S01E05 - Monetization with music!

Rutvi Dresswala
Jun 7, 2021
3 min read

I am a major music fanatic. I spend hours listening to music on Spotify. And even though streaming music is absolutely free, I spend quite a bit on music app subscriptions every year, any guesses why?

You see, Spotify Premium's USP is not streaming music, it is streaming uninterrupted music. By targeting the right users who see the value in their product, they have monetized and dominated a very competitive market.

In this episode of The Startup Life, we are going to touch upon the hard questions you need to ask when you start to monetize your product.

Before we begin, a huge shoutout to Team GrowthX for conducting an excellent monetization class during the 4th session of the GrowthX Bootcamp.

Now let's make some money!

Are you ready for monetization?

Do you think anyone would buy Spotify Premium if they could not stream music in the free version? I don't think so.

The point is, before putting a price tag on your product, understand whether your customers like your product and are willing to pay it.

Readiness for monetization can be determined by assessing:

Retention → How many of your customers stay back? Engagement → How often do customers use your product and with what intensity? Willingness to pay → Do they like your product enough to pay for it and if yes, how much?

Who to charge?

In Spotify's case, for the free version the revenue comes from ads, otherwise, it comes from user subscriptions and promotions.

It is important to know which of your customers are willing to pay. You have to segment your users and do your due diligence before you begin to charge otherwise you run the risk of high churn.

More times than not, you will see that the highly engaged users would be the ones ready with their wallets when you decide to monetize.

When to charge?

Would anyone pay for Spotify if they didn't have a free version? I know I wouldn't; I was sold on the product after I used it for a couple of weeks.

Your customer needs to understand your value before they can invest in it. The minute they hit that aha moment, their willingness to put money in your product increases, and that's when you should monetize.

This moment can be during your demo, on your pricing page, in your free version, during your trial period, or whenever they do the core action on your product.

What to charge?

Spotify never tried to sell music albums or streaming subscriptions because I could get both of them for free. Instead, they popped ads every 30 mins in the free version and then sold me a yearly subscription to uninterrupted music. Smart, huh?

You need to align your USP with the goals of your users and then charge them for it. You can monetize by:

Time → Get 1-month access for $10/month Output → Delivery cost on every order is $3 Shareability → First 10 users at $100 and then every additional user at $8/user. Access → Get unlimited access to my product at $200

Your monetization type can also be a hybrid of the above.

How much to charge?

Do you think users would pay an exorbitant amount for the Spotify subscription? I am guessing the answer is no unless they have money to burn.

You see the perceived value of your product has to be more than if not equal to the cost incurred by your user.

For example, I pay for Spotify Premium because the joy I get by not hearing ads every 15 mins is far greater than the cost of a subscription.

How to show pricing?

As much as I disliked it, Spotify showed their pricing by incessantly interrupting my music sessions with ads. And it seems to have worked out for them.

There will be a unique way to represent the pricing for every product, but you can always use human biases to influence a decision. There are 169 biases in the human brain, leverage them to drive the user's decision to buy your product.

Think about how customer feedbacks, discounts, annual vs monthly subscriptions, etc influence your purchasing decision.

Make it rain money!

If you can answer all these questions for your product, then you are set. All that's left is to implement your monetization strategy and make some money!