The Tale of How HubSpot Changed Its Pricing Metrics 3 Times.
And That's Okay!

(Part 2)

Start here

It was a time to drink champagne.. every day.

However, a new problem soon arose.

HubSpot's clients were indeed growing their contact databases. The pricing metric "pay per contact in the database" worked great - product revenue grew 30-50% annually.

BUT!

Over time, it became clear that the activity level with these contacts varied across companies.

For instance, some had many repeat purchases per contact, so they actively wrote, called, and worked with each lead.

Others had a sales cycle of 9-12 months. Managers communicated with each lead at most once or twice a quarter.

Some used aggressive cold sales policies, stuffing the database with almost anyone who remotely resembled a potential client, then tried to nurture them. If unsuccessful, the lead just hung in HubSpot until better times.

In some places, sales managers constantly changed, and part of the contacts were simply forgotten.


All this led to..

A company with a database of 50,000 contacts paid HubSpot the same as a company actively using 5,000 contacts.


So, many companies started paying "for air" again - leads that were essentially dead weight.

This created more and more friction.

HubSpot's key metrics began to decline:

— NRR dropped from 105% to 100%
— ARPU fell from $11,668 to $8,491


The contact-based model started limiting revenue. The pricing metric needed adjustment.

Second turn: contacts are not all the same

One could argue that the "excess contacts" problem is the clients' problem. Like, let them monitor the relevance of their databases themselves. And if some leads are "dead," then the responsible managers should just delete them.

But HubSpot took a different path..

The service team understood that leads are assets for their clients. Today a contact in the database might be "not relevant," but tomorrow something changes, and the client makes a purchase. Plus, the fewer contacts, the lower the companies' attachment to HubSpot, and the higher the risk of switching services.

So in October 2020, a new pricing metric was introduced: pay per "active contact."

HubSpot simply divided all contacts (leads) into two categories:

1) Those that companies actively work with
2) Those stored for future use

Companies now paid only for active contacts in their databases. Stored contacts were free (up to 1 million contacts).


This change significantly reduced pricing disagreements. Metrics began to grow again.

NRR reached 115% within a year (all-time high). And for the next 2 years, it stayed at 104-110%.

ARPU reached $10,582 by the end of 2023, and total revenue broke the $2 billion mark for the first time.


HubSpot demonstrated the ability to scale while maintaining a stable revenue retention level.

Combined with favorable external factors (pandemic, active shift to online) and functional product improvements, this allowed HubSpot to achieve a market capitalization of $30 billion.

But it left a key structural product problem unresolved..

(final part of the story in the next post..)

#pricing_metrics