a 100, right? You're getting a 100 new trials for about $3,000. Of those a 100 trials, 60 of them will convert to a $10 a month plan or about $600 a month in revenue. So your effective payback there is between three and four months.

Paris Childress

07:00>> That's correct.

Cohort Retention and Churn Dynamics

Nathan Latka

07:01People stick that long?

Paris Childress

07:04>> They stick much longer. What we see is that the cohorts, once people make that first payment, there's about

07:13>> 60% of that starting cohort that will stick for many, many months. So there's a big drop off in the first few months. So the cohort sheds about 30% and then it flattens out and then lifetime value from that point on is very steady.

Nathan Latka

07:29Got it. So you have about 30% churn in the first six months, but then after that it really flattens out and they stick for a very long period of time.

Paris Childress

07:35>> Right, right. So we get to the most loyal cohort after four to five months after they start the first payment.

Investor Due Diligence and Scaling Unit Economics

Nathan Latka

07:44Super effective. So let's take a step back now. When they go out and obviously raise a bunch of capital, right? 45,000,000 is not a small number. How much of that deck says, just look, our paid spend math makes sense. We're gonna plow a bunch of this stuff into paid spend.

Paris Childress

08:01>> I think most of it is relying on that logic. We were brought into the investor due diligence process and we had to answer these types of questions.

Nathan Latka

08:10What is a question that an investor asked you that I haven't asked you yet?

Paris Childress

08:14>> The investor asks, you're doing, so right now we're doing a thousand new trials a day. What would it take to make that 3,000 or 5,000? And could you preserve the unit economics if we wanted to triple this?

Nathan Latka

08:31How do you answer that?

Paris Childress

08:31>> And how? The answer is yes.

08:36>> We can because we still felt like there were certain ways that we could continue optimizing. We hadn't exploited international expansion to the fullest degree possible. There are some analytics solutions as well that we haven't implemented where we think we can improve and eliminate a lot of wasted spend. And the product itself will evolve. So right now the product is really geared towards professional music makers. And I believe that the founders and the team's vision is to

09:05>> move downstream and eventually make this tool accessible to hobbyists and even people that are brand new to making music. It's right now it's basically like the Adobe of music making but in the future it could be the Instagram of. And if that happens then our addressable audience gets massive.

Nathan Latka

09:28This is a mistake. Like Monday went through this exact thing. They were killing it with keywords early on. I had Roy on, was called daPulse back then. They were just plowing money to paid spend and they had to keep inventing new channels, right, to find the same economics. And ultimately with unlimited money, the economics will get worse because you're plowing more money. The question is how long until they get worse? And the way you can

09:50measure that is things like, you know, your current volume on some of your top five keywords, like Output Arcade, there's only 12,000 searches a month for that. So if you assume you get a 100% of those clicks, which is again rare, but assuming you get a 100% of all this, you you know, at some point you can't spend more money in the channels. So how do you balance that? How do you say we're willing to spend

10:07this much in this channel? And then the second question is you have to be super creative to go find new channels. That's really the magic, right?

Paris Childress

10:14>> Yeah, you're right. You're exactly right. I think one untapped territory for us is programmatic. And a lot of that is display advertising. We haven't gone there yet. And I think that's the next frontier.

Nathan Latka

10:27Tell me what that would look like for output.

Paris Childress

10:31>> That would unlock advertising inventories that are way beyond the Google Display Network and YouTube and Facebook.

10:41>> And as an agency, we haven't really developed that as a service yet. So we're working on it. I believe that there's massively more ad inventory out there for us to reach people that would like to use their tool to make music.

10:58>> And we need to do that through programmatic.

Hardware vs. SaaS as the Growth Engine

Nathan Latka

11:01How effective is advertising for the software product at Output Arcade? Because you have an email list from people that have bought their studio gear, their instruments, their effects products, their speakers. How were you able to use the hardware sale email list and customer lists to drive better economics on the software sale paid ads?

Paris Childress

11:20>> There's a close relationship between the soft, the perpetual software and the hardware, But their customer base was only maybe fifteen, twenty thousand before they went SaaS. So this got us started, but it wasn't really at some point we had already cross sold to all of the current customers.

Nathan Latka

11:41So what do you think comes first? Like if output grows to a $10,000,000,000 company, will it be the software sales, the first sale and you upsell hardware after that or will it be hardware is the first purchase and you're upselling software?

Paris Childress

11:54>> I think the first purchase will be SaaS and eventually the software will go away.

Nathan Latka

12:00You'll make the software free eventually.

Paris Childress

12:03>> Possibly. The software will just be a very, very small piece of it.

12:09>> The people who are buying the software are really the most professional music makers. This is relatively expensive software, but at $9.99 You

Nathan Latka

12:19said it's expensive or inexpensive?

Paris Childress

12:21>> It's pretty expensive.

Nathan Latka

12:22$10 a month, right?

Paris Childress

12:24>> That's the subscription for the for the SaaS product. I thought you were referring to the the perpetual software, the ecommerce software.

Nathan Latka

12:31No. No. No. Sorry. I'm talking about arcade. Like, do you think arcade will be the starting point that new musicians learn about output or will it be they go by a desk or sorry, a music stand and then in the box where you deliver the music stand, there's a little piece of paper that says you should check out our $10 a month arcade product.

Paris Childress

12:50>> Oh, it's definitely gonna be software. That's the entry point. I mean, the hardware business is really a very niche business for them. They have a desk and they have speakers, but this is the 99% of the value of this company is in the SaaS model.

Nathan Latka

13:09Interesting. Now did they share what valuation was on the raise?

Paris Childress

13:16>> I believe, no, I don't think they did that, but they raised 45,000,000 and the owners still maintain a majority. You can

Nathan Latka

13:24Yeah, yeah. I mean, usually in a round like that, especially it's their first round of financing, they're gonna sell somewhere between like 10 to 25% of the company probably, which you can sort of back into a valuation. But I mean, this is public. I mean, over a 100,000 subscribers, right, at $10 a month means the software is doing over a million dollars per month by itself.

Paris Childress

13:43>> Right.

Growth Projections and Agency Pricing Model

Nathan Latka

13:44Yeah. That's inter I mean, so what do you think that can grow to using like how whatever they pay you for it? Like, what do you think just from them using you, you can help drive them that revenue too?

Paris Childress

13:54>> I believe getting three times bigger is possible within one or two years.

Nathan Latka

14:02Interesting. And what's your model?

Paris Childress

14:07>> We are right now just charging them a percentage of ad spend basically.

Nathan Latka

14:12Is it under 10%?

Paris Childress

14:14>> Yes, it is.

Nathan Latka

14:15Got it. With a new customer, if they hear you today and go, I want Paris to work on my company, would you let them use you at under 10%?

Paris Childress

14:23>> Maybe not at the beginning, but as it scales, yes.

Finding New Channels: China, Programmatic, and ROAS Bidding

Nathan Latka

14:2710 Yeah, percent of a million per month is a big number, but, know, you could probably get away with only taking 2% there as you scale, which is nice. Super interesting. Last question here before we wrap up, Paris is fascinating stuff. How do you go about finding new channels? Right? Do you get into sponsoring musicians, YouTube channels or podcasts or magazines or billboards? Like how do you think about that?

Paris Childress

14:47>> Yeah, this is our biggest challenge right now. One thing that we did recently is we went and found a partner in China who can help us get into China that unlocks Baidu and WeChat. And then there's another one. So finding international partners starting with China, that's a big one. I mentioned programmatic. And then on the analytical side, I think there are ways that we can move, this might get a little technical but we'd like to move

15:18>> from what's called target CPA bidding to target ROAS bidding. So we want to train the algorithms to bid for a return on ad spend like an e commerce product as opposed to bidding on a target cost per acquisition for a new user. Because then we can control,

15:38>> we can control much more or we can eliminate a lot of the wasted spend that we're paying right now for users that will churn during the trial aisle.

Famous Five Rapid-Fire Questions

Nathan Latka

15:48Paris, this is good stuff, man. Let's wrap up here with the famous five. Number one, favorite business book.

Paris Childress

15:54>> Favorite business book, I would say longevity, David Sinclair.

16:01>> Sure.

Nathan Latka

16:02Number two, is there a CEO you're following or studying?

Paris Childress

16:07>> I'd say it's Greg Lehrman. He's the output CEO.

Nathan Latka

16:10Number three, what's your favorite online tool for building a Hopin?

Paris Childress

16:16>> Favorite tool would be right now, Pipedrive.

Nathan Latka

16:20Sorry, I meant hop.

Paris Childress

16:21>> Hop Online. Hop is also top of my mind because we just did a story on them, but Pipedrive.

Nathan Latka

16:26Alright. Interesting story there. Number four, how many hours of sleep are you getting every night?

Paris Childress

16:31>> Eight.

Nathan Latka

16:32And situation married, single kids?

Paris Childress

16:34>> Married and one kid.

Nathan Latka

16:36Very cool. Oh, great. And how old are you?

Paris Childress

16:39>> 43.

Nathan Latka

16:41Paris, take us home here. What's some English in you and your

Paris Childress

16:46>> think I wish I would have gotten started with my agency much sooner. And I don't know if I could have done that at 20, but I probably could have started it in my twenties instead of in my thirties. So I have picked up an extra ten years maybe.

Nathan Latka

17:00Guys, there we have it. Hop Online helps B2B SaaS brands scale their business. Their most recent customer output.com been working on them for about eighteen months. They're now driving over a thousand new trials per day of which 60% convert to paid. They've scaled that ad spend up for that company to over 6 figures per month. And it's been so effective. They just did a major round of funding, 45,000,000 from Summit to help drive extra growth. Paris,

17:24thanks for letting us get in your head, Thanks for taking us to the top.

Paris Childress

17:26>> You bet. Thank you too, Nathan.

Nathan Latka

17:30One more thing before you go. We have a brand new show every Thursday at 1PM central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it. And the buyers try and make a deal live. It is fun to watch every Thursday, 1PM

17:55central. Additionally, remember these recorded Founder interviews go live. We release them here on YouTube every day at 2PM central. To make sure you don't miss any of that, make sure you click the subscribe button below here on YouTube, the big red button, and then click the little bell notification to make sure you get notifications when we do go live. I wouldn't want you to miss breaking news in the SaaS world, whether it's an acquisition, a big

18:16fundraise, a big sale, a big profitability statement or something else. I don't want you to miss it. Additionally, if you wanna take this conversation deeper and further, we have by far the largest private Slack community for B2B SaaS founders. You wanna get in there. We've probably talked about your tool if you're running a company or your firm if you're investing. You can go in there and quickly search and see what people are saying. Sign up for

18:37that at nathanlatka.com/slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode. And if you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to counter those people. We gotta

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