Welcome back to my weekly newsletter. This is going to be a series of articles covering how we came up with the idea of Calm Sleep, scaled to over a million users in less than a year, and all that with less than $1,000 worth of total investment. 🌱
I’m Akshay Pruthi, an entrepreneur who loves to build products from the ground up. Over the past 6 years, I’ve built multiple products from scratch and scaled them to millions of users. This is my attempt to share our most important lessons from building one of those apps - Calm Sleep. 🤗
Every week I will publish an article about a different challenge we faced while building Calm Sleep.
📢 Announcement!
I’ve decided to pursue Calm Sleep full time! :)
I’m going to fast forward all my past learnings and talk about them in this article. Going ahead, I want to make this journey live rather than reflective :)
15th June’21 - We have reached $40,000 revenue!
Why did I decide to jump into this full-time?
For 3 years, I’ve been building multiple products, some scaling to over 30M installs. But I couldn’t get my head around pursuing these full-time. Because I realized - I love impact.
We spend almost 1/3rd of our life sleeping. A good or bad sleep impacts our lives in ways we can’t imagine. And surprisingly, 30% of the world’s population suffers from bad sleep!
After speaking to sleep specialists, doctors, and users, I realized the huge impact of simple tools and services that could help people sleep better.
In my last year at Calm Sleep, I’ve received a lot of great feedback from users around how the app has helped them sleep better. Our users have shown us so much love, and this is just the beginning of our journey! Over the next 5 years, I’m confident that we will help over 100M people sleep peacefully at night 💪
And we can't do this all by ourselves, so we’re expanding! If you’re interested in being a part of our journey, please check out our open roles here and apply 😊
Now let’s get back to how we got to $40,000 in a month.
In my last article, I mentioned experimenting with a price range of $3.99, $4.99, $5.99. We decided to experiment with a higher price to figure out the optimal price point at which our growth doesn’t halt, but people also find it comfortable to pay. In a nutshell, we wanted the answer to the question - what’s the real value of this product?
For 50% of our old users and new users, we started showing these price ranges under the PWYW (Pay what you want) section.
We saw that $3.99 was quite a hit! This had the best conversion rates ~ 1.8% compared to $1.99( ~1.02%), and the growth rate was equal to as of $1.99 pricing.
So we wondered, should we maybe test for $7, $8, and $9 🤑 This is when we knew we had to go back to the drawing board and educate ourselves better on how this works. What should be our pricing strategy?
Firstly, why do you need a pricing strategy? 🤔
Pricing is often considered a crucial piece in the growth strategy puzzle for most SaaS companies out there. If you don’t have a pricing strategy or a great packaging strategy, you might be losing customers more than you are acquiring them. But if done right, it can be an opportunity to grow your revenue with higher and accurate prices.
Does pricing have to be constant or continuously optimised?
When you don't optimise your price, you're throwing off the math that drives your company's underlying economics.
In order to make a profitable growing business, your LTV/CAC should be > 1.
What is LTV?
Lifetime Value per customer
How do you calculate LTV?
LTV = Average revenue per user(ARPU)/Churn rate
What is CAC?
Customer Acquisition Cost
How do you calculate CAC?
CAC = Total costs of Sales & Marketing / Number of customers acquired
A good LTV/CAC is 3:1. But if you continue to optimise your pricing strategy, you can increase this number to 12:1
Let’s try and understand, what comprises a pricing strategy
There are 3 Ps of pricing strategy that you need to take into account
Positioning - How do you align your product to attract the right set of customers?
Packaging - What features come with different pricing tiers?
Pricing - What is the price that users are comfortable paying?
How did we use this in Calm Sleep?🤓
Using the PWYW model, we discovered that people are ready to pay for our service. But the PWYW model wasn’t working for us. It was clear to us that to make this a viable business, our current pricing strategy won’t work.
So, we decided to make our app paid, with access to some free content too.
So now, we had a new pricing strategy!
Positioning
Before - We positioned payments only to users who wished to support us.
Now - The new positioning is centered around payments for anyone that wishes to enjoy full access to content
Packaging
Before - There was no difference in features for paid users and non-paid users.
Now - We introduced 3 segments to accommodate the needs of different sets of customers.
People who want to try the app- Can access Sleep Sounds by paying for a month
People who understand the value of the app- Can purchase the yearly plan and enjoy access to all sleep sounds, sleep stories, and guided sleep meditations.
People who understand the value and want to snag a cheap discount deal - Can purchase a lifetime access plan and enjoy access to all sleep sounds, sleep stories, and guided sleep meditations.
Pricing
Before - PYWY model with options of $0.99, $1.99, $2.99, $3.99, $4.99, $5.99 under different experiment buckets
Now - Subscription model with
Monthly plan for $3.99/mo
Yearly plan for $24.99/yr
Lifetime plan for $34.99
Before we launched this, we did another exercise to validate that we’ve hit the right solution! We decided to experiment with the famous Rahul Vohra’s KPI to PMF.
So we asked our users -
How would you feel if you could no longer use the Calm Sleep App?
The results were… well see for yourself!
61% of people mentioned they would indeed be very disappointed if they could no longer use the Calm Sleep app!! 🎉🥳 We loved that!
We went ahead to launch our new pricing strategy on Android as most of our users use Android phones. We made 70% of our content paid and 30% free. Users will now see a locked button on content tiles and will have to purchase a subscription if they wish to unlock it.
We waited, and when the update was rolled out to all the users, here’s what happened!
Our ratings dropped from 4.7 to 3.9 in 4 days.
Our uninstalls increased from 20% to 35%.
Our organic installs went down from 3000 a day to 500 a day.
I couldn’t sleep that night, not even with the Calm Sleep app on! 🥺
But the good part was, people were paying! We could see our paid subscribers increasing day by day. At peak, we were doing $2000/day.
I was worried though that our organic growth took a big hit. So our focus from here shifted a bit from optimizing pricing strategy to getting our ratings and downloads up. We didn’t change our pricing because that seemed to be working for us.
So what did we do to make our ratings go up back to 4.7?
We simply asked! ❤️
We asked our paid users to support us in getting our rankings back!
We got over 350 clicks and I could see over 100 ratings on the app supporting us with good reviews.
Slowly, we started getting our rankings up, now back to 4.7 (Woot woot!)
But, we are still yet to crack organic growth. Any ideas? Write to me :)
Our revenue numbers though kept surprising us 😯
Observations from data
Stories gave us maximum conversion rates, followed by meditations and sleep sounds
LTD (Lifetime Deal) was rocking! 🤘 Among the three pricing options we had, we saw 47.6% conversion in LTD as compared to 19.2% and 28.8% in Yearly and Monthly plans respectively.
We saw that 45% of paid users converted on Day 0 😯
We observed that when users were shown the payment screen at the time of onboarding, the total payment conversion was around 3.5% (~1.5% from the onboarding payment screen and ~2% from the locked screen). When users were not shown the payment screen while onboarding, total conversion was around 2%
Due to the introduction of the payment screen at the time of onboarding, we saw a 20% drop from app launch to landing on the home page, while the drop wasn’t there when the payment screen wasn’t.
So we decided to remove the payment screen from our onboarding and come up with something better. We looked at how the number of sessions per user has an impact on the payment conversion.
Observations
2.3% conversion in the first app session
While 4.4% conversions in the 4th session of the app.
This simply means, that if you buy time from users and help them experience the value of the app by themselves, they’re more like to convert to long-term paying customers.
We came up with a great idea that increased our conversion by 2%. Let’s discuss this in our next article! :)
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