Product Funnels - Part 3 - Monetization

You might think you have nothing to do with monetization, but many aspects of the funnel can impact your company's revenue.

Welcome to the third and possibly final part of this series, where we're focusing on some principles we, as product managers, should understand about the various stages and functions of the product funnel.

Today, we're diving into monetization. Depending on where you work in your company, you might think you have nothing to do with monetization, but, as we'll explore in this post, that's likely not the case.

What is monetization, and who manages it?

At the risk of stating the obvious, monetization is how you make money. When and how you make that money will depend on your company, whether from software subscriptions, partnerships, ads, products, or some form of fee. It isn't always clear who manages monetization, and it's likely more than one team. Here are a few teams that tend to be involved:

Marketing Teams: Tasked with monetizing an existing line of products through email campaigns, ads, traditional marketing, and social media. They aren’t closing the sale, but they’re putting the price on their materials, and as an early touch point with customers they can have a profound impact on monetization.

Individual Product or Ancillary Teams: If you have many products, each likely has its own team responsible for creating, developing, and monetizing that product.

Sales or Commercial Teams: Especially in B2B products, these teams may be your primary monetization source. This only works when you have a high-ticket item for sale, affording them time to spend nurturing leads and closing sales.

Monetization or Growth Teams: Larger companies or products could have specialized roles around revenue generation, especially for free-to-play video games and other freemium software.

Customer Success: When dealing with large and often complicated software and sales processes in B2B, the customer success team can be pivotal in closing the sale with a new customer.

Finance & Analysts: In some companies, the finance team in collaboration with analysts are responsible for developing pricing models and revenue projections. There are some brilliant people out there who can come up with a formula for anything!

Why measure monetization metrics?

You might think you have nothing to do with monetization, but many aspects of the funnel can impact your company's revenue. It's possible to lower conversion and make more money. It's also possible to improve conversion and make less. If you’re not measuring revenue metrics and how you contribute to them, you could be causing some unintentional results.

We build relationships with our customers and users through marketing, social media, landing pages, and even the text on our forms. They come to expect certain things; we make promises, we delight, and at the end of the day, either we have good alignment and deliver on what they expect, or we mislead them (intentionally or not)—leading to customers changing their minds, buying less, or never returning.

What's the goal?

It might seem obvious: to make more money, of course! However, not all revenue is created equally. You could raise your prices by 50% and see an increase in revenue today while sacrificing conversion tomorrow. That's fine, but what happens in 6 to 12 months as your reputation in the market changes? This sentiment can take a long time to swing back the other way; slashing prices is not enough.

Maybe you've heard what's happening with McDonalds today. They've raised their prices considerably over the past few years. At first, it went well, but now customers are growing weary of their high prices, and the economy has shifted. So now you see them finding ways to lower their prices. Money, at all costs, is not a viable strategy.

Your role as a product manager on any team

It's important to consider how your work could impact monetization efforts. Even the legal team can affect monetization through policy changes, following and enforcing international laws, and avoiding anti-competitive behaviour.

A Technical Product Manager or someone focused on platform or internal tools can also impact revenue. Many revenue opportunities will need unlocking through new functionality that marketing, sales, and other product teams can use to customize pricing, improve targeting, and engage users.

Things to watch out for

Scalability and sustainability: Short-term thinking without a long-term strategy can lead to many challenges with monetization. You might increase prices every quarter to discover one day that everyone has stopped using your product.

New monetization opportunities: Look for new opportunities within your existing product—things like paid upgrades, additional paid support, cost-lowering activities, and conversion improvements.

Legal considerations: As your company expands and starts selling products in different regions or grows to a specific size, local laws will impact how you can advertise your products and even how you can show your pricing. You must be aware of and follow these local laws or risk heavy fines and lengthy court battles.

Customer acquisition costs (CAC): The more money you make per customer, the more you can spend getting those customers, but the inverse is also true. If it's costing you a lot to attract customers, you need to find ways to make more revenue.

Retention: If you do a good job retaining your existing customers, this can take the pressure off monetization. Poor retention is a leaky bucket; if you don't figure this out eventually, you'll burn through the market.

Diversification: I'm sure we can all agree that having all your revenue from one source is not a great idea. This might happen early in a product or company's lifetime, but it's essential to diversify and find additional revenue streams.

Customer Value: If potential customers don't see the benefits of your product, it will be very challenging to get them to pay. What value can you create in exchange for their financial investment?

Unique Selling Proposition: How are you different from the competition, and what is the primary goal of your software for your users?

So what's next?

You can't solve these challenges just once and move on—acquisition, conversion, and monetization are ongoing initiatives that require constant input, monitoring, and improvement. Take your eye off any of these, and the entire ecosystem could start collapsing.

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Product Funnels Series

Part 1 - Acquisition

This step of the funnel can impact every other step, and even if the acquisition teams are tracking this, it's worth taking at least a cursory look from time to time.

Part 2 - Conversion

How conversion could indicate customer satisfaction, product performance, or pricing and value perception, helping guide you to product market fit.

Part 3 - Monetization 👈

You might think you have nothing to do with monetization, but many aspects of the funnel can impact your company's revenue.