Paddle Revenue, Valuation & Funding (2024)

[00:00] >> Alright, guys. So, I'm Stephen. I am not a Founder, so I am head of product marketing at Paddle. So my role basically is to connect with information streams between the technical expertise and the UX knowledge of the product team as well as, you know, the communication abilities and the skills of the marketing team and so, the few things we think about are, you know, number one, how do we who do we sell to? How do we [00:22] >> talk about that product and how do we price and package that product And so Paddle where a all in one, you know, payments, billing, and subscription management, tax management solution. But I actually come over to Paddle from the acquisition of a company called ProfitWell last year, which went for $200,000,000 We have free subscription analytics tool. We also have tools for automating your retention and optimizing your pricing strategy. So a lot of today's presentation is going to [00:48] >> focus on, you know, what I've learned in product marketing, but also our work helping other companies with their pricing strategies themselves. And so over the next twenty minutes, we're going to talk about number one, process. How do you actually get momentum on a pricing decision and who do you put in charge of it? Strategy, how do you think about pricing? What are the fundamentals when you're evaluating your product's roadmap and your current product? And maybe some [01:09] >> quick hit tactics. Hopefully, will have time. There's a lot to cover here. But you can hopefully win so you can start getting momentum moving to York. So, you know, I mentioned that we have this subscription analytics product. We have thirty, zero subscription companies. Lot of them are SaaS. 20% to 25% of the SaaS market depending on how you count it. So we have a pretty good macroeconomic view into, you know, how people spending their time and [01:31] >> how these different companies are growing. And, you know, I have good news and bad news. It's probably not a surprise. So let's start with the bad news is the market's not doing great right now, right? So we actually constructed an aggregate subscription index of how these different companies are growing, segmented based off of, you know, how each vertical is going. And we basically saw that, you know, growth in the B2C market basically flatlined starting late last [01:55] >> year. I'm standing this month this date is three months out of date. But when you look at the b to b side, you know, b to c is often very much a leading indicator for b to b. So if you're assuming that that trend is gonna apply to b to b at some point, then that's pretty worrying. And what's interesting is that, starting, say, July, August last year, we actually started to see growth slow down a [02:16] >> lot in B2B space. I've seen the early cut of the fresh data. We actually saw a bit of an uptick in this in January and February of this year, but this is all below before all the Silicon Valley Bank stuff. So who knows what that's gonna impact things. So how can we go after this? Right? And, you know, the good news is there's some fundamentals that you can focus on that will set you up for success, [02:38] >> both right now, but also will enable you to iterate much more quickly in the future, ideally when your product improves or when market conditions improve. So let's talk about those fundamentals. So how do you think about your pricing, right? And the first thing I want you to know is this is not a one time deal. You do not look at this once and then move on. It's a process. It's iterative, and you keep doing it. A [03:02] >> lot of you probably already talked to customers and have some pricing out there but what I'm going to take you through is a systematic approach of thinking about it and hopefully, if you can implement this, you guys can actually get some, you know, low hanging fruit at the beginning of this process. So we get all the access to all this data and we've talked to thousands of founders in our time. And whenever we ask founders what [03:24] >> their main focus is for increasing top line revenue are, they generally fall in three different of levers. There's customer acquisition, sales and marketing, getting new customers in the door. There's pricing and packaging, figuring out how what you're gonna sell to your customers and how much you're gonna get from them for that. And then there's expansion revenue, selling them more products or, you know, the flip side, which is obviously churn. And inevitably, we hear that people are [03:48] >> spending almost all the time on that sales and marketing stuff, especially at the founder stage, right? Spending all the almost all their time, they mostly guessed on their pricing work, and they're not really working to gather data on it. And why is this bad? Well, like I said, we gathered data on what they're spending time on and we basically found that, you know, there's way more impact on spending a bit more time on monetization, a bit [04:10] >> more time on on retention compared to spending time on acquisition. So you can imagine this as basically as a founder, you know, spend a couple more hours. What's the impact of spending a couple more hours on a month on your pricing? It's gonna be enormous. A lot of people leave retention on the table as well. That's gonna be pretty big. So what I'm basically suggesting to you is just take a couple hours out of a week, [04:30] >> shift that from working with your BDR team or your marketing team and shift it over to thinking about your pricing and how much value your users are getting out of your product. So, how do we do this internally? One thing we recommend is create a pricing committee. And you know, we often see that this is a big barrier because if, you know, no one owns pricing, then, you never get any momentum And if everyone owns pricing, [04:54] >> everyone has complaints, everyone gets into arguments, you never get any momentum out of it. So not having a pricing committee of a designated people to work on this is an enormous barrier. Who should be on this pricing committee? Well, it should be leaders who can kind of surface feedback from different parts of your organization and also see kind of a forest of trees, get an overlay of the land. So someone product, someone from sales, someone from [05:19] >> marketing, probably someone from finance in a capital allocation budgeting role as well. And a lot of the time, we also suggest that you add someone as a project manager on this. You know, obviously, you know, founders'time is, you know, pretty precious. So if you have, you know obviously, me from products marketing, I'm biased. I think someone in product marketing could hold this since this is traditionally a remit. But if you have a product manager, this [05:40] >> is a very good idea for them to hold as well since, obviously, they know of a product, vision of a persona, and obviously, you know, hitting deadlines of project management is part of agreement. And lastly, you know, you should have a main decision maker of someone who, you know, puts a foot down and then decides what the group is going to go towards to break a time. Very often it's going be CEO or CTO. So, you [06:01] >> know, talked a little bit about this but you know, what is this you know, pricing coordinator look like? Well, they should be, you know, housing all the data and all version control and all the documentation around the decisions made. They should be, you know, taking that feedback and pushing through the politics, navigating that. And obviously, they should be focusing on the project management, making sure deadlines are actually set and hit. So, you know, next is what [06:25] >> we I mentioned is establish a research process. I'm gonna get into the strategy a bit here, but at a at a high level, what this basically means is talk to the customer, but I imagine you guys are already doing that, but specifically set up a system for not just talking to customers, but asking a well defined set of questions, knowing what hypotheses you're looking to test, and collecting this data systematically. So, let's talk about the actual [06:47] >> strategy here, right? So, when I think about pricing, I actually break this down to kind of almost three constituent layers here. Number one is map your buyer segments and personas, know who you're selling to. It's match these people to the parts of a product that they value most so you can actually figure out how much value beginning. And then lastly, of course, actually measure value. And you'll notice that, like, pricing is literally one third of this. [07:11] >> Two thirds of this is just the the legwork to get there. I'm gonna focus a lot on the legwork because if you get that stuff right, then hitting the pricing point becomes easier and it's some becomes something that you can iterate upon over time. So talk about talking about buyer personas and segments. Buyers obviously have a central tenant of your business, and many of you probably have bunch of different personas, a bunch of different, you know, [07:33] >> target segments. And so, like I said, the task is to figure out, can we get enough information on these folks such that we can actually match them to the parts of a product that they and figure out how much value they're getting so you can price based off of that value. And so when we construct personas, we don't just focus on the qualitative, right? You know, you've probably have a persona that looks like this, very qualitative. [07:55] >> What is this person's age, their firmographics, what, you know, the seniority, stuff like that. I'm sure all of you probably have something that's at this level, but it's not enough. And the reason is it's all qualitative and certainly qualitative is necessary, but you need to have more. So what we normally do and what we actually do with Price Intelligently with our pricing software is we help you design experiments based off how to collect this data. We [08:21] >> help to collect the data for you and then parse through that to get the analysis. Now I know a lot of you are early stage and it's, you know, you're very and when that comes what I would suggest is, you know, obviously, I would love for you to come work with us and do this robustly. But if you're very early stage, you're already interviewing customers, interview ten, twenty, 50 customers, however many you need, start from there [08:42] >> because doing that is gonna be much better than doing nothing. And so, you know, hopefully, you you get a start and then maybe, you know, later on, we end up working together. Right? And so, eventually, we end up ideally something like this, right? Valued metrics. What are parts of products do I value most and what elements do I care most about? Which variables? We also, you know, I mentioned we have a subscription analytics product and we [09:06] >> attach a lot of these characteristics to that as well. So what is the lifetime value of every customer? What is their willingness to pay? How much are they willing to acquire? And that's important for not just knowing, you know, what, you know, what, how much you value them, but also, you know, helps to construct what we might actually call an anti persona. You know, there's a lot of customers that you can probably technically service, but they're [09:27] >> gonna distract you. They're not your core focus. The unit economics isn't there. So a lot of the time, you know, you might have personas that you can technically serve, but they're gonna distract focus you from your team. And so a lot of the time, it might actually serve to simply say, hey. We can serve these people, but we're not gonna focus on them. Maybe we'll take inbound. We're not gonna go after them on outbound. [09:48] >> So let's start talking about, you know, how we kind of like match these people to how much value they're getting. Right? And the first thing is what we call a value metric. You can kind of define this as like the unit of measurement you actually use to set your prices or kind of more theoretically, it's the unit of exchange that you put out in the world. A lot of people here probably price based off of per [10:08] >> user. You're basically saying that number of users using this product is how much value we're getting out of this. Some people price based off of, you know, company size. Right? The bigger of a company, the more value they're gonna get out of our product. Depends on depends on your particular company. There's a lot of companies where that works, but not always. So one example I'd like to point to you since everyone probably knows this is HubSpot. [10:29] >> Right? HubSpot price is based their value metric is the number of marketing contacts. Why? Because the size of your marketing operation is probably gonna indicate how much value you're gonna get from HubSpot. If I'm a big company with a small audience, I'm not gonna get much value. I don't wanna pay that much. Vice versa, like at ProfitWell, where we were relatively small, but we had a pretty big marketing audience, we have a lot more use for [10:49] >> HubSpot. So we should be charged extra for it. So the first thing I would do is figure out, okay, what are potential value metrics that you can set your prices on that are going to be indicative of willingness to pay for your customers? And if you're going to ask me, you know, like, what are, you know, what is a good value metric? Generally, we have like three kind of characteristics. Number one is, like I said, aligns [11:12] >> with customer value. It scales with the customer. You know, if they get bigger and get more value, then the value metric should scale with them as well so you can alternate pricing. And lastly, it should be easy to understand. Obviously, if it takes your sales rep ten minutes to explain your pricing model, that's not going to work, right? And it's going to especially hurt if you're PLG, right? If it takes more than thirty seconds for your [11:33] >> target users to understand your PLG pricing, they're going to click off, they're going to bounce, you're to lose them. And so again, if you get everything else wrong but you get your value metric right, that provides a foundation for you to revisit this and iterate later. So absolutely get this right. [11:50] >> Something else to know about as well is what we call feature packaging. Basically, you know, it's almost like whenever you see, like, you know, a good, better, best, like a three tier pricing structure, what features do you put in each one based off of who you're trying to sell to? So how do you measure, you know, how do you figure out what's gonna sort on each? So what we what I like to do is actually kind [12:13] >> of do an exercise of this stuff of coffee. You know, everyone here probably drinks a ton of it, and we can kind of sort through a lot of different characteristics of coffee that basically suggest how people might price. Right? So let's talk about, like, you know, characteristics like you might have taste, country of origin, like how exotic is the, you know, origin of coffee temperature, you know, is it hot? Is it cold? Is it sufficiently so? [12:35] >> It has what impacts, you know, both, you know, my willingness to buy the value I'm getting but also my willingness to pay. And, you know, we actually did a quick exercise on this and we kind of draft how all of these characteristics got there. Taste is, you know, high impact willingness to pay, hype. Actually, let me step back. So, you know, I I have an admission to make which is I drink a lot of cheap, crappy [12:59] >> Dunkin'Donuts coffee. Why? Because I don't drink coffee for the taste. I drink it for caffeine and mostly so I have something hot to start the day off with in the in the winter, something cold in the summer. And so it's like, as long as it gets that job done, with the 20 sugars or whatever, then I'm fine. But if were but if Dunkin raised their prices to Starbucks'level, I'd probably buy with Starbucks instead, right? [13:23] >> So taste temperature is something where like, you know, it doesn't I'm not necessarily willing to pay just for that cup to be hot, but if it's not hot, then I'm not going to buy it at any price. So it's almost like what we would call a core feature. Then we have taste, Something that broadly increases the demand for that, but that also increases the willingness to pay for that product for for that for those customers. So [13:47] >> you could think of Starbucks being something that, you know, hits those basic requirements, but also tastes a bit better. They could command a higher price. They can also go for a broad set of a market. We call this a differentiable feature, something that will actually help you compete across the board. And lastly, we have something like country of origin. Takes a very specialized part of a market to actually care about that stuff. Most of the time, [14:06] >> it's gonna be like a local specialty coffee shop. So country of origin becomes something that has a high impact and willingness to pay, but not on relative preference. There's only a small part of a market that really cares about it, but the part of a market that cares about it cares about it a lot. And so, you know, we have we've generally often measured the relative preference for all these things. And when we actually gravies, actually [14:27] >> kind of sort them into four different categories. And in particular, there's like core features, stuff that is necessary for your product, but isn't gonna impact the willingness to pay. You have differentiable features, stuff that a lot of people will in fact like and will increase your ability to charge broadly. And lastly, have add ons, stuff that only really applies for a small part of the market, but the people who really do care are willing to pay [14:49] >> more. And so, you know, again, this is a process. Your product should improve over time. The market may improve and that impacts willingness to pay. So as your product brand improves, continue to iterate through this process, and therefore, you can tailor pricing based off of that product market fit. So I mentioned it before, like the idea of like changing prices. We do, in fact, recommend, you know, changing prices relatively often and not making this a once [15:14] >> in a generation thing. So how do you go about this the right way? Well, the most important thing is get the proper messaging. You know, I think we can all think of companies like Gumroad that have, you know, not gotten this quite right in the past. So proper messaging is key and there's generally three guidelines that we give. Number one is relate to the value delivered non internal factors. Don't say, I gotta protect my margins. Say, [15:35] >> hey, I know this hurts for you guys but this is gonna help us fund improvement of our products and we have this stuff coming on that's gonna increase the value you get and so related to that. We also recommend being explicit about what you're changing and when. You know, we've had smaller competitors who gave a 30 paragraph email and then put the pricing change in the twenty eighth paragraph. That's just, I don't think that's ethical, But [15:55] >> also it implies that, like, you have to hide the amount you're charging instead of being upfront about what you're charging, but also about the benefit about the value you're giving them. So be upfront, but also do be empathetic and do show goodwill and understand that, hey, maybe some of these customers, you know, they've been loyal to you. They signed up for you early on. Maybe it can take some flexibility in kind of terms of grant offering [16:15] >> prices. And it really depends on which kind of products you have, right? So we have a huge database of examples of this since we help with this messaging. And this is just one example. I'm happy to Email these out if you if you get my Email but you know, we have an example of like basically communicating the value and showing being empathetic And one thing we often do is at the end, we'll put in the PS [16:41] >> like, hey. If this materially impacts you, like, you're you're crunched for cash right now, let's let's talk. We wanna work with you. We really care about the relationship even if we think the pricing change is justified. Cool. Am I out of am I out of time? Yeah. Okay. Got it. Cool. Yeah. So I'm gonna have to leave the add ons out, but, yeah, hopefully, this was helpful. Thank you.

[00:00] Yeah. Tripp Brockway, VP of global sales at paddle. It's gonna be a very different kind of talk. So less focus on sales funnel, more focused on kind of broader trends and how to deal with the economy getting weird, which is really what we're gonna focus on here. So, let's keep this super conversational, by the way. So just like with Kyle, like, jump in with questions, interrupt me at any point if you guys wanna go deeper on [00:25] on one of the topics here. So you all are probably feeling this a little bit. Anyone feel like the everything's going great? Economy's great? Nothing's changed? Yeah. Cool. We're seeing the same thing. So, we sit on data for about 40,000 SaaS companies, and so we have a little bit of a lens into this. And so we aggregate this in two ways. One is looking at B2C SaaS companies, so often a leading indicator as to how the [00:50] economy is doing. And what we've seen here is that growth is very much flatlined in the past couple of months, especially. And when you look at it from a B2B perspective, this trend also continues, mostly in the form of churn. So this chart's a little busy, but basically, is up a whole point and a half relative to two and a half years ago. So things are harder. If you're feeling that, it's real. It's justified. So if [01:17] you're a CEO and you're nervous, tell your board that, yeah, it's real. Everyone's feeling it, etcetera. So, obviously, the question from here is, like, what do we do? Before I get too much into that though, I wanna make things a little worse for you. Things are are just broadly hard, and they have been trending in that direction in general. This is over the last five years. Average competitors in a given industry in SaaS is up fifteen [01:40] fifteen, 16 x. CAC is way up. Obviously, people are demanding more money, and they're leaving faster. So things were already getting hard, and now they've just gotten a lot harder and and worse. So say all this to say, status quo probably isn't gonna work. So you do need to think about how do we how do we get ahead of this and start to make some changes so we're not surprised. So let's get into that a bit. [02:05] Our view at paddle, we're very opinionated about this, is the right thing to do here is to focus. And what I mean by that is, on the things that your company is uniquely qualified to do to win. So that's your team, hiring great people, having an anti fragile sales team, for instance, making sure they're well taken care of, and know what they need to do to succeed, having a world class product and understanding your customer better [02:30] than anyone else. We did a survey of these 30,000 SaaS companies, 40,000 SaaS companies that use our platform to ask them, why can't you do this? Like, what's in your way of actually focusing on on the things you should do to win? By the way, we also asked, do you agree with this? And they all said yes, of course, or like 9095%. [02:53] And what we saw from folks is there's sort of like six big buckets of things that were causing them to be a bit distracted from those core competencies. One is customer acquisitions, like how do we how do we grow, how do we acquire more customers, pricing and packaging, expansion revenues, how do we upsell, all the operations around finance, billing, compliance, sales tax, all the boring stuff, and then, of course, churn. And if you know our Patrick [03:21] Campbell, he does a twenty five minute talk where he only says churn, for twenty five straight minutes. So I suggest googling that if you haven't seen it because it's fun. There's a ton of stuff underneath this that that we also uncovered, and we're actually gonna get really tactical and talk about some of these things. Because while we do think that you should be focused, you know, with almost all of your attention on your customer, your team, [03:44] and your product, obviously, these things are real and they're gonna be hitting you in the face every day and there's stuff that we can do to address some of them. So let's get into it. The first thing we recommend thinking about right now in this moment, given where the economy is going, is is your positioning. So how are you talking to the market? Who are you talking to? And, like, tomorrow, our recommendation would be to go [04:06] look at this. You should probably change what you're doing if you haven't already tomorrow. [04:13] Specifically, a couple of things to look at. What is your sales messaging? So to to Kyle's point, how is your team actually going to market? What are the things they're saying to customers right now? If it's the same as it was twelve months ago, you've got a problem. [04:30] Second point is, who are you targeting? As we talked about earlier, a really smart question around how we optimize the funnel. Thinking intelligently about focusing on who you're talking to right now, what we recommend is is to really hone in there. So rather than trying to talk to everybody who's over a 100 employees, blah blah blah, looking at your data to understand where you win, how you win, and really focusing in on key core segments. So [04:56] at paddle, for instance, we were selling to every SaaS company. We've stopped doing that. We are selling to only a very small subsection of the market right now, and we're basically saying no to everybody else. We know our effort is better placed there. It's more likely to convert to revenue. We're literally turning people away right now and not doing any outbound outreach on companies that don't look exactly like the kind of companies we know are gonna [05:19] convert or more likely to convert. [05:24] Expansion revenue. So, old adage, I think most of you probably know this one, it's easier to get an extra dollar from a customer you have than from a customer you don't. So what we see when we look at this across, the 40,000 companies in our portfolio is that the highest performing ones, 20% of their revenue or more is from their existing customer base. Unfortunately, most, the vast majority have zero or negative. So what do we do [05:51] to fix that? The first thing is multiproduct. So this is a little bit beyond sales and marketing, obviously. So for those of you who are VPs of sales, CMOs, go yell at your product team or your CEO about this. But one of the first things you can do is is adding a different product or splitting your existing product out into multiple products. Companies that do this grow at 50% faster rates than those that have a single [06:15] product. [06:17] Add ons is another really easy thing to do with an existing product or platform that you could go sort of mess around with tomorrow. We see this as, like, very commonly under thought about in the market, but companies that do this well have 18 to 54% higher lifetime value when they have at least one add on. Alright. This is one of my favorite topics. Localization. So, I work for paddle. We're a global company headquartered in London. [06:48] Most companies in Europe and abroad think about this from day one. US companies often do not think about this and it's a big mistake. If you look at Asana's s 40% of their revenue growth was from international and it grew at a faster rate than their US volume did. So this is often a thing that US companies just like ignore because like, oh, the market's huge, but there's usually a big opportunity here that's not that hard [07:11] to get. Easiest thing you can do is cosmetic localization. So if you have a checkout, for instance, or, you know, a a sort of buy now page or talk to sales, change the language, change the currency you're showing on your pricing page to match markets you might wanna penetrate. Super easy to do. Like, there's widgets you can download tomorrow that do this for you automatically. We recommend going a lot deeper than that, and we see in [07:37] the data that companies that do this well perform a lot better. So adding multiple currencies, companies that do that grow 12% faster. Those that have a lot of currencies, 25 plus, grow 25% faster. Payment methods, again, if you're just in The US, you're thinking credit card's fine, wire transfer ACH is fine. Around the world, there are a ton of different payment methods that are preferred. So for instance, in Germany, most people like to use PayPal to [08:03] buy software. Kinda blew my mind when I learned that, but 60% of our transactions from Germany are done via PayPal. Something as simple as that can dramatically increase, your growth rates. [08:16] Another really interesting, thing to think about is pricing power. So it's again, it's a thing you can do tomorrow, especially if you have a a sort of self serve checkout. Companies in The Nordics and Western Europe are willing to pay 20% higher prices for the exact same product relative to The US. So go increase your price by 20% in Western Europe and watch your conversion rates stay the same. In other parts of the world, they're they're [08:40] not. Right? Purchasing power is lower, etcetera. You can actually grow faster if you reduce your price in places like India and Brazil relative to to US. So again, something pretty simple that you can look at tomorrow and improve growth rates. [08:56] Tax is a really fun one that if you want to go deep on, we think a lot about it, grab me after. It's a sneaky one that a lot of folks aren't thinking about. And a fun fact we have is in Europe, the expectation, especially from a b two b transaction, is that you essentially exclude the tax, meaning you you show them the amount of tax that you're applying to the transaction instead of just bearing it [09:20] in your product in your in your pricing, excuse me. So companies that are quote tax inclusive, meaning they're just adding tax to their price instead of showing it as a different line item, grow at 15% slower rates. So you have to pay tax. It's not an option. This has all changed dramatically in the last seven years by the way, so if you're not paying sales tax today, you really need to look at that because we had [09:42] a company approach us a year ago who owed $5,000,000 to The UK in back taxes and they were not giving up on collecting that money, so it can be a sticky one that can bite you if you're not careful. Alright, I'm not going to dwell on this because we did talk earlier here, on this topic deeply. If you want to talk more about this, grab me. We recommend you change your prices once a quarter. I'm going [10:09] leave it at that, because you're probably not thinking about this at all as a monetization tool. Change the price once a quarter. Second thing is have a pricing committee. So having a having a group of people come from from products, sales marketing, probably your CEO, who are responsible for price and look at it monthly, easy thing to do to start to think about how to actually get into a rhythm of changing your price frequently. [10:34] Alright. Everyone's favorite topic, churn. It's obviously getting worse right now. Couple of things you can do to stem the tide. There's two types of churn. There's voluntary churn. Someone says, I don't really like your product that much. I don't wanna pay you anymore. Involuntary churn. I actually like your product, and I wanna keep using it. But for whatever weird reason, I'm not gonna pay you. We're gonna focus on that type of churn. Often, it's like around [10:57] 40% of total churn and focus in not to think about it. So one thing you can do is term length. This is fairly obvious. Ask for an annual deal instead of a monthly deal. I think a lot of folks know that. What's maybe a little more non obvious is that you can do it after the customer's already signed up. So WHOOP is one of our customers, and what they do after month one and they look at [11:19] usage data to inform this is they'll send an offer to a user who's really happy, who's using a lot, and say, hey, by way, can get a big discount if you sign up for a year. [11:30] Cancellation flows. So when someone's going to cancel your product, they're like on a freight train to, I hate this, I don't wanna use it ever again, see you later, I'm mad for whatever reason. So you're probably not gonna save a ton of them, but there's some subtle things that you can do to save some of them. And a lot of that is just basic human psychology. So what we recommend folks do is add a little prompt [11:54] that says, hey, like, understand you're you're wanting to cancel. Why? Help me understand that better. Based on on the answer, serving up a little bit of nostalgia. Why did you like us? Think about the best thing of being a customer of ours. What was that thing? Doing something as simple as that, as prompting them to think about the positive, we've seen can reduce churn by 10% to 25%. Again, not a huge lift, simple thing you can [12:22] do taps into a little bit of psychology that can reduce churn. How many of you guys look at payment failure? [12:31] Okay. Everyone should raise their hand next time I ask this question. This is another sort of low hanging fruit thing that a lot of folks don't think about and it's typically the biggest bucket of involuntary churn. [12:44] So a lot of things you can do to fix this and again it's really not that hard. [12:51] The simplest thing you can do is use our product retain. Otherwise, just making sure you have some dunning flow in place to get ahead of credit card failures. So making sure you're understanding when a credit card's about to fail and prompting the customer ahead of that to change their payment information. And then having recovery after that, retries, SMS, email, prompting them to update their information to actually have that transaction go through. Again, that's often 50% or [13:24] more of involuntary churn, which is usually about 40% of total churn. So simple payment recovery can increase your recovery by 20%. Okay, we're basically done. Let's turn it over to Q and A. Anything you guys want to dive deeper on that we talked about? [13:49] I went very fast. [14:06] The credit card there's tools to help you do this, so I would just use a tool because it's gonna be the easiest thing to do, but it's based on when the credit card expiration date is. [14:27] I'd be a billionaire if I knew the answer to that question. We're looking at like twelve, eighteen, twenty four months. We have no idea. I think it's going to depend obviously like things are very fluid. [14:39] I think we in a recession or not? That's not up to me to define. I would argue based on our data, like, things are probably going to get worse before they get better, [14:50] unfortunately. And I don't have an answer as to when it's going to get better again. [15:36] And are you thinking about your content base? Are you thinking about localizing the content itself? [15:57] Rebuilding everything. [16:06] Yeah. That's going be a lot harder than some of the stuff I suggested obviously, and I don't have a great answer for that depth. It gets a little beyond what we've looked at. The buying experience is what we're normally thinking about, and that does matter. And we see like, we've seen rates vary as much as 10% up to 50% on a checkout. So, yeah, it's wild. And it's a pretty low hanging thing that you can that [16:36] you can go do. So, you know, if you if you do that in the inverse, you're probably losing out on, you know, 10% of revenue potentially. The payment failures we see is a big one. We look at this all the time with our customers, and we'll see folks missing out both on the initial attempted payment and then on subsequent attempted payments. Yeah. Upwards of, like, 10% of their revenue, 15% of their revenue. And when you add [16:58] all this stuff up, it can be super, super meaningful. That's all. Yeah. [17:07] Anything else? [17:10] Cool. Well, any this stuff is interesting, grab me. Happy to go deeper. Appreciate it. Get Trent Brockway.

hello everyone my guest today is christian owens he is the founder and ceo of paddle before paddle he created his first software business from his bedroom at the age of 14. having grown the business over a million bucks in revenue he decided to quit school at 16 to focus on building startups and founded paddle when he turned 18. christian are you ready to take us to the top i am all right tell us about paddle what's the company doing what's the revenue model um so essentially and kind of going to my background a little bit started my first software company sort of really early through that process noticed how um kind of difficult it was selling software b2c and b2b um all around the world and no one was really building the infrastructure around like payments taxes operations recurring billing customer management sort of optimization like all of these tools um specifically for software sas businesses um so i found that a reasonably interesting problem uh started focusing on that founder of the company in 2012 um and i've been kind of going from there revenue model is that we work with sas businesses so kind of recurring revenue um but we take a transaction fee on all of the sort of the kind of volume arl that flows through our platform okay so when you look over your past 12 months of revenue what percent was pure sas the flat rate sas fee versus your your transaction model so we didn't charge a flat weight rates offspring so we only charge a transaction model but all of our transactions are on underlying recurring subscription rates yeah so that's what i'm asking right is how much is the underlying is there a difference or is it all underlying recurring subscription so the underlying businesses of the volume that we're purchasing is all underlying like monthly annual subscriptions of which would take to the businesses yeah so what i'm asking you is so a lot of times people that follow this model we've had a lot of other companies in the space on they'll have a flat rate for a certain volume right so you're doing a million bucks or less than ar you're gonna pay 100 bucks a month plus if you go over a million bucks an ar you're gonna pay us two percent of all your volume over that amount d do you have that model or not no no so we charge a flat five percent across everything okay no matter what if you do a dollar a month or if you do 500 million a month you're charging five percent correct okay um that i assume that doesn't work at scale if someone's doing 100 million bucks in revenue they're not going to pay you 5 so they do so if you look at um if you look at the aggregate costs of doing all of the functions that we provide for example payment processing across like regardless of underlying payment method dealing with foreign exchange and currencies we take all of the liability for risk and fraud we pay their taxes for them um sort of like calculate and pay and remit sales taxes in 40 something different countries it's like if you actually look at a small scale if you're doing 100 grand a year sort of you don't really care how much it costs because it's probably cheaper than doing it yourself if you're doing 100 million bucks a year you can actually quantify the cost of like all of these different tools that you have to buy the amounts you're paying on kind of payment processor fees the teams that you're building internally the consultants that you have to pay to deal with sort of international sales tax whatever it might be is that more than five million yeah okay so you have customers at that level processing 100 million bucks or more through your platform paying five percent no so like right now and this is deliberate the law just probably does i think in the region of like 45 million area okay yeah that by the way that like strikes me as like i mean this would if i'm just starting a company you're like a saving grace i'm like i have zero interest in setting all this crap up myself i'd much rather pay you five percent but but what i'm saying is like at some scale like it may actually not by the way you might not have any interest in this customer segment right it seems like it's a harder decision to verify to say yes let's pay five percent so i think i think there's like two aspects to this like one we had the initial exact same assumption when we like started the business so we started the business we were building the product for people who look like us it was like a couple of people in a bedroom starting their business they don't really care how much it costs and we always had the assumption sort of like probably around when we had the series a we still had the assumption um that okay this is never gonna be applicable to anybody who does five million bucks 10 million bucks whatever the number is yep um and then eventually every single time that we set one of those upper ceilings for ourselves we found that willingness to pay was still there because the complexity and the amount of like resources these businesses are spending on solving the problem increases with their scale as well um there may there may be a ceiling we don't know what the ceiling is yet we have kind of inbound interest that we turn away from companies who are doing want just the dynamics the product is slightly different and we don't necessarily want to um kind of sort of go up market too quickly um and alienate existing customer base but sort of there is the demand there and it does exist so when you look over the past 12 months like total total kind of volume through your platform and are you in the billions yet or what's that number it's hundreds of millions hundreds of millions hundreds okay can we be a little more specific i mean is it like 400 million 500 million uh it's less than 500 million okay okay but but north of 100 yeah okay very good and and walk me through so 2012 was launch date did you pivot at all or was this always the concept from day one uh so very early concept was a version of this but it had a bit more of like a consumer aspect to it in terms of like a marketplace for also discovering sas products um we persisted with that for like a year or so before we kind of shut down the b2c discovery aspect of it and focused all on the like back end infrastructure and tooling and what's the teams i say what have you scaled to uh we're a hundred and forty people oh no oh great where's everyone based uh all in london at the minute oh great and bootstrapped or if you raise capital uh so we've raised 24 million oh christian i like i liked you so much until you tell me you went to the dark side you raised you raised capital huh yeah all right why raise capital why couldn't you stick it out in bootstrap so like we started the business we raised like angel money at least we raised like 150k to begin with uh and then in the first sort of four years of our existence like we'd raise we raised less than a million bucks um and then we and it's kind of with this realization that this actually does scale with company size uh like our ambitions got a bit bigger in terms of okay we got our first company that was doing a million bucks through the platform and paying us sort of like significant revenue does this scale then we got to the point where we realized it does and then we were like okay we actually think that there is an opportunity for somebody to build kind of this almost sort of like the second most important piece of infrastructure the software company buys which is sort of like the business infrastructure to aws's technical infrastructure um and that was sort of the motivation behind raising more money is sort of ambition kind of got a little bit bigger as we understood the market more and not not a horrible thing what have you scaled to in terms of total customers today uh so it's around about 900. 100. and walk me through like how you've gotten these folks obviously you have a great story because you essentially built the software for yourself um that story i'm sure sells but walk me through i mean how are you getting customers today what's the growth channel yeah so uh first four years of the business solely outbound sales and outbound sales in the loosest possible sense in terms of we basically just talk to people who we like their products from or what customers have already um and the problem really resonates and then they buy it um so we've like scaled that as a process for about 25 30 people in sales today um inbound marketing sort of like all of that stuff was pretty new for us maybe 16 18 months ago when we've hired our first vp marketing um started to scale that team it's about 10 people now it's probably 20 25 of new business inbound versus the rest outbound today so you said 20 inbound yeah yeah so how are you targeting when you you go outbound right i mean are you looking at like pitch book and owler and kind of ar ranges or how do you target accounts so it like happens on two dimensions so yeah there's the size dimension of kind of the real time that sas companies if they're sub a million sort of they experience this problem immediately if they actually go to market um then like we wait for a trigger so like the trigger might be that they raise money or they start to um hire the sales team for the first time or really begin to scale new market or kind of whatever it is so in terms of size we actually on the outbound side because the deals are bigger we look at companies doing one to 30 million arr and we talk to those businesses and usually there's sort of some pain point or anticipated pain point as they're scaling that they want to address that's not really working for them right now they're kind of throwing people at it um and sort of they're realizing that they're spending a bunch of engineering resource on this problem so there's the size bracket and then sort of like the second like thing that we look at is is kind of what's this like compelling event like are they in growing internationally for the first time have they sort of have they announced that we've got a bunch of big customers in like japan and then we visit the website from a japanese ip and it's not localized they don't support the payment method sort of uh they don't support the currency whatever it might be maybe there's a regulation change or of sort of like or a forced regulation change they open an office in a new country that changes how they think about like sales tax or something if they actually have a nexus or like they don't so like any of these compelling events and then we just we use a ton of data from um like crunchbase the stuff that you do um like all of these things to get kind of these signals um you're talking about you're talking about when you say what i do you're talking about the database that get lacka yeah um love that that's great yeah so like we use all of we like use all of these signals we build our own internal database um of these things we track a bunch of other stuff like what tools are they using because some of those things can be indicative of um like changes in the business or like maturity in the business so they just they just swapped out intercom for something else yeah you're using like siftery or built with or or you know one of these come yeah very good talk to me about so economics here is critical right so churn and i don't talk about logo churn here because i'm sure you have customers that like did one million last year now they're doing 500 grand it's not logo turn but that's revenue churn for you so what's your revenue turn look like annually and how do you keep that low so revenue china's actually so we see on average if we aggregate all of the customers we see about 25 to 35 growth um in underlying business each year um so the if we were to stop all sales marketing everything today with the 900 customers that we have um top line revenue um would grow roughly thirty percent sure split that out for me though so what you're telling me is net revenue retention is called 130 percent break that down though into gross and expansion so what's gross churn and then obviously you're expanding by more than 20 or 30 percent uh grocery is low like we look at it more on a low chain basis in terms of um sort of on the churn side because sort of like these businesses go in cycles so they might have um sort of an up here or down here but the general kind of trajectory is growth if we look at logo churn we have sort of 900 customers today um and like we've lost in terms of actual churn uh eight customers in seven years but by the way losing losing a losing eight customers that only do a million in ar is no big deal losing eight customers that do 15 million in ar is a much bigger deal that's why i'm trying to so why do you care about logo churn versus why not just only look at revenue churn since you're tied to revenue five percent so we look at both it's important for us to look at both and we look at the reasons behind the the logo chain the revenue chain piece um is less of a concern because sort of we actually consider revenue chan is going to happen in two instances or three one we screw up we do our job bad our product isn't great people don't like it they move away the second is that the businesses fail like they go out of business they decline sort of whatever but that's almost that is almost uh kind of sort of those customers are retained like not necessarily in customer success like those customers are sort of out of here it's out of your control yeah that revenue is retained in discovery of sales process so like we want to work with companies where sort of the biggest like facet of these companies um being successful we've seen is if their ambitions are aligned with ours so the company that is a million dollar arr company today who wants to be a 10 million dollar company like those are the customers that we want yeah but christian come on like who who's ever going to say anything except what you who's going to say i'm a million dollar company today and i have no interest in being a 10 million dollar company like the the well i think the distinction is like the lifestyle businesses the people who are happily running a lifestyle business and they're okay with making a million million bucks yeah like we don't we don't necessarily want those customers we want sort of um kind of people who have ambitions to grow a business and sort of they're doing that by by creating value in a product like they're building a product where people want they're not necessarily kind of doing some kind of arbitrage where they're buying they're spending 100 bucks on you see christian just be clear these are most your customers though are sas customers correct customers yeah okay yeah so i mean even a million dollar flat sas business if you're taking five percent that's 50 grand a year for you in terms of acv i mean even if they are flat and growing that's still good revenue for you no for sure for sure like in terms of the outbound sales if you think of like and you know this like if you think of all of the sas companies exist in the world yeah uh and we have 900 of them like so if we can afford especially in an outbound sales process we can afford to be reasonably picky about who we target of course otherwise we drown we drown in leads of course so yes there's going to be a pro there's going to be a point at some point hopefully like where where the solution that we've provided is so ubiquitous among these software companies that like yeah we're going to relax the sort of we're going to want the businesses who are going to do a million bucks a year and only going to do a million bucks yeah you'll have to you'll have to move downstream at some point yeah yeah i i don't mean to keep cutting you off but we're running out of time and i want to get in one or two other things here um i assume you're still burning cash today right because you've raised so much yeah okay okay so burning cat i mean do you have casual positivity in your crosshairs or no no you're not okay guys burning money investing in growth and then in terms of scale what can you give me a general sense in terms of ar what you guys are at today uh we're just north of uh like 10 million ten 10 okay good so that's healthy right so so 10 million uh that would mean you're processing about 200 million bucks over the past 12 months five percent of that is 10 million i'll leave you to do the math yeah sure well i just i just wanna make sure there's no other revenue models right it really is just that five percent plus 50 we don't charge professional services we don't do any of that stuff yeah yeah that's great um okay very good and then in terms of growth so if you're kind of pushing 10 million today where were you exactly a year ago uh we've roughly 3x revenue every year oh that's pretty good okay so we'll call it kind of 270 270 grand about a year ago now doing 830 840 grand a month uh that's healthy growth and most that growth is coming from expansion or new logos totally uh so the so we have so the 30 like expansion um has remained true pretty much at least for the last three years so the majority of the growth is coming from your revenue that's great congratulations very good um any plans to raise additional capital um sort of i think we're pretty well capitalized right now um in the last like 12 months we raised like 20 million bucks of the 24 that we've raced um so we're pretty well capitalized um we're reasonably opportunistic about fundraising it's sort of like when there's a business case we don't like doing it for the sake of doing it um maybe sometime next year and payback period real quick i forgot i skipped this so like when you're getting out and going like going after a million dollar ar com company what are you willing to spend to get that customer we target internally payback of about five months okay that's actually very healthy for a funded company i know most people are pushing 12 months so that's nice uh very good all right let's wrap up here with the famous five number one what's your favorite business book uh hard thing about hot things number two is there a ceo you're following or studying right now uh jeff bezos number three how many hours or what's your favorite online tool besides your own um zoom number four how many hours i sleep to get every night five christian unhealthy man how do you do that i know i know it's crazy i'll work on it what's your situation married single kids uh single okay no kids no okay and how old are you 24. yeah see there we go there there everyone listening who's older than 24 is going ah that's the reason all right and last question what do you wish you knew four years ago when you were 20 focus guys focus is key launched paddle back many years ago and he was doing trying many different things and marketplace everything now really just all in on doing all these things critical for a sas company serving 900 customers that have processed over 200 million bucks in terms of transactions through him over the past 12 months taking about five percent of that so he's pushing about a 10 million dollar run rate today uh they've about three xd over a year they're burning cash that's okay the economics look healthy net revenue retention 125 percent targeting a five-month payback period on new accounts 140 people in london again raised about 20 million bucks to fuel growth christian thanks for taking us to the top thank you very much