Pricing for Lifetime Value of a Customer with Paul Orlando

Paul Orlando is the Founder of Startups Unplugged and is the author of the book “Growth Units”, a book that makes unit economics straightforward. He builds incubator/accelerator programs around the world, getting companies to solve problems that they couldn’t in other ways, which allows the building of autonomy and skills that keeps employee retention high and maintains the company’s top talent. Paul is an adjunct professor and runs the incubator at USC.

In this episode, Paul talks about calculating lifetime value as he shares why it is important to think about pricing in relation to the LTV.

Why you have to check out today’s podcast:

• Understand the relationship lifetime value has with pricing and why it’s better to learn early and often than to fail fast
• Find out why overpricing and underpricing are present in various companies
• Discover why your lifetime value isn’t and will never be limited to one number

“People are really afraid of raising prices. I think it was Marc Andreessen who said, 'a lot of problems go away if you can raise your prices.'”

– Paul Orlando

Topics Covered:

01:22 – How Paul got into the work of running incubators

03:16 – Building incubators and accelerators inside a company and changing the way people work to achieve a certain goal

06:05 – Why ‘learn early, learn often’ is a lot better than ‘fail fast’

08:32 – Writing a book about calculating lifetime value and its components; why thinking about pricing is important

17:15 – Pricing and lifetime value; discussion about over- and underpricing

21:00 – Thinking about lifetime value in relation to subscription and non-subscription businesses

26:03 – Your lifetime value is and will never be limited to one number; why you should model the sequence of flows

29:56 – Why Paul prefers using payback time as a metric as opposed to LTV/CAC

31:23 – Paul’s pricing advice for this episode’s listeners

Key Takeaways:

“I actually don't want people to fail fast. I don't want them to fail slow, either. But I'd rather that they succeed fast, or second-best – succeed slow. So, I'd like to say, learn early learn often rather than fail fast. Learn early - encounter the customer upfront rather than downstream, and learn often - keep that process going like you really probably have not figured everything out just yet. You need to keep iterating. There's so much that you could test before you have committed serious resources.” – Paul Orlando

“If price is some metric of value or some measure of value, you want to be able to charge something. You don't necessarily want a business that has to push prices as low as possible.” – Paul Orlando

“Lifetime value is not something that you can really get a full picture of until you've been out for a while.” – Paul Orlando

“These ratios or numbers that you hear about can be misleading unless you actually start digging in a bit.” – Paul Orlando

“If you can start to either shorten that time, taking pre-orders, or if there's something that you can do with your own supply chain, tough today, but if there's something that you could do there, you could improve your odds of being able to use customer revenue to grow.” – Paul Orlando

People / Resources Mentioned:

• Growth Units: Learn to Calculate Customer Acquisition Cost, Lifetime Value, and Why Businesses Behave the Way They Do: https://www.amazon.com/dp/B08GJVV8RJ/
• Win Keep Grow: How to Price and Package to Accelerate Your Subscription Business: https://www.amazon.com/Win-Keep-Grow-Accelerate-Subscription/dp/1631954784
• MoviePass: https://www.moviepass.com/
• Uber: https://www.uber.com/
• Dollar Shave Club: https://www.dollarshaveclub.com/
• Amazon Web Services: https://aws.amazon.com
• Coke: https://us.coca-cola.com/

Connect with Paul Orlando:

• LinkedIn: https://www.linkedin.com/in/porlando/
• Email: [email protected]
• Twitter: https://twitter.com/porlando

Connect with Mark Stiving:   

• LinkedIn: https://www.linkedin.com/in/stiving/
• Email: [email protected]