Where HubSpot can improve (things you should avoid)
Although HubSpot gets most things right, and who are we to argue with a company growing so quickly, there’s some definite things to improve upon (or at least some things to consider):
1. Suffering the curse of the mid-market: Not enough entry points on the demand curve
This isn’t necessarily a bad thing, but HubSpot is selling to one of the hardest sectors to serve – the mid-market. This sector is so difficult, because there’s such a balance between affordability and feature set that HubSpot’s dev and product teams need to constantly keep in mind. In other companies, building a product with hundreds of features and selling it for a lot of money or building a bare bones product and focusing on acquisition is typically much easier.
To illustrate this a bit more, HubSpot’s basement bottom price is $200/month, but you’ll probably have more than 100 contacts, so the real price is $300/month (and more realistically a small business owner will have between 2-4k contacts, so it would be a bit more). Not even considering the fact that HubSpot forces you to pay all upfront for a year and spend at least $500 on training (making the get started cost around $4k), you have a recipe for a premium, overpriced product in a persona that looks at this very much as an operational expense, not a capital expense.
How we’d make changes: HubSpot needs more entry level or “gateway” products to warm leads to spending money with the orange sprocket. This “unbundling” can be killer to a mid-market business and they’re already on the right track with Sidekick, a $10/u/month sales intelligence product. Unfortunately though it’s out of their immediate core customer persona (sales person/team vs. a marketer). Granted, for these smaller customers, the individual making the marketing budget decisions is probably the same making the sales budget decisions. Yet, other standalone products would be a fascinating play, especially since they pretty much own a lot of the thought leadership in the space.
2. Suffering the curse of the mid-market: Not enough monetization on the high end
On the high end, HubSpot isn’t as feature intensive as it could be and this loses them sales and causes churn for folks that “graduate” from HubSpot. This problem is compounded by the fact that they’re relatively inexpensive for someone who has 500,000+ contacts with a price of around $7,500 and up. That’s a lot of money, yes, but not much for someone who theoretically is making at least more than $1/lead.
It’s not that HubSpot has to serve these individuals at the low or the high end – hell HubSpot is where they are on the back of the “mid-market” - but as they continue to battle a high customer acquisition cost, ensuring they can fill out their revenue numbers at the high end and their volume cost effectively at the low end is imperative to longer terms success.
How we’d change things: On the high end, we need to monetize these folks a hell of a lot more through better metric throttling and more additions. Want more security? Want better analytics? Pay more. New Relic, Optimizely, and Salesforce are brilliant at these moves. HubSpot can be too. Most importantly though, HubSpot’s value to value metric ratio is way off.
As mentioned above, someone with let’s say 500,000 contacts (which is definitely a lot, but probably not even close to the database size of the big dogs out there) is paying $7,500/month. That equates to a cost of about $0.18/lead/year. On the low end a $300/month customer with 3,000 contacts is paying $1.20/lead/year. A very superficial look at things, but as we discussed that 3,000 contact customer is more of a price curmudgeon, whereas the 500,000 contact customer is less price conscious, because there’s a requirement for the product, a budget, and more domain knowledge.
Think about it this way: the difference between $3600 and $4000 is a lot to a pool cleaning business in Ohio, but the difference between $92,000 and $110,000 for an established tech firm in Boston with budget isn’t as much.
HubSpot should raise prices on the big dogs through better throttling and just a higher price in general. The sales process is highly likely to stay very similar and the upside is a dramatic boost in MRR and topline revenue. Of course, features will need to follow, but HubSpot likely already has the features, they just need to put them in front of these prospects.
3. Too many value metrics and throttles on the low end
On the low end, we’ve already discussed issues with quick throttle changes from 100 to 1,000 contacts and every 1,000 contacts after. HubSpot compounds this problem by putting even more throttles on lower end customers with limits on max number of users, email sending, site visits, subdomains, etc. Too many value metric throttles are an issue, especially with a price curmudgeon customer, because there are too many potential friction points for a pricing conversation with someone who already may have had trouble converting.
It’s not to say friction points are bad – you want to spur upgrades when you can, but having 5 different value metrics plus feature differentiation is a lot to swallow, even if only one affects a prospect. Typically we see this setup as a reaction to abuse or certain personas that don’t fit the persona mold perfectly. The problem is that reacting to a bunch of different edge cases, however big, makes a convoluted pricing dynamic that when looked at from a high level has issues, especially when the price point jumps from $300/m to $800/m if you cross one of these thresholds.
How we’d change things: There’s more to analyze here, but for the sake of getting to the point, we’d cut the per user throttle entirely (it’s not effective for getting daily and weekly active users) and more than likely get rid or raise some of the other throttles. Also, we’d probably just include something like 500+ contacts from the get go. HubSpot’s probably has the 100 contact entry point for completely green accounts, but it’s worth giving up some short term gain to reduce the nickel and diming of a price sensitive customer in an effort to ensure a higher LTV.
4. Money being left on the table on the high end with HubSpot Sites
On the high end, perhaps the largest problem is the throttle they’ve placed on sites (an add-on that gives you a slick Content Management System to host your website). The Sites Basic limit of 3,000 visits per month seems super reasonable, but giving Unlimited visits for only $200/month is a steal. We want to limit the nickel and diming feeling, but you don’t want to give away the farm.
How we’d change things: HubSpot should run a percentile analysis on the site traffic of those using the CMS. With this data if they want to limit add-on pricing/nickel and diming, we’d put in three tiers – one basic that accounts for maybe 40-50% of accounts, one that accounts for the next 30-40%, and then one that accounts for the last 10-20% (those more than likely willing to pay much more, because the stakes are higher).
This allows them to monetize the top part of their heavy users a hell of a lot more. Of course, these may be a bit different than their big dog contact customers (who probably have a custom CMS or a hardcore enterprise solution), but this is all the more reason to not give away unlimited anything. If they were to do something a bit more sophisticated, then there would be tiers probably every 20-25% of users.