Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about SaaS marketing from square one. Topics include where to start marketing, what types of channels to use, and what your timeline will look like.
Items mentioned in this episode:
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about SaaS marketing from square one. This is Startups For The Rest Of Us episode 381. Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: I had never realized that we say Startups For The Rest Of Us three times in the introduction.
Mike: Yeah. I stumble over it a little bit sometimes. I think you did it well.
Rob: It’s a long title. Yeah, I know. We should think about changing that.
But aside from that, things are actually going really well this week. As you know, I mentioned on the show before, Sherry and I have put together a book called the Entrepreneur’s Guide to Keeping Your Shit Together. Sherry was very much the first authored and the driving force behind this and I can contributed topics, stories, anecdotes, I did some of the writing, but for the most part it was Sherry writing. But super stoked to have it out, men.
It launched on Wednesday of last week and so far, sales have been good. We’re going with an all Amazon approach, which is interesting. It’s something I haven’t don’t before. It’s a trip because you don’t get your customer email addresses but the one click buy makes it so much easier for people to buy versus coming to your website and entering credit card and phone into a Stripe form or whatever.
So far two thumbs up. I think Sherry’s learning a ton. I’ve obviously been offering advice and helping draft emails and put the wrong link in the launch email, that was me in my own software. I said it though Drip and I told Sherry, “If it’s a bug in Drip, or it’s my copy paste error, I’m still screwed! I can’t even blame it on anybody. It’s my fault.” It wasn’t a bug in Drip. I just made a copy paste error and left the ‘h’ off the http for the book link. I had to resend the correction which I pretty much never done, ever in my launch career. I always triple check stuff and I was in too much of a hurry.
Mike: That’s funny. I was actually going to accuse you of writing only one line in the entire book and it was the little anecdote where it says Rob’s thoughts and then there is, “Uhm, no.” and then “and Rob.”
Rob: Yeah. Exactly. I wrote that. I also wrote a bunch of the stories in there. It was a fun project. You know what’s fun about it for me, was being able to contribute, I did more than just consult on it but the redrafts and the edit and help shape things. It was not the full burden. I was not the founder on this one, I was more like the board member, adviser or something. That’s kind of cool.
It’s also fun to see someone launch a product like this at this scale for the first time. Because you feel vulnerable, you’re excited but you’re not sure what to do, and you’re just stumbling along. I can just see all the stuff shaping up as she’s going through the process.
Mike: Yeah. I’m sure it’s nerve wracking for her too. When you first put something out there, especially with a book. I think with software there’s that layer of obstruction like, oh yeah, you created this but you’re in the background and the software is the thing that people are seeing. I think with the book, you’re putting your expertise out there as well and that can be a little nerve wracking, especially because you’re not sure how it’s going to be received, did you hit on the right pain points that people have, are they really the things that people are feeling. Not that you’re not confident, it’s just that there’s a difference between a small subset of people that you’ve actively worked with versus a much larger set, especially when you don’t know who those people are.
Rob: Totally. It’s always just vulnerable. I think vulnerable is the right word, when you throw something out and thousands of people in essence are going to wind up buying this book here and hopefully most of them read it. You just have to be prepared for thoughts and comments and that’ll be both positive as well as critiques. It’s just a lot to put yourself out there, whether it is with software or a book.
Mike: Yeah. I’m very glad that I got both the paperback version and the Kindle version because I had to fight my wife off for the book because she saw it and she took it.
Rob: Oh, that’s funny. Cool. Glad to hear it.
Mike: Yup. Anyway, we went through that over the weekends. It’s a good read, I liked it.
Rob: I was going to ask what you thought of it.
Mike: It touches on a lot of topics that have not been well talked about but they’re starting to and I think that Sherry’s probably a very big contributing factor to that just based on her talks at MicroConf and how well they’ve been received, but I think it’s a topic of discussion that people are a little bit more comfortable discussing now than they were 5 years or 10 years ago. It’s nice to have it now but I almost wish it was out there 10 years ago.
Rob: Yeah, I know. Absolutely, I wish I had this book when I started. If you don’t know what this book is about, it’s about how to run your business without letting it run you. It’s how not to spin out of control and be super stressed out and how to know yourself more, how not to burn your relationships, how to stay human, how to stay connected to people. She calls it like Founder Mental Health but I always think of that as like, I don’t know, if I’m not depressed, or I don’t have an anxiety, I don’t need it. But it’s not that. It’s just how to fight through and really stay sane and maintain solid relationship to not piss off your wife, and your kids, and neglect your family, and gain a bunch of weight, and go crazy. I was so freaking stressed running Drip and selling Drip, I wish that I had a resource like this.
If that sounds like you, or you think you might be encountering that anytime soon, you can search on Amazon, there’s a Kindle and a paperback version, Entrepreneur’s Guide To Keeping your Shit Together, and we’ll link it up in the show notes for sure. Sherry recorded an audio version and has submitted it to Audible but it is not approved yet. I’ll probably talk about that once it’s approved as well.
Mike: Very cool. I’m in the middle of working on my FemtoConf Talk and it’ll probably be something of a preview of my MicroConf Talk to be honest. It’s nice to be getting that much of a jumpstart on it. I don’t think that usually I start on my talks until probably a month or so before the conference. It’s like two and a half, three months out at this point. It’ll be nice to get that done in advance and then give a preview of it and see what resonates and what doesn’t and be able to go through it a few times in addition before a live audience as opposed to just getting up there and giving it in front of a live audience for the first time at MicroConf.
Rob: Yeah. I could see that. It’s really nice to be able to give a talk twice. I always give a talk better, almost always given better the second time.
Mike: And the other thing is paper spiders. If you enjoy pranks of any kind, go into the bathroom, and on the other side of the toilet paper roll, draw a giant black spider and then put it back so they can’t see it.
Rob: Really. Even though it’s just drawn?
Mike: Because you can’t see it until you flip the roll over.
Rob: Nice. Where did you hear about this?
Mike: I saw it online but I practiced that yesterday and my son was not pleased.
Rob: Yeah. That’s funny. Cool. What are we talking about today?
Mike: Today we’re going to be talking about SaaS marketing from square one. This actually comes to us as a sort of a listener question. I put out on Twitter a couple of weeks ago asking if there were any topics specifically that people wanted to hear about. One of them is from Phillip who’s asked, “How to start a product from scratch? After my MVP is ready, because growth hacks are everywhere but nobody talks about starting marketing from a blank page. No social media, no newsletter recipients, no SEO, nothing, zero traffic.” I thought we would go through this and talk though some ideas around where you would even start with that.
At the very base level, you’ve got an MVP, we talked about this extensively. If you haven’t done marketing before, you get to this point where you got a product to put out there, then you’ve done things wrong but I also feel like we just get a number of questions that are around this where people have already made that mistake and it’s too late to change it, so now what do I do?
We’re going to talk thorough where you start, different types of channels you can use, and strategies to put the product out there and try to make it into a success even if you haven’t started doing any of the marketing beforehand.
Rob: Sounds good. I know this is a common question. It’s something that overtime, if you listen back to previous episodes, and if you look in both of our books, Start Small, Stay Small, The Single Founder Handbook, or even blog posts. This is just such a common topic that we’ve covered but it’s worth revisiting every so often and trying to see if there is either new information or just to revisit for all of our edification and a reminder for all of us.
Mike: The first question to ask is where do you even start? I think that in a situation like this, you need to work a little bit backwards. The first thing to look at is knowing what’s your timeline and your runway look like. By this, I mean really what date is it that you need to be making x dollars and MRR, whether it’s $5000 a month or $10,000 a month. How much money is it that you’re spending on a monthly basis, how much do you need to leave your job, how much money do you need to recover in order to pay back a particular loan or something like that. What are the hard deadlines that you have set that you need to be conscious of? Then based on those things, what are their current pricing plans that you have, how many customers would you need in order to be able to meet whatever that MRR goal is?
Establishing this timeline really does two things for you. The first one is that it provides you with a required trajectory. How many customers do you need to add on a daily, weekly, or monthly basis in order to get there? And the second thing this does is it helps you to eliminate certain types of marketing channels, because if you have a really short timeline, some longer term marketing channels are simply not going to work for you so you can completely throw the out the window and focus on other things that are shorter. And they may not be repeatable or suitable but they will help get you to where you need to be.
Rob: I like the idea of this one. I think that as you get more experience, let’s say it’s your second or third app, or second or third success, I think you can get really good at determining these timelines, build timelines, actually building the product and then ramping up marketing and taking a half ass guess at it.
I remember that doc I put together for HitTail, it was like the marketing game plan. It wound up being somewhat accurate but I wasn’t as experienced as I was when we launched Drip in 2013. That doc, I put together this whole analysis of how many uniques I thought I could drive to the site each month, how many would convert to trial, how many would convert to paid, what the growth would look like. I mapped it out and it wound up being shockingly accurate. The only thing that killed us was we didn’t have a product market fit yet and so I underestimated churn.
When you don’t have product market fit, your churn can be 20%, 25%, so you lose a lot more people. If churn had been closer to what I thought, the growth would have been very, very much in line with what I was guessing at.
The one issue I have with this, with the thing that I think could be hard, if this is literally your first time, you don’t know any of the rules of thumb. You don’t know, hey if I asked for credit card up front, I’m going to get between 0.5% and 2% of visitors convert to trial depending on how appealing my site is, what the price point is, and all that. You don’t know if you’re asking for credit card upfront, you should convert between 40% and 60% of trials to paid users and then your churn should be pretty thing in the first two months and then drop.
It’s just all that stuff you can either learn from experience or you can listen to podcasts like this, when we had Ruben Gomez on the show, probably, 50-100 episodes ago, he and I threw out a bunch of rules of thumb exactly around this and it’s towards the end of that episode. If you want to go back and listen to it, I also put it in my MicroConf Talk last year or the year before. I just had one slide, the rules of thumb things I use to do it.
I like the idea of asking where do you need to get to because this is something investors would ask you if you took them. If you’re not taking investment, it is nice to think about where you’re going and not just go out and wander. I feel like if you don’t know where you’re going, how do you know how to get there?
Mike: That introduces the idea of having a fudge factor. The timeline that you can put together based on your pricing plans and how many customers you need and the timeline, that’s a best case scenario. You’re going to have to go over that. Let’s say that you need 200 customers in order to get to 10,000 a month, how many do you realistically need to shoot for? Is it 200? Probably not, because you’re going to have people who sign up and then decide that they are not going to become customers or they go through a trial and then they say, “This isn’t for me.” Or they just never even set up the software, or set up their account and do anything with it. There’s lots of people who fall into that category.
You have to overshoot by some margin but at the same time you need a starting point of some kind. This simple calculation of your timeline runway and number of customers is going to at least help put you in the right ballpark. That’s really what you’re looking for. How do I get in the right ballpark? How do I get started on the right path versus I’m not going to do anything because I don’t even know where to start.
The next step is once you got that information in mind, the next thing to do is to break out your plan of attack into the different types of marketing channels that you’re going to go after. These aren’t specifically marketing channels you probably find in a book that it would say that okay, these are all encompassing.
These are two that I thought would apply specifically to this type of situation. The first pair of marketing channel is sustainable versus unsustainable. It’s really just a broad categorization of the different types of marketing approaches you might try. And then the second one is inbound versus outbound efforts. There’s lots of different ways to categorize or classify different marketing efforts but let’s just focus on these two pair.
Sustainable versus unsustainable, the way I really put these into perspective or talk about these is that with sustainable, it requires some sort of systematic repetition over time. It’s usually harder to get going but they tend to have a longer life to them.
Some examples of this will be things like SEO, content marketing, blogging, email newsletters, video channels on YouTube, paid acquisition, etc. And then with unsustainable marketing channels, these tend to be one time or burstable activities. If it’s one time, typically you can do it once and then that’s it. An example of something like that would be listing your website on product time. You could do that once but the chances of you being able to do that more than once for the same application are probably pretty slim. You can come out with new features or subsets of things you could add on there but they tend to be things that you’re not going to do for a while.
And then there’s burstable activities like doing a podcast story. You’re probably not going to go on the same podcast over and over again but you could go to multiple podcasts and do it like a podcast story. You could answer a bunch of questions on Quora, you could do joint seminars with other people, you could do integration marketing. Again, that’s an example of something that you would be able to do one time but you’re not going to integrate with Calendly more than once for example.
Those are the types of sustainable versus unsustainable activities that I would look at and I will classify your marketing activities as one of the two. That leads us down the road in the inbound versus outbound.
Rob: Yeah. Some of the sustainable channels you mentioned, most of them require ongoing work but they’re like a flywheel, they’re this big heavy wheel that just getting going is going to take you months and months. It’s going to start yielding rewards maybe three, six, nine months down the line. But the longer you push it, the faster it’s going to go.
SEO is that where boy, you’re going to see nothing for maybe six months. Obviously, there’s ways to hack around that and stuff, I’m just setting some expectations. It’s like don’t expect a bunch of results right away. But if you start seeing results, then you just build on those and build on those and then they last for a long time.
As you said, the unsustainable are those one time activities that I do actually think so you have questions on Quora in the unsuitable. I’ve seen some folks take an approach where those get upvoted and they wind up being popular and they get a lot of SEO traffic overtime. It depends on how you do it. I think there are still some question I’ve answered on Quora that continued to get votes two, three years later. When you look at it, they’ve had thousands and thousands of views.
I think you need a mix of both but as I said, I think it was last episode, an answer to Craig Hewitt’s question. The one time things or the things I would do early on because they get you the big boost, they’re one time and they’re quick. Doing that joint webinar, if that gets you 10, 20 paying customers, you might not see 20 paying customers from SEO for six months or more. Right now, what you need is revenue. You need customers, you need people paying you. Once you have the people paying you, then you can use that money then to par lay up and reinvest it back into more joint webinars or you can invest in SEO content marketing, etc.
Mike: When I mentioned answering questions on Quora, it wasn’t so much that your traffic was sustainable, it was like you can’t answer the same questions on Quora more than once or it’s a burstable thing where you might answer 10 or 15 or 20 different questions and then you wouldn’t continue looking for more questions because there aren’t more questions to answer. You basically have to wait a while. That’s really what I meant by classifying it as unsustainable. Not that ongoing benefit from it is not sustained, but the activity that you do around it is just that one time or you do it a couple of times and that’s it. Does that makes sense?
Rob: Oh yeah, totally.
Mike: Again, I think as Rob pointed out, some of these things will cross over from one side to the other. It’s not very much black and white. Some things will cross over from one type to the next. That leads us over into inbound versus outbound. The way I separate or classify things as inbound or outbound is inbound is functions on the basis of attracting people versus outbound activities and marketing channels, they function on the basis of actively and proactively going out and contacting people.
Inbound would be things like the SEO content marketing where you’re publishing things and you’re trying to attract people to your platform or you blog or email newsletter, things like that, versus outbound which is you’re actively doing cold calling, sending out cold emails, doing outbound email prospecting on LinkedIn or doing paid advertisements. Paid ads is kind of a mixed bag as well because that flips a couple of different categories of these channels. That’s the main differences between inbound versus outbound.
When you’re early on and if your timeline is short, you want to focus mostly on the outbound efforts. The reason for that is because you need a lot more control over the activity. You want to be able to tie the activity that you’re doing to the number of people coming in because waiting for customers to come to you is not going to be enough. You could wait for months or years, you may not still get the number of customers that you need versus doing those outbound activities where you can essentially drive the conversation and you can go actively get in front of those people as opposed to waiting for them to come to you.
Rob: I agree. I think that outbound has become more and more prominent in SaaS. I think it’s become more prominent as the enterprise players or enterprise software has come in. If you think back 10 years, they were very, very few enterprise SaaS or even mid-market SaaS companies that were targeting mid-market and enterprise companies. In those fields, there’s a lot outbound. There’s a lot of outbound cold calling, is what it’s traditionally been.
I think when SaaS was mostly focused on the Fortune 5 Million as 37signals says, it’s so much more about creating content. It’s the Joel Spolsky approach, it’s the Basecamp approach, and those were the models that I think we saw and those are the models that certainly resonated with me coming over as a developer. I didn’t want to do the cold calls, and the cold emails, and the outbound stuff.
I see a lot of value in both, to be honest. Probably not cold calls myself these days but I think even if you’re bootstrapped, I think getting over the mental stigma of not doing outbound, I think is something that you’re going to want to at least wrestle with internally and not just focus on the SEO, and the split testing, and the content marketing. Those are the things that I was blogging about 2007, 2008, and they do still work but they’re not nearly as easy because there’s so much more competition.
If you want to get somewhere faster than I do think you’re going to a mix of inbound and outbound. Again, going back to HitTail, I did no outbound except for JV emails that I would do with folks, but with Drip, we absolutely did outbound cold emails and we did a lot of paid advertising both for HItTail and Drip.
Mike: Once you’ve established a revenue base or gotten to your initial goals, you can switch over a little bit. Or if your timeline is long enough because you’ve got a lot of runway to work with or you love your full time job and you don’t want to quit but you like doing something on the side, then it’s easier to wait for those longer term strategies to pan out. Basically, it gives you more options when you’ve got a longer runway or you’ve got a longer timeline.
At that point, things like concept marketing make a lot more sense because you can decouple the customer acquisition rate from the activities that you’re doing. You can do link building, you can create content, create videos for YouTube, all those different things because you have the time to spare. But if you are in a position where you want to find out quickly whether or not this is going to go anywhere, you need to push on those things and you need to do those outbound efforts in order to verify quickly versus waiting because you could wait for a very long time to find out, and you almost never know for sure. But obviously, if somebody posts a link on Reddit or something like that and you get 10,000 customers, yeah, that’s a pretty good stamp of approval. But the chances of that happening are so minute that it’s not realistic to even think about depending on those things.
I think with the things that we’ve talked about so far, the next question that comes to mind is, okay, all of this sounds great but where do I actually start? We’ve talked around the issue and I think to address it head on, the first place that I would start is looking at your personal network and seeing if there’s anyone in that personal network who can help you.
The prime example that I think I would point people to in most cases is go to your LinkedIn profile and see who you’re connected to, who you’ve worked with in the past, or go to your Twitter profile and see who you follow or who follows you and find those people, contact them, and say, “This is what I’m doing, this is what I’m working on. Is there a use for this either in your business or do you know somebody it could be useful for?”
There’s ways to go about it without seeming overly salesy. You can definitely just say, “Hey, I’m working on this. Can you take a look at it and give me some advice.” Or, “I’d like a little bit of help. What do you think that I should do?” Those are great places to start the conversations because it’s asking somebody for help versus, “Hey, can I sell this to you?”
That’s a much better starting point for conversation especially if you don’t have a good working relationship with that person or you haven’t met them in person before because then it opens the door for them to put themselves in a position of “expert” where they’re giving you advice. People love to give advice on whatever your new product is.
No matter what you built, people will always want to give you advice on it. It doesn’t mean that it’s good or bad or that it’s going to be exactly what you should be doing, but it’s at least a starting point for conversation. From there, you can branch out, find out who they know, see if there’s channels that they can promote it through, or if they’re just interested.
Some types of products are going to resonate very, very well with certain people and they may say, “Hey, I can’t personally use this but I have an audience that I cater to and they would love to take a look at this. Can we take a look at it and do a deep dive, or get on a call and talk about a little bit more, or maybe go through a demo?” That gives them a little bit more materials to work with than you just sending them a cold email saying, “Hey, I would like you to take a look at this and I think it might help your business.” Those conversations and discussions are going to get you a lot farther if you have some sort context with the person, try to help them to understand what it is that you’re doing.
Rob: That’s a good point. I think that if I was starting out today, some of the approaches that I would focus on early on, I would definitely be looking at paid acquisition. I’d be looking depending on your product, it’s going to be Facebook, or Instagram, or LinkedIn, or Twitter probably. AdWords is probably not going to work because it’s just too expensive these days. It depends on how much you want to get in to run the ads.
I know some people just are averse to it and I had someone doing some marketing for me at one point. I was mentoring and teaching him and he said, “Is there anything I can do aside from running ads?” He just really didn’t want to learn that. It’s an interesting opinion and perspective.
Some people want to do it more the viral approach or with content. You have to figure out what you’re going to enjoy. If you have budget to hire somebody, that’s great because folks who know how to run ads are going to be way, way, way better at it than you. But if you have to suck it up and you don’t have any money to hire someone, then obviously, that’s going to be an option.
The thing that I like about paid acquisition, man, is even in the early days, if it’s not profitable at least you’re getting people in there to try it out and you get some kind of feedback.
Another thing I would consider right off the bat of course is an email newsletter. Email has just been a critical part for everything I have ever done including MicroConf, and my blog, and selling books, and selling software, getting people to use SaaS. It’s just such an asset to have.
I don’t know these days that I would start a blog if I were going to try to market a new SaaS app. If I was going to do content marketing, I would probably take a different approach to it. I would at least debate whether the resources that I would need and the on-going publication, the on–going article cost would not be better spent doing more bigger content efforts. We did this with Drip, we started getting success, we had an ebook, and then I did an audio version of that ebook. It was about email marketing automation I think I was getting started with.
I think maybe we did a video course and we submit those to Producton, and we put it on Gumroad, and we sold a bunch of copies but we gave it away for the first few days and it got a bunch of traction through those. They were more one time bursts but they did help longer term with SEO because we had so many backlinks from these things. It’s an interesting thing to think about instead of publishing content constantly.
Is it an option to do less frequent content but just try to make a bigger splash? This is part of the thing that you see, let’s say Neil Patel or some of the other big blogger, content marketers moving in that direction writing. Even if they aren’t doing ebooks or package products that they’re giving away, they are doing this longer form stuff. It’s less content or fewer posts but they’re a lot longer form.
Of course then that leads you to SEO. If you know how to do SEO and you’re good at it, by all means do it. If you’re trying to learn it from scratch today, it’s going to take a while, I’m not saying don’t do it but it is much harder than it used to be and it’s going to be a big road up there, but if you can get SEO content marketing, email newsletter, and paid acquisition, if you get two of those working, you’re going to have a pretty nice growth engine.
In the early days of Drip, I just have alerts on Quora and when stuff would come up in the email marketing category or startup category, I try to jump in and answer those. I’m a big fan of podcasts tours. I have done them for years and if you can pull one off, I think there’s a lot of value there, for not a lot of time investment.
And then of course, join webinars if you do have the network. It all depends on what your unique asset it. If you’re really good at SEO, then go after that, if you’re good at paid acquisition then go after that, and if you have a good network then you can work that to get people to email you.
If you have none of these, one day, back in the day, all of us had none of those. You have to pick one, you have to start from scratch, you have to hustle.
That’s the thing is it’s never going to be as hard as this first app. When you’re starting it with no revenue, no customer base, no network, no audience, that’s when it’s going to be the hardest. That’s when you have to push the hardest. It’s only going to get easier from then on.
Mike: Something else I mentioned that goes along with what you said was that in those early days, when you’re trying to get the product out the door and get it in the hands of people, there’s almost no substitute for getting directly in front of somebody and talking to them about your products and what it is that you’re trying to achieve and how it solves the problem that you went after.
There’s a lot of credibility and trust that goes into signing up for a SaaS app these days. You can overcome a lot of objections just by having a conversation with somebody. Whether it’s a phone call, or a webinar, or one on one demo through a Zoom account or Skype or something like that, you can overcome a lot of trust issues just by having that one on one conversation with somebody and answering their questions. Your website doesn’t need to look fantastic, you don’t have to have a great onboarding experience.
You can hand walk somebody through your onboarding and talk them through every single question they have and the information you’re going to get from them about what concerns they have or just the questions that they ask are going to be very valuable to you and being able to come up with answers that will not only answer them but also answer everyone after them who’s going to have the same types of questions. If they ask, “How do I use this piece over here?” You know that that’s probably going to come up for other customers. Or if they say, “What does this button on the bottom right here do?” If it’s got a weird icon, they may say something to you. If they do, you can use that to make the product better and hopefully reduce the number of questions which ultimately reduces the friction which helps people move through the sales pipeline a little bit better.
Yes, it’s tedious. It takes a long time to get through that but the insights that you’re going to get from that are massive. It just helps you move things along. It is slow, it’s a slow process but it does work over the long term. You just have to walk through every single step of it.
Rob: That wraps us up for the day. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 380 | Allocating Your Marketing Budget, Minimum SaaS Documentation and More Listener Questions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include marketing budget allocation, documentation for SaaS, and digital marketing.
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Rob: In this episode of Startups For The Rest Of Us, Mike and I discuss allocating your marketing budget, minimum SaaS documentation, and we answer more listener questions. This is Startups For The Rest Of Us episode 380.
Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What is the word this week, sir?
Mike: Well, if I had a way to put an emoji in here, I’d put a sad face in because my new website is not live yet. I was expecting it to be done.
Rob: Yeah. It’s been a couple of weeks since we recorded last.
Mike: I handed the things off to a designer and he was working on it and then some stuff came up and he wasn’t able to finish it on the previously proposed schedule. Completely understandable stuff, completely out of his control, but I’m a little disappointed when things get pushed off a little bit. Still plugging forward and hoping that things will be pushed out and live within the next week or so anyway.
Rob: Got it. Next podcast episode I will give you a bunch of crap if it’s not live.
Mike: Yeah, sure. You can evaluate the design and I can tell you to go to hell.
Rob: “Hey, Mike. I would tweak these three things. Boy, that’s really an odd color,” and you’re like, “Dude, stop. It’s all done. I’m going with this.”
Mike: I like fluorescent orange.
Rob: Yeah, that’s funny.
Mike: I’m just kind of in a holding pattern right now waiting for that to get all squared away so that I can kind of launch some other marketing campaigns and see how things go.
Rob: That’s cool. It’ll be nice to get that. I’m excited to see it because we talked about it a couple of episodes ago. Your current site doesn’t do the product justice. I’m interested to see what it looks like. For me, I was in San Francisco last week at SaaStr. I will admit it, I liked it better this year than last year.
I’ve only been to two SaaStrs and my general appraisal is they’re way too damn big, way too big. They say that they’re 10,000 people there and it feels like more than that. I really think they should a, sell fewer tickets, and b, there’s this big emphasis on bring your whole team, so half of the people you talk to it’s like, “I run marketing for this startup. I am in support.”
Nothing against that but I don’t get a lot of value out of that. I wanna be with other founders or I wanna be, if it’s a marketing conference, I wanna be with people in marketing. But it’s this really broad swath of people. I find the lack of focus and the size to be detrimental to the conference. I think it would be better but I think the point there is different with MicroConf where it’s highly focused content, and we try to get the people together.
A lot of people were just there to network and business meetings. It wasn’t even hallway track conversation it was like, one guy I saw in the lobby, I’m trying to think. I think he recognized me or he recognized the Drip name of or the other. He said, “Yeah, a long time Drip user. I just lined up seven meeting a day. Here, I don’t go to any of this sessions.” There are people who came and did just that which I’m sure is fruitful but it’s an interesting way to view the conference. We had, I participated in about four or five meetings over the course of the three days myself.
Mike: I use to go do the Symantec and Altiris conferences out in Vegas and it was the same type of thing. There were people who would go solely so that they had easy access to people to line up meetings one after another. That was the only reason that they went. They didn’t go to any of the sessions or anything. They just go there to talk to people.
Rob: Yes. With that in mind, again, I went to somewhere between three and five meetings so I did miss a few sessions but with that in mind, my learning this year were that the panels, panels in general, not just at SaaStr, I’ve never seen a panel that’s any good. They’re always gonna be watered down and even if the topic is super intriguing, they’re just not well done.
That’s one of the reasons we don’t do panels at MicroConf. I think we’ve done one panel out of the 14 or 15 MicroConfs we’ve run. We set it up very specifically and we gave everybody a heads up and asked them to be super tactical but I just started avoiding the panels early on in the conference, the SaaStr conference. I was only going to the solo where it was one person, because I knew that they would have slides, and they would have thought through a premise, and be making a point, and having an opinion.
That’s what I really enjoyed about it where I saw several talks that were good. They were like, I’ll say, MicroConf quality with a high bar with a lot of – from experienced people like a former product leader at box.net, as an example. You know that she has a lot of experience and knows what she’s talking about.
Mike: Yeah, I’m with you. I’ve never really seen panels work out very well to the point that they’re interesting and you get any reasonable takeaways from them. I wonder if that has a lot to do with, I don’t think it’s just the format, but I also think that it’s a matter of trying to give everybody either equal opportunity to talk or I think another contributing factor is the issue of having questions that aren’t necessarily, I’ll say, as well prepared as a talk.
Because if somebody’s up on stage, they’ve given their talk generally a fair amount of thought behind it, have a story arc or something like that. There’s background, they can do lead ins to different pieces of the story but with a panel, you can’t do that at all. It’s very difficult to establish rapport and create some sort of an arc that people can follow.
Rob: It’s a good point. We’re touching on some things that could be fixed. I was talking to Jason Cohen, he was there, he did a talk and then he and I were hanging out, talking. We were having this exact conversation and he suggested, “You know what? If you instead made it a debate, it would be way more interesting.” It’s a panel but it’s essentially a debate and then I said, “Wow, but then don’t do three-person panels, just have two.”
Can you imagine Jason Cohen, Hiten Shah up on stage? “Alright, I want one of you to take the side of bootstrapping, one to take the side of raising funding, and then we’re gonna go through six topics.” We’re gonna say, “Alright, how does this impact hiring? Go.” And the two of them debate. Then, “How does this impact how fast you can grow? Go.” Just run through these topics. That, I was suddenly intrigued by.
Mike: Yeah, that is something interesting. As soon as you started mentioning that and saying that you’re gonna have two people like Hiten Shah and Jason Cohen up on stage and kind of debating something, I was like, “What happens when they agree on something?” Well, yeah, you have one of them take opposing sides, that makes more sense.
Rob: You have to set it up in advance to either that even if they don’t fully believe it, they just do it. Folks who are on the debating team or have done debate, you just have to do that. You sometimes have to debate something, you have to be on the side that you don’t agree with or you pick issues that you do know that they’re on the opposite sides of. You and I could debate things like…
Mike: Who’s gonna win an arm wrestling match?
Rob: Who’s gonna win an arm wrestling match, inbound and outbound email, because you’re outbound and I’m inb–anyway. Coming up with things off the cuff is not my strong – this is why I prepare talks.
Alright, we’re gonna answer some listener questions this week. First question is a voicemail. It’s about allocating your marketing budget. This question comes to us from our very own Craig Hewitt, the founder of PodcastMotor, and Seriously Simple Podcasting.
Mike: And Castos now.
Rob: And Castos now. “Hey, Rob and Mike. This is Craig Hewitt from the Rogue Startups podcast. I had a question for you guys today about how you would think about allocating marketing. Say you have $1000 month you wanna spend on marketing for a SaaS tool, how would you think about allocating that money for different things like content, or SEO, or paid acquisition, and let’s say that it’s a relatively young SaaS product that is, say, below a few thousand dollars a month at MRR. Interested to hear your thoughts on how you would approach this problem and if you have any specific answers that you think would be kind of best practices. As always, love the show, thanks for everything you guys do.”
Mike: I think this is an interesting question because the parameters of the problem here is that you have $1000 for the month and what marketing activities do you prioritize for your business or how do you go about evaluating them. I think, in some ways, the question is almost misphrased because not everything is going to have a dollar cost associated with it, especially if you’re bootstrapping and you’re early on, and you are able to do things yourself.
For example, if you’re doing SEO, there is not really a dollar cost associated with that. It’s actually more of your time than anything else versus if you’re doing paid advertising where clearly, there is a budget that you have to set aside, and you have to be able to do that or if you’re paying people to write articles, but at the same time, you can also write those articles yourself. It’s a question of resource allocation, not necessarily just dollars. There’s the time of yourself for doing it, and then there’s the money associated with those things, and then there’s the output of that. How much are you going to be able to reach people? How broad is your reach going to be after you spend the money and the time?
I think that that’s probably the most important thing to focus on is what is your reach going to be based on the resources you have spend. If you spend half your time for the month and you’re able to get 10x the reach, then if you were to spend $1000 or even $2000, then you’re going over your budget at that point, but you’re not gonna be able to get to as many people. I would look at it in terms of reach and then refine that over time because you’re probably not gonna get it right in the first month, you’re probably not even gonna get it right by the third or fourth month. You’ll be able to narrow it down and you’ll be able to start eliminating different options.
But I would probably focus on most three different things in any given month, and then at the end of every month evaluate them against one another to see how far of a reach did you get, and was it qualified. Did you reach the right people? Because if you’re not reaching the right people, and you’re not getting to a scale that you need, then it means that that channel or whatever it was that you were trying is basically worthless. It doesn’t do anything for you.
If you get in front of them and you are doing it at a rate that is, I’ll say reasonable, it’s gonna depend a lot on what your channel is because 1% in one channel could be, you should expect 50% in another. But as long as it’s reasonable, then I would essentially double down on that, and refine it, and optimize it.
But if you can’t get anywhere close to what is reasonable based on what objectively other people are telling you that they’re seeing in their industries, then I would switch to a different tactic and see if that one works out because it’s gonna be different for every type of business, every type of product.
Rob: Yeah, the way I would think about this is it’s actually an approach that I used to do. Well, I did it for HitTail and did it for Drip, and I saw Noah Kagan doing something similar but better. It’s basically take a Google spreadsheet or an Excel spreadsheet and write out all your marketing approaches, and then try to guesstimate how many trials you think or visitors you think you can drive from it.
You put the cost, estimated level of effort for hours whether that’s for you or someone on your team is doing it, and then you just try to sort them, you come up with a simple algorithm, just sort probably by impact unless there’s something that’s substantially more and more effort. You just want pure volume of trials, or new customers, or revenue, however you wanna measure that.
Early in the SaaS apps career, assuming you have product market fit where people are using it, paying for it, return is low, all you’re trying to do is find marketing approaches that work. You’re very likely, for small SaaS app, you’re gonna find one, maybe two. You’d love to have 10 but it’s gonna be one or two that’s gonna have the most impact over time. I like to think of them, there is short term, there is long term.
The short term ones are doing a joint venture mailing where you email your list – I’m gonna say podcast because we know that Craig runs Castos which is a podcast hosting and let’s just assume that that’s what he’s looking at. You’d find either a podcast blog or someone who does a podcast about podcasting, ask them to mention it, and you would also mention their podcast too to your audience or something like that. That’s a little bit of a quirky way to do it but you get the idea.
Maybe there’s another podcasting SaaS that helps with recording like ZenCastr or something and you do a JV with them where they email your people and you email yours. Then there’s just straight up affiliate stuff. That’s where you can approach people and just say, “Look, I’ll pay you 30% perpetual or 20% perpetual topline revenue from anybody you refer. Here’s your link.” See how many people will do that. There’d be podcast advertising.
The reason I keep coming back to podcast is because your audience’s podcast hosts are most likely to listen to other podcasts, and so you can just start buying spots on those podcasts that are talking to other content creators. There’s paid ads which these days I’m gonna say is Facebook. AdWords is gonna be very unlikely, it’s just gonna be too expensive for you to get to work although you could try it, outbound email. These are all the short term things.
When I say short term, they can work for a long time, but they can give you a short term boost. They’ll instantly, if you do a JV mailing, boom, you’ll get much customers that day, hopefully, you do. Then you have to do another one every month in order to make it work. Then there’s these longer kind of flywheel things, stuff like SEO, content marketing even, I’ll say, guest post is kind of in the middle there. Guest posts can get you a one-time shot but they also build up SEO overtime.
You may wanna do both but honestly, if I were in your shoes, and I were just getting started, I would go for a bunch of the short wins because when you’re doing, I don’t know Craig’s revenue, but I’m gonna try when Hittail was doing $1500 or $2000 a month, all I wanted to do was get it to $5000 or $10,000 a month. I didn’t care if it was unsustainable, or the marketing approaches completely didn’t scale at all.
As soon as I got to $5000 or $10,000, I had so many more options. I can hire better people, I can hire more people, I had huge budget than the market. I wasn’t constrained to the $1000. I didn’t have very high expenses so I had $5000 or $8000 a month to market this thing. Now things really open up for you. Then you can start doing multiple. “Alright, I’m gonna get a blog going with landing pages and blah, blah, blah.”
I have to admit, if I was marketing a podcast hosting service, I love the idea of – you know where all your customers are. They’re all in the iTunes store. It’s like the best deal ever, to be marketing to that audience. It’s not a huge audience but you know where they all are. You know that the business podcast and any kind of for profit podcast that takes advertising is making money.
There’s a lot of hobbyist podcasts talking about whatever, dungeons and dragons, movies, or whatever, that’s more like a B2C sale. You’re gonna want to stick to the more popular ones and you’re gonna want to stick to certain categories that common sense is gonna tell you, “These people have money and they’re gonna be willing to pay for it.” That would probably, to me, be the very first thing I do is either have VA scrape or write a scraper because you know all the iTunes pages are all on the web, in the browser.
Hopefully Craig hasn’t already come up with this. It’s like some secret sauce thing but I’m totally giving it away but I’m just coming off the top of my head and thinking how I would begin to approach it. Maybe I would test some paid advertising but probably not before I did outbound email, joint venture mailings, trying to get some affiliates to work with me, and even joint venture webinars are interesting, I don’t know if that one’s gonna work in this space but to basically latch onto someone else’s audiences and be like, “Hey, let’s either do a webinar to each other’s audiences,” or you say, “Hey, can I do it to your audience Mr. Podcaster? You fill the seats and I’ll give you cut of whatever the people buy.”
I realized that’s a long answer but that’s how I would think about it and with $1000 a month, I would, like I said, I would test things until something works because that’s something working buys you the luxury of being able to do multiple things at once. While I was testing, I would really stick to one thing at a time, and I would hustle, and I’d learn everything about it that I know. I’d read up on it and immerse myself in it for one to two weeks of just consuming content about it, and buying the Udemy course, and watching the MicroConf talk, and talking to XYZ expert about it, calling them up on clarity, paying them their $3 a minute that they need. Once I’ve figured I have my head around it, I would just dive in deep.
This is what I did with HitTail back in 2012, I think it was. I just picked the topic that I thought would work and dove into it. I spent one to two months just hammering on it. If it didn’t work, I moved on to the next one. The ones that did, they made that up. They made it so that I was able to grow it as substantially as I did.
Great question, Craig. I appreciate you sending that in.
Our next question is another voicemail. It’s about what documentation you might need for a SaaS. “Hi, Mike and Rob. Thanks so much for your podcast. It’s been so useful over the years I’ve been listening to it.
My question today is around documentation. What do both of you think you need, a standard, to run a SaaS online business? I’m looking for things like a test document to do routine tests on new releases, for example, checking everything is still working, documentation on service, processes, service definitions, the list could be endless. But I’d really like to hear from you in terms of what you think you need structurally, in terms of documentation set to operate, to run your businesses. Also, what was required, do you think, for selling businesses well or would be seen to be required by someone looking to invest or purchase your business? Thanks for this again.”
Mike: I think there’s actually two questions here. One is what is the documentation you need internally to run the business and then the second one is what do you need to have in place in order to sell the business. I think that there’s two answers to that. It can be on completely opposite extremes.
In order to run the business, at the very least, again this may depend on how complicated your business is, but there are businesses that are run with everything in the founder’s head and that’s really all they need because it’s small enough and it makes enough money. There’s not a lot of things that they need to do on a day-to-day basis that are gonna be things that they’re going to forget how to do. Then as your business gets more complicated and as you add more people into the business, that’s where you need to start documenting things and having things, processes written down so that whoever you bring in to help you out, they can follow those, and you don’t have to micromanage them because that’s really why you’re bringing somebody into the business is so that they can do things without you having to do them yourself.
Some of it is for scalability purposes of the business, some of it is just you don’t have enough hours in a day, but all of those things need to be documented so that you don’t have to still be involved in those things that you’re hiring somebody else to do. When you get to the point where you’re selling the business, that’s probably where there’s gonna be a lot more documentation that’s going to be needed so when somebody comes in to take over the business, they are going to be able to pick up the business and run without you having to be involved.
Again, this is a little bit more advanced. If you’re gonna be there for the next year or two, it’s probably not as big a deal. If somebody is acquiring your business and you’re required to be with them for the next 18 months, or 24 months, or 36 months, whatever happens to be, that’s probably less important but it still probably needs to be done at some point along the way because they don’t want to run into a situation where, let’s say, you stepped out on the street, you got hit by a bus and killed, they bought this asset that they don’t know how to leverage and you continue to make money from, that’s a very valid concern for the acquirer.
But if it’s something small and it’s very simple to run and operate, you’re probably gonna need less documentation. There is that slide and scale and it really depends a lot on your business complexity, revenue, number of employees, and overall risk tolerance, I’ll say.
Rob: Yeah. When I think of internal documentation, which is what we’re talking about here, I think of two types; I think of processes, non-technical processes, “This is how you do a marketing campaign.” Or, “This is how you check support. This is how you respond to these,” kind of a Wiki type thing. Then I think of kind of the technical docs of if stuff goes down, this is how you repair it, this is what the architectural schema is like in the end points and stuff.
Again, that’s all internal. If you have an API that’s external, you obviously need to document that but let’s just keep internal docs in mind. For internal processes, I never created documents until I was ready to hand it off to a person. If I was doing it myself, I did not spend the time. That has always worked. It’s just like in time documentation. Often, the way I would document it is I would bring the person on it and say, “Alright, here’s your job, it’s to check sporty mails and respond to these. Please look through the history and see I’ve responded, and I’m gonna throw together a Google doc, or I would throw together a Screencast.” And then I’d say, “Can you turn that into a Wiki? So that if we bring a second person on, then you can train them using the materials.” I have put the burden on the person doing it. I delegate that to them to create the processes.
This is just the way I do it. This is way more time-efficient for me. I don’t enjoy creating the processes. If you do, then by all means, you can do it. It’s gonna be better than the person creating it themselves. But for me, I’m trying to get stuff done in the business and I don’t wanna spend a bunch of time writing a bunch of stuff up for technical documentation.
If you’re a single developer and you’re working on it, I would veer very much on the side of less documentation purely because a lot of us came from these enterprise backgrounds, I was coding in Java, and .net, and doing these big consultant projects, and we had to document everything, you don’t wanna do that for your startup. It’s a waste of time. Until you’re bringing more people on and trying to get them ramped up, and even then, even these days where it’s as complicated as Drip is, we basically have a GitHub Wiki where we have articles written by internal developers on different subsystems, and then we do have these things called Runbooks. I’m not sure if you’ve heard this term but it’s a developer term, kind of a DevOps term to describe how to run a system.
If you get a page that something is down, if you got a text that something’s down, you go to the Runbook for that subsystem and it’s supposed to tell you how to troubleshoot and how to do things. Those are valuable. We did not have those until we were at probably 8-10 engineers. It didn’t feel like we did it too late, it didn’t at all. I’m glad we have them now but it wasn’t like we were running around for years with our hair on fire because we didn’t have this documentation.
With that said, Derrick was more stressed out than I would’ve liked and that he would’ve liked because we didn’t delegate this stuff soon enough, and Derrick was on call for years. It was too much. That is how the one regret is it would’ve been nice to have some Runbooks early on. But to document a system, extensive, detailed system documentation falls out of sync so fast when you’re in a startup, and not doing waterfall development, like we did 10 years ago. I would go very documentation light until there comes a time when you need it and then you can document it. That’s a good question. Thanks for sending that in. I hope that helps.
Our next question is from Eoin from Bitesize Irish Gaelic. He’s a developer and he has a question about hiring a developer to write code. He says, “Hi Mike and Rob. What are your thoughts on hiring a developer contractor rather than doing my own development? Do you generally see more leverage in stepping away from development? I’m thinking of Michael Gerber’s book, The E Myth Revisited. I lean towards not being a developer/technician,” as he calls it, “in my business.
Having said that, there’s time and energy involved in hiring and delegating, and on Odesk, a good developer can be $40 an hour. Admittedly, what probably muddies the water on my question is I like development. I’ve had a few developers working on my projects over the years and it’s hard psychologically to let go of the development to someone else. I found the best flow to be developing new features for my webapp, that’s not to say I get great satisfaction from trying to work straight to growing up the business, this really is my life’s work. Possibly, a better way for me to ask the question about it is how can I train my thinking to allow myself to get out of the way of my business’ growth?”
What do you think, Mike?
Mike: Well, there’s obviously definitely opportunities to hire somebody as a developer and pull yourself out of that particular role. As long as you hire the right person, that can be awesome because it will remove you from the heavy lifting of writing the code day in and day out, and having to flip back and forth between things like marketing activities, and sales activities, and then going hardcore into the software development, and then diving into customer support.
The ability to replace yourself in one of those areas that requires a lot of mental overhead is, I won’t say priceless, but there’s a lot of value in being able to do that. That said, I would also ask the question what is it that you are probably the best at? Is it writing code? Is it going to be that for you? Or are you much better at doing marketing activities? I would kind of make the conscious decision about whichever one of those roles you provide the most value for, you take on that responsibility and probably stay there.
It’s not to say that if you’re a developer you can’t learn marketing or that you’re not gonna be any good at it. But what is is that you enjoy doing, what is it that really kind of excites you, and drives you forward everyday. Because if you like diving back into the coding and you do it constantly, it’s gonna be difficult for you to step away from that and hand it over to somebody else and let them make all the difficult decisions.
You can, in some cases, stay heavily involved in the development side of things, if you wanna switch over to marketing, if that’s your passion, but I will say that it’s difficult to do both heavy marketing activities and also be heavily involved in the product architecture side of things especially if it gets to any level of complexity. It’s gonna be difficult. I would just keep those things in mind but it’s a balancing act.
There’s no one right way that’s going to work in every situation. It’s really about what is going to work for you and what is gonna be less distracting for you because if you’re in the middle of an email campaign, and you’re thinking, “God, I wish I can go in and fix this code,” for example and then you start doing it. You’re actually hurting yourself even if you have somebody else there who can do it and they are tasked with that.
You’re basically hurting the relationship or the parameters of the employee-contractor agreement by taking things over and doing them. Because then, it’s gonna feel to them like, “Oh, this person doesn’t trust me,” or “I’m being micromanaged.” Then you introduce yourself to a world of other problems that you had no idea that you were gonna run into.
Rob: Yeah. And to add one more piece of information, because we often shorten emails people send, and I skipped one paragraph. He said, “I run this business while working a full time job and I have a family. I spend around 45 minutes per day on ‘rock activities’.” Means developing new features, analyzing customer survey, planning new price points, like doing really solid stuff. Then another 45 minutes managing part time employees and generally trying to keep up with his inbox.
He’s very, very time constrained. That’s another data point. I think I’ll speak to his situation and then I’ll speak more generally. I think given his situation, it sounds, given that his time is so constrained, this is when I start to think about hiring help. At first it was VAs, then it was contractors even though I could write the code, and really enjoyed writing the code, with only 45 minutes a day for rock activities or big rock activities. I would seriously think about trying to find a good developer.
I think that’s the thing is he’s saying, “How can I train my thinking to allow myself to get out of the way?” It sounds like he already knows what the right answer is in his situation. I think that, assuming that the webapp features and having more of them are gonna help the business grow, and that there is enough competition that is warranted because sometimes, that’s not the case. Sometimes the app is good and it just needs marketing in which case I wouldn’t hire a developer, just let the app sit there, it’s a single feature, and it has a product market fit, and you just need to dump marketing into it, then go do that.
But if you really do need on-going development to continue acquiring new customers and/or compete with competitors, I would heavily, heavily lean in this situation towards finding a good contractor. I’m glad he suggested a $40/hour contract because I think at $15/hour, it can introduce a lot of headaches because you find kind of less experienced people and they can write crappy codes.
So yes, there is a hurdle, a mental hurdle to get over, I think I’ve repeated it to myself over and over, “Is this hassle worth it if it grows the business and allows me to quit my job?” What is your number one goal here? Is it to quit your job? Is it to have enough money to live on from your business and what’s the fastest way to get there? It’s probably, in this case, assuming you do need to develop features, it’s gonna be hiring someone.
I would also look, everyone else has done this, I shouldn’t say everyone else but a lot of people have done this. I made this work on a shoestring budget and almost exactly – [inaudible 00:28:47] you’re talking about, and so have many other people. Hiring developers when we were developers and it felt weird, and yes, you micromanage it first. You just figure it out.
As entrepreneurs, we tend to have growth mindsets, we tend to be somewhat flexible even if we don’t think we [inaudible 00:29:01] the code, and eventually you will, I think, feel better about it.
More generally when people ask this question, I kind of say, “What do you really wanna do? What’s gonna make you happy? What is your goal here?” My goal early on was to quit consulting and quit my job. That was more important to me than continuing coding even though I really, really liked to code.
For me, the quickest way to get there was to buy webapps or to pay contractors to build things because I was working 8-10 hours a day. I was booked full time, billing $100, $150 an hour, it didn’t make sense for me to take days when I was earning that money and go write something when I can hire someone back then for $20/hr, that was decent. That was my number one goal. I was willing to sacrifice writing code even though I loved it. Some people are not and that’s okay.
I listen to the Art of Product podcast with my co-founder Derrick and Ben Orenstein who a lot of folks know from MicroConf and Thoughtbot. I’m pretty sure at one point he said, “Yeah, if I’m gonna do a software product, I wanna write the code. I don’t wanna get out of it.” That’s okay. You can totally do this. You look at what Derrick did. Derrick still wrote a bunch of the code on Drip, or all the code for the first year.
In that case, he found essentially a non-technical co-founder in me. For Ben, I would just say okay, go into the business. But that can strain on you. You can do whatever you want. You’re just gonna have to move a little slower which is fine. You’re probably gonna have to contract out to do other things that normally I would tell you to do, like being the Chief Operations Office, handling and helping with support, and hiring.
If you’re really in the code, you need to be shielded from that. You’re gonna need to find somebody that can help shield you. Build a simpler product because you can’t build, and market, and do sales, and do all these things for a bigger product if you’re not gonna delegate the code. It’s gonna be a challenge for you long term.
But there are people that do it. Peter the CEO of Teamwork, he still writes some code. I’m sure he would admit that it’s probably not the best use of his time at times with a 100-150 person company, but he enjoys it so much that he still wants to be part of it. I think there’s leeway here but best practices, what I would advise, what I think maximizes your chance of success, and will get you there faster, is to stop writing code.
But I totally think you can succeed while still writing code if it really, really is what you wanna do, and you love it. I’ll add one final note. I still write code on the weekends. I wrote some crappy PHP script a few weeks ago just to scrape some websites and hit some APIs because it’s fun, for no other purpose and to do it. Even though I don’t do it for my job, I do have the freedom now to kind of do it for fun and really enjoy it.
I think we have time for one more question today. This one is about digital marketing and whether it works for B2B SaaS. This is from Alistair Scott from riskmemo.com. He says, “What’s the best marketing channels for B2B SaaS business? Is digital marketing such as Facebook, AdWords, etcetera, a viable technique for a B2B SaaS business or is it too broad?”
I don’t know if he’s talking about digital marketing or paid advertising because Facebook and AdWords are really more paid advertising. “My app will be ready to market in a couple of months, and I only need to target a specific role in a company, the person responsible for health and safety. I’m getting very promising feedback from people within my network but test digital marketing campaigns as a smoke test haven’t been successful. Your thoughts are much appreciated.”
Mike: I think this is a really hard question to answer because there’s so many variables involved in doing what appears to be just paid advertising which I think that’s what he’s referring to when he says digital marketing because there’s lots of other forms of digital marketing.
You could write ebooks for example. I’ve seen companies who write ebooks and then they publish it on Amazon and use that as a marketing channel. Now that’s digital marketing, but at the same time, you could also argue that it’s not necessarily marketing because you’ve got a book that you’re selling but you could say that’s a product, it’s a revenue stream. But at the same time, if you have a longer term goal of converting to people who are buying the book into customers of your SaaS application, and the book tells them how to do it, but your SaaS does it for them, then in theory that’s a marketing channel for you. It’s digital marketing.
I would differentiate between those two and say that digital marketing can absolutely work but it really depends on the specific implementation of it. In terms of doing paid advertising, it’s hard for me to say. I feel like there are certain types of industries where paid ads are simply not going to work. It’s not because they can’t work, it’s because the ROI does not work. The numbers themselves don’t make sense. If you have to spend $50 to get a customer and their lifetime value is only $30, yes, you can spend money and acquire those customers but you’re losing money every single time so you can’t sell at a loss and make it up on volume. It’s not gonna happen.
Rob: You make it up on volume.
Mike: Yeah, you can’t do that. I mean, you can but you’re gonna go broke. That’s the bottomline. You can try to spend your way out of it and maybe it’s possible that you have to do that in the short term to figure out something that you can tweak and optimize because your first cuts at it are not going to probably work out very well. You’re still learning what to do, what things work, what the software does, and how you target different types of people, and different companies. There’s a learning curve associated with it.
You’re not gonna be the best at it when you first go out there and try it but eventually over time, your costs are going to go down because you’re gonna get better at it, and you’re gonna be able to outperform your competitors, and get in front of the right people. That said, even after you have all that, it still may not work out financially because you’re still losing money on it. It could be that there’s other things that you have to do aside from paid advertising. But I think that if you’re selling a B2B SaaS product, in most cases, doing online marketing in some format, is probably going to drive revenue for you especially if it’s a low touch sales process.
If it’s high touch, the digital marketing may bring awareness, but you may very well have to do outbound campaigns, and cold calling, and direct marketing, and things like that. I would combine it if that’s the case but this sounds to me like this question’s really aimed directly at how do I do digital marketing to make it successful.
Rob: Yeah. The answer to will this work is I don’t know until you try it. That’s what I would do. I would think that your odds are gonna be…
Mike: Well, it sounds like he has tried it and it hasn’t worked.
Rob: Yeah, I guess you’re right. Here’s what I would think. Facebook, I can’t imagine it working for this. I don’t think you can get someone’s title from Facebook. Can you, in the ads? I don’t know what their segmentation is like these days.
Mike: I don’t know. I don’t think so.
Rob: Here’s the two things I would try for this; outbound email and LinkedIn advertising. Yep, LinkedIn advertising because you can then target based on someone’s title, their job title. You can title regions and all that stuff. Then outbound email, because then you just go somewhere, find a list, outbound email or calling, whatever it is. Because then you can find the list of people. It’s cold calling in essence but at least you know that they are the role that you need if it’s that specific.
I could see toying around with some AdWords because you don’t necessarily need someone to be the role but you need them to searching for something that implies they need your software. The problem with that is it’s gonna be too expensive. I don’t know any AdWords keywords anymore that are possibly affordable unless your LTV is just through the roof. Those are the two things I would try. Facebook, probably not. AdWords, probably too expensive. Thanks or the question. I hope that helps.
Mike: I think that about wraps us up for today. If you have a question, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 379 | There and Back Again, a Founders Tale of Services to Product to Services
Show Notes
In this episode of Startups For The Rest Of Us, Mike interviews Marie Poulin, chief designer and digital strategist at Oki Doki, about her journey from consulting to products and services.
Items mentioned in this episode:
Episode 378 | Billing Systems Suck, Here’s How to Make Yours Suck Less
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about billing systems. Some of the topics covered include monthly vs. annual, credit cards upfront/or not, dunning, and paid vs free trials.
Items mentioned in this episode:
Mike: In this episode of Startups for the Rest of Us, Rob and I are gonna be talking about why billing systems suck, and how to make yours suck less. This is Startups for the Rest of Us Episode 378.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product, or you’re just thinking about it. I’m Mike.
Rob: I’m not eating a sandwich.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob, aside from not having a sandwich?
Rob: I’m hungry and you’re eating a sandwich.
Mike: Yes.
Rob: You have a turkey sandwich.
Mike: I do. I described it to you in exquisite details just before the podcast.
Rob: I know you did. I’m like starving. I realized it was lunch time right now. This week’s pretty good, man. I think it feels like when I dropped my 11-year old off to school, was 23 below, but it’s up to 17 below. That’s not too bad. T-shirts and shorts day.
Mike: I think it was Brennan Dunn who had asked on Twitter earlier today why you didn’t ski.
Rob: I saw that. Yeah. I have a serious answer for it.
Mike: Oh, yeah.
Rob: Yeah.
Mike: I’ll tell you what, you give your answer and then I was gonna give my answer that I was…
Rob: Oh, got it. In all honesty, I grew up, we just didn’t really have the money to go to the mountains, and get all the gear, or I should say we spent the money doing other things. We didn’t go on ski vacations. There were mountains a couple of hours drive from us in Tahoe, but it just wasn’t a thing we did, and we always played sports, and so you didn’t wanna get injured, because I had friends who busted their knees up, they needed surgery.
I ran track for nine years, and my brother played football for eight. It was just something that we’re like sports were more important to us than the potential danger of doing that. That’s the serious answer. Now, what’s your take?
Mike: Mine was gonna be that because you grew up in California, whenever the temperature got below 70, you wrap yourself in a parka and just didn’t go outside.
Rob: This is true. Yeah, that’s the real answer.
Mike: But, of course, it’s ironic that now you’re in Minneapolis and it feels like 23 below.
Rob: I know. It hurts you’re nose and stuff, but man, with the right gear, it’s not the end of the world. You don’t wanna stay out for too long, but it sounds really awful and it’s fun. The sun’s out, you know, the sun’s shining, it’s bright.
Mike: As long as you’re not standing still, you’re fine. If you’re standing out there, of course, you’re gonna get cold, but if you’re moving around, it’s not a big deal.
Rob: Right. Yep. Anyways, I wanna extend an invitation. If you’re a listener, and you or your company might be interested in sponsoring MicroConf, or sponsoring some scholarships. We have quite a few companies that are lining up to pay for folks who can’t afford to come to MicroConf but feel those people would get some value out of it.
If you’re interested in doing either of those things, we’ll give you a recognition on the podcast. You’re obviously talked about a lot at MicroConf itself. And then we have you on the website, and people are hearing about you, you’re just kind of doing good for the founder community. Get in touch with Mike at sponsors@microconf.com.
How about you, what’s going on?
Mike: Well, I’ve had a rough week of support tickets after I pushed my new release. I’ve talked about this before. I was working on this major release. I got to a point where I’d done enough testing on it that I said, “Okay, everything looks good. Let me push this out.” Pushed it out, and see here is two weeks ago on Thursday. It was the week before I went to Big Snow Tiny Conf and pushed it out, everything looked fine, everything was great for four days or so.
Then, Monday I leave. Then, I started getting a couple of support tickets, and I started to get more support tickets. I ended up spending basically a full day while I was at Big Snow Tiny Conf just working on those things and trying to figure out what was going on. It got to the point where I actually rolled back to the previous release and then the problems kept continuing, I’m like, “Oh, God. What is going on here?”
Finally, I tracked it down, it turns out that it was a library from Google that I was using for authentication that was causing the issue, that was causing like one piece of the app to break. But everything else was still working. Eventually, I fixed that. Unfortunately, it was not actually directly related to the release itself, it happened to show up at the same time. I spent a lot of time trying to figure out what I did wrong versus, “Hey, what library is causing this?”
Rob: Wow, yeah, that sucks. That happens every once in a while. Obviously, it’s something you try to avoid but it will happen with these apps that we’re just constantly changing. It’s like you’re rolling changes out, or a library itself changes and breaks things. Are you completely past it now or is there any fall out?
Mike: I’m still dealing with the support issues here and there. Part of the reason for me pushing out was that I knew I didn’t have 100% test code coverage, but I also knew that the vast majority of it was working, and I just don’t know what little things are broken. There’s been a few things here and there that I’ve had to fix, but nothing major aside from the one issue, the Google library.
Everything’s working fine. It actually functions a lot faster, and is more scalable than it was before as well. I think it’s in a better place. It’s just that week or so was rough while trying to figure out what was going on. I was doing like a lot of stuff manually.
Rob: Yeah, that’s a bummer, man. That’s when your hair is on fire, and you’re not shipping any features because you’re just rushing around from one thing to the next, trying to figure it out.
Mike: What’s worse is that it’s just things sort of worked. That was the worst part. There were fundamental changes I made, and it’s just, I couldn’t figure it out. It’s just forever.
Rob: That’s a bummer. Cool.
What are we talking about this week?
Mike: We’re gonna be talking about billing systems, and mostly why they suck, and how do you make yours suck a little bit less. This question had come to us, I asked on Twitter what people wanted to hear, and Brennan Dunn had asked a question about billing. I pointed them to Derrick’s article, Derrick your co-founder on Drip, where he’d written a blog article about when to build your own billing engine. We’ll link that up in the show notes. This discussion, I think, kind of relates back to episode 375 where we talked about how to evaluate per seat versus tiered pricing models. But this is more about the mechanics of the billing system.
I think the place to start the discussion is really what is it that you’re actually billing people for? Because this is gonna impact your product messaging, your marketing, the positioning in the industry versus competitors, and the pricing itself.
Rob: Yeah. There’s a lot of things to think about with this. Brennan’s particular question was on handling annual billing and kind of talking through do you do credits versus just do an annual bill where you bill someone upfront. We’ll certainly be talking about that as well as a number of other things that you have listed here in the outline.
Mike: As I said with the first question, what is it that you’re actually billing people for. I think you have to narrow it down and talk about it in terms of what is going to be on your pricing page. I actually saw a website earlier today where they had three different pricing tiers, and then they had the enterprise plan which you would kind of expect.
But then when you start looking through at the different limits on the different plans, it was all over the map. It was actually very difficult to figure out where you would fit into each of these. They build on the number of users, and then there were two other metrics that they build on, but both of them were variable.
Some customers may have a lot of one metric versus the second metric. Some of them may have a lot of both, and then there’s obviously room for somebody to say, “Well, I don’t need that at all, that doesn’t matter to me.” Like, “Why am I actually being billed for this?” I just think that it’s interesting to note that. You have to make sure that what you’re billing people for is what they care about.
Rob: Yeah, exactly. We talked about this a few weeks ago with per seat versus kind of a metered billing based on subscribers, or disc space, or whatever. As soon as you go to multiple of those, you’re gonna make some people mad. That’s not to say you shouldn’t do it. But like we talked about, in the early days, you don’t have a lot of data, just pick one. Pick one thing to kind of meter on and make some tiers, and go with it. Then, as you get more data, you can later add them. But the more complicated your billing, the more complicated your billing engine. That is not something that you wanna be dealing with when you’re trying to find product market fit.
Mike: Some of the things you might want to bill people on, obviously, like there’s the pricing tiers themselves and the different metrics within it, but Drip for example uses a metered billing system. You bill based on the number of subscribers that are in your account. Why don’t you talk a little bit about metered billing because that applies a lot to web hosts, for example, where you’re paying for storage, or bandwidth, or processing usage, and things like that. But talk a little bit about what was it that made you decide to choose that specifically for Drip?
Rob: Yeah. Metered billing is a bit of a misnomer for Drip. When I think of metered billing, I think of Amazon, AWS, where it’s truly like per minute billing, or per gigabyte used, whereas Drip is metered with tiers, and it’s based on subscriber count.
In the early days of Drip, it was a different metric. It was the number of new subscribers you got into your account each month because Drip was more focused around just having an email mini course. It was not a full-blown ESP. Once we became an email service provider, it just made more sense to kind of fit into the mental model that other competitors were doing. That’s how we started.
It probably won’t be that way forever. We’ve got to the point where we’re a marketing automation platform now, and there are some people with 20,000 subscribers who send 4 million webhooks a month. It really hammers our servers, and you think about it, and you’re like, “Huh. That person’s actually getting quite a bit of value out of Drip. More value than someone with 20,000 subscribers, and sending 0 webhooks, and it costs us more because we need to add more servers and such.”
There’s something to think about. Again we started fairly simple, we adjusted, we’ve had multiple versions of our billing. At this point, for the most part, how many subscribers you have should be how much value you get out of the app. That’s the key thing to think about. What is the thing in your app that someone gets a lot of value by having more of it?
With Amazon EC2, which is Elastic Computing, it’s how many minutes you have a server running. With Dropbox, it’s how much storage space you need. With something like Drip, it’s how many subscribers you have or email sends. You could argue that way, but the standard way to do it is subscribers. Or with a tool like a CRM system or a sales management system, it would most likely be seats, because the more people that are using it, the more value you get out of it.
Mike: That’s kind of an overview of the metered side of things, but then there’s also per subscription, and you also mentioned per user, and then you could feature gate based on the features themselves. You could charge more for certain features versus other features. You could have add-ons. But all of these things kind of factor into what it is that you’re actually billing people for, and that’s what you need to pay attention to when you’re looking at your billing system or you’re trying to implement one for your product.
Once you’ve decided on that piece of it, you need to understand whether or not you’re gonna be offering a free trial, or it’s essentially going to be paid upfront. That has implications on the database itself, and whether you can have a user that doesn’t have a credit card. Do they have to give you money first? Do you have the opportunity to put something in there that says, “Okay, somebody can sign up without a credit card.” Do you have to build that side of things?
These are things that I’m kind of looking at now with Bluetick. Initially, it was designed in a very particular way, and then I just kind of ripped out the subscription side of things and then did everything through like a WordPress plugin and had people paying me that way. I’m just kind of like manually doing things back and forth to kind to synchronize between Stripe, and between the application. I’m still doing that today. But it made me think about, “Oh, well, had I gone down the road of trying to design all these things in early on, it would have been a lot more difficult because I was trying to answer questions that I didn’t know the answers to, it just would have been really, really hard.”
That’s something else to think about. Are you going to require that credit card upfront or not? Can you have users without a subscription attached to them? Can users be shared between accounts or between subscriptions, for example, are you gonna have a multi-user system? Those are things to take into account.
Rob: Yeah. I think there are four stages, or four different levels of providing friction upfront. Friction is a negative way to say it, but it’s how a new trial user will think about it. You can ask for a credit card upfront and charge them in advance. Then, refund them on request. That’s the most amount of friction because they literally have to put money out. You can ask for credit card upfront and not bill them upfront, but then bill them after a 14-day trial, or 21, or 30-day trial. That’s a pretty standard way to do it.
You can not ask for a credit card upfront. I guess there’s only three, as I’ve thought through it, you cannot ask for a credit card up front then they basically have a free trial until it expires, and then at that point you ask for a credit card. I guess the fourth would be that it’s a free trial, a freemium model where it’s free perpetually at a small usage number like a Dropbox, or like Drip, Drip has a forever free plan.
Typically, when I default, it depends on the space you’re in. If you’re B2C, you’re probably gonna wanna go more either freemium or no credit card upfront. Your conversion rates to paid are gonna be a lot lower. But you’re gonna get a lot more people in the funnel. If you’re going enterprise, you either want to not have self-service sign up at all or if you’re more mid market which is below enterprise but not quite small to medium, you probably don’t wanna have a credit card because a lot of folks let’s say you’re in a $50 million company, the marketing manager may or may not have access to a credit card to just sign up for free trials. It’s not as common as we think it is when you’re dealing with really small businesses or kind of 10-person startups like we think about.
But for the most part, if you’re going kind of B to small B, B to SMB, might think of an app like HitTail, I think of maybe even like a Bluetick. They’re probably gonna have a credit card available, asking for it upfront does not tend to be too much of a blocker and having a free trial where you charge them at the end is what I’ve defaulted to in the past. Probably, if I were to launch a new app, that’s what I would do.
The one kicker there is if you have enough people who can handle the support and/or the sales burden of all the leads that you’re gonna get without asking for credit card, then by all means, do that. But you’re gonna have more pre-qualified leads, or I should say, the leads you get, you’ll have fewer of them but they’re going to be more qualified if you do ask for that credit card. It is a way to limit the number of people that are signing up for your app if you are bootstrapped. If you’re underfunded, and understaffed, asking for a credit card upfront is a good way to do that.
But there are pros and cons to each of these. It’s probably an entire episode on its own. I think we may even have one or two episodes where we just discussed that. But those are the kind of levels to think about. All of those impact your billing system, because it’s gonna impact how your billing systems works, when emails are sent out, if you have a trial versus credit card. You have an entirely different sequence of emails that need to be triggered to notify people.
My advice is if you’re gonna build a billing system that’s gonna handle this, then, you keep in mind that you very well may want to switch this. You don’t hard code a bunch of stuff. You make it extremely flexible, such that you could later go in and just change the length of your trial without modifying a bunch of code and having to retroactively update the database, or that you can switch from credit card upfront to credit card after without catastrophic consequences.
Mike: That’s all the hard part really is trying to figure out all that stuff out in advance, and knowing that if you go down a particular path with the marketing side of things, if you want to experiment or change things, or run into and educate a certain situation that you didn’t expect for example, the person signing up does not have a credit card available for them typically that they can use for this.
Or if they want to be able to sign up for it, and then use the value that they received out of it to go back to their manager and say, “Hey, can I get the corporate credit card now?” Versus asking for it upfront, kind of putting their own reputation on the line. If things don’t work out, then they look bad to their manager. Those are things that you probably don’t know upfront until you get far enough down the path of validating the product for your customers and getting them on boarded. You have to be able to reverse course on some of those things, and that’s what makes this stuff challenging.
I guess the next question is where do you store this data? Where do you store this information? I referred to this kind of thing or this question as what’s your source of authority? A lot of people just use Stripe or whatever the payment gateway is that they use for it. A lot of different payment vendors will have this data available for you, but it’s not always easy to get at and there may not always be an API for it.
I think most listeners are probably developers and they’re going to want to store this information in their own database, but you can only store so much of it. You can’t store every credit card number for example because it’s a PCI compliance violation. There’s a lot of stuff that you can’t store in your own database. There’s gonna be a need to synchronize, in some way, shape, or form between your own database and the other systems. Is that gonna be webhooks? Is that going to be a data dump that you just bring down from them, and upload into your own database? Do you need to synchronize with an accounting system? Those are all the things you need to at least think about.
But really, the fundamental question you’re trying to answer here is what is going to be your source of authority for this data, because you have to keep in mind not only all of those things, but all of the different situations that we’ve talked about previously. Where are you getting credit card upfront, or afterwards, and then other stuff that we’re gonna be talking about which is things like chargebacks and credits, and upgrades, and downgrades, and proration, and things like that.
Rob: Yeah. In the past, I think HitTail was already built, it was actually built using PayPal subscriptions. I acquired it, I turned it to Stripe, and I kept some of the info in the database but I also had to login to Stripe to do certain things, and that was a pain in the butt and I regretted it.
When we did Drip, we agreed that the Drip database itself would be the source of truth, and it was made super easy to report so that you could just do a select in the database. Didn’t need to go out and hit other APIs. That meant that every monetary transaction has to come from within the Drip app. We have a web admin where you don’t go into Stripe to refund people. You literally hit a refund button in the Drip admin, it goes out and hits Stripe and refunds it.
In very early days, it was kind of a pain in the butt because let’s say we had a refund the second month we were live and we had 20 people, 20 customers, I remember saying, “Derrick, I’m just gonna go onto Stripe really quick and do it.” He said, “No, no, no. Don’t. We want everything in the database, and I don’t wanna have to go back.” He spent an hour wiring up a little refund button, just hacking it in. It was kind of a pain in the early days because I didn’t wanna spend that time working on that. But now, once we kind of hit escape velocity, I was very, very thankful that we did take the time to do it.
Moving forward, if I were to build another app like this with recurring billing, I would want all the data. I would lean towards having all of the data in my database. But there obviously are tradeoffs with that, because it’s gonna require a little more time upfront.
Mike: Yeah. I was gonna mention that. The requirement for you to essentially do development every single time you need to make an update in one of those systems, it just adds to the number of things that you need to implement. Sometimes, they’re not always straight forward, not every vendor has an API that’s as easy to navigate and use as Stripe does. A lot of them are just terrible, some of them just don’t have something you can use.
There’s other sides of storing all of that data in your own app which is, for example, reporting or using other third party services like dunning services, or something like Baremetrics where you’re trying to figure out what does my revenue look like over time. You may be able to hook it in, and just say, “Okay, use Stripe and pull that information out.” But if you’re doing your own billing system with your own subscriptions versus Stripe subscriptions, it can be a lot more difficult to pull those reports.
Rob: That’s exactly correct, yup. It’s a bummer there. A bunch of services that you’ve named, Churn Buster, and I think Stunning, and certainly Baremetrics, and there’s a bunch that tie into Stripe subscriptions. If you don’t use that and you build your own, you miss out on that.
That is something that we did. We had to build some additional reporting that we know we’re not gonna be able to get from those apps, and that’s the tradeoff we had. The Drip billing is complicated enough that Stripe subscriptions were not a fit for us. It would have been catastrophic. We would have been very, very limited if we had used them. But there are cases where people are not bouncing up and down tiers as frequently, and you don’t want to take control of let’s say the trial and how prorating and all that’s done where Stripe subscriptions, I think, are a fit.
Mike: You mentioned upgrading and downgrading, that’s something else we should probably dive right into. I think this goes partially towards monthly subscriptions. I think you can get away with, let’s say for example, somebody decides to upgrade their account or downgrade their account, I think a lot of times you’d get away with it if they’re in a monthly subscription to not bother prorating it.
Either you just bite the bullet and take the loss on it or you kind of eyeball it, and say, “Okay, we’ll charge you this much to kind of get it in there.” Stripe does have a proration option that you can use. But if they’re on an annual plan and they decide that they wanna upgrade three months into it, what do you do? Clearly, you’re probably gonna wanna upgrade them at that point, but if they’ve already paid for a year in advance, you can’t just charge them for another year and extend the contract by another year on top of that. That’s something your billing system is going to need to take care of and handle.
In addition to that, there’s downgrades, but what happens if somebody accidentally upgrades, or they upgrade, and then the next day they upgrade again, or they upgrade an hour later, for example, maybe they chose the wrong one, how do you handle that?
Rob: Yeah. There’s a bunch of different ways to handle it, and all of them has some type of negative outcome, including just being confusing if it’s hard to explain to people, they might get confused. There are ways to do it. If you’re gonna do it annually, you can do it with credits where someone just buys a certain amount of credits upfront and then you consume them overtime. They could pay $500, get $600 in credit. Then, as they go up and down each month, you’re just drawing from their credits. That’s the way we chose to do with Drip.
Derrick and I had a three hour whiteboarding session trying to figure this out. I remember, trying to decide which approach to go. If you look at WP Engine, if you sign up for an annual account, you pay in advance, then you have overages like, I think, too many people hit your site or whatever, I think they just bill you that month. They’ll say you went over by $10, and here’s a $10 charge to your card. They trust that the card is gonna be good on file for the duration of that year. That’s certainly another way to approach it.
This is not an annual thing, but if someone’s mid-month–we have Drip customers who will literally get upgraded three times in a month, or four times in a month because their list is growing so fast. Each of those times, you can either bill them right on the spot as it goes up, which gets a little irritating for people, they don’t like seeing a bunch of charges, or you can bill them, you’re essentially billing them at the end of the month for the prior month’s usage. That’s how MailChimp does it. That’s how a lot of ESPs do it actually. When your first month billing is the plan, it bills you for the next 30 days for the plan that you’re currently on, and then, at the end of that month, it looks backwards, and it bills you for the next month, but it bills you the amount of the prior month. Again, it’s a little confusing, but it’s kind of technically the right way to do it, or certainly an accurate way to do it.
Mike: Yeah. That’s the problem with that type of metered billing, or a situation where they could go over some particular limit and you have to charge them more is that you don’t know that until afterwards. Clearly, if somebody goes over by one unit of whatever it is on a given day, you don’t wanna charge them for just that one, you wanna wait until the end of the month. It really depends on what the thing is that you’re actually billing people for. All the different other situations that could potentially come up, and anticipating those, and gearing your billing system to account for those, not just from a technical standpoint and a monetary standpoint, but how is it going to make the customer feel?
You mentioned the idea that somebody doesn’t wanna see a bunch of charges on their card, especially in a short period of time. If you’re charging them at the point where they upgrade or downgrade, that could be an issue because then they’re seeing all these things that are all on a short period of time. I use an American Express for a lot of things. I have it hooked to my phone. I will get like a little notification every time something gets charged on it. If other people have that hooked up, they’ll see it every single time you do it. You have to be sensitive to that kind of thing.
Rob: Another thing to think about is versioning your pricing and/or grandfathering. These things are related. Typically, if you’re gonna build your own system, you may change pricing overtime. You may even change what you bill on. Like I had said in the early days of Drip, we billed on the number of new subscribers, and now we bill on the number of subscribers that you have in your account at any given time.
During those changes, you don’t just want to rewrite your billing engine, you don’t just wanna rewrite that code. You wanna have a version of it that can still run at least in the short term, or if you decide to grandfather people, existing customers, which is what I’d recommend. It isn’t always the thing to do but it’s what I’ve always done. Eventually, at some point, you run an app for 10, 20 years, you probably don’t wanna have all these people still grandfathered in at your prices from 20 years ago. But grandfathering in in general, especially for long term customers, it makes them feel good, and let them know that you’ve done that. You can send out the email and say, “Hey, pricing is going up, but we’re gonna grandfather you in for now.” It’s also cool, you can use this as a way to get a bump in trials, or bump in new customers, is to be public that prices are going up in two or three weeks. If anyone’s on the fence thinking about signing up, they’ll sign up if you are gonna indeed grandfather people.
Mike: Something that’s probably not talked a lot about when you’re dealing with the billing system is things like chargebacks or credits. Let’s say that you have a customer where something goes wrong, or maybe you lost data of theirs, or something went wrong with their account, or you’ve made a promise that such and such feature will be delivered, and you had to roll it back, and it’s just not there or you wronged them in some way, or even if you just wanna give somebody a warm fuzzy feeling because you think that they deserve it or just wanna promote some good will, you may give them a credit.
If somebody’s really pissed off at you, they could do a chargeback and then those things need to somehow be reflected in whatever your source of authority is. If you’re doing that in your own database, you have to have the mechanisms in place to be able to surface those things, and then also be able to account for them in your reporting plus the customer’s reporting. If they have a page where they can go and see what they’ve been billed, they need to be able to see that stuff.
Rob: Another thing to think about is whether your free plan, if you have a free plan, if that is a billing plan. In general, I would recommend, that yes, it be a billing plan. It just helps with reporting and it helps if someone’s on a free plan that they get an email receipt at the end of every month saying, “Hey, you were billed $0 for this account.” Reminds people that the account is there. Obviously, people can cancel the account if they don’t wanna get the email anymore, but in our early days, we have compt accounts for developers who are working on integrations, and of course, we have a free plan now, and everyone gets essentially an invoice email that says, “You’ve been charged $0.” We really haven’t had issues with that. I think that’s the way to go.
Mike: Yeah. But I think that’s easy to overlook as well, because if you’re thinking about writing a billing engine, you’re not thinking about how do I send an invoice to somebody for $0 because they’re not being charged. Why would you even do that? But the points that you bring up are valid. I think the one that’s the most benefit you is that it gets you another excuse to get in their mailbox every month. Even if it’s for a free offering or you gave somebody a free plan.
I guess you probably wouldn’t do this for an annual plan, because you’re only sending them the billing emails at the billing cycle itself. You’re not gonna email them every month, but for all the other ones, you’re gonna wanna send that email regardless whether or not they got charged so that, if they’re not using that product, and you don’t have other automations in place to help bring them back, then it does remind them that the account exists, and they could use it.
I think the one other thing to think about that is probably not really commonly thought about for annual plans is that there’s an implication and an impact that an annual plan can have on an acquisition offer. If you are selling a business, or buying one, if there are people who have paid for annual plans, and let’s say that somebody gave you $1000 for an annual plan, if you’re six months into it and let’s say that you go to sell that business, well, whoever you’re selling it to is on the hook for delivering the other $500 of value that you’ve promised to that customer.
There’s almost a little bit of debt here that you’re accumulating in the product by offering that annual plan if you were to transfer ownership of it to somebody else. The reverse is true as well. If you buy a product from somebody and there’s a bunch of annual plans that have been paid, you still need to deliver on those services for the annual plans because that money is presumably already spent, or is considered inside of the bank account. But that’s something you have to take into account when you’re either acquiring or selling a company. If the company is big enough, that could mean a lot of money in one direction or the other.
Rob: I never sell lifetime plans.
Mike: Yes.
Rob: Throw that in there.
Another thing to think about is dunning. I remember, the first time I heard this phrase, I had no idea what it meant, but it just means how do you let people know that their credit card, or their payment method is failing? If you’ve used Stripe subscriptions, then you could use something like Churn Buster, or Stunning. If not, then you’re probably gonna have to either write your own. I think, with our Drip billing engine, we throw an event into Drip and it triggers a workflow in Drip. We’ve built it out in Drip which is an easy enough way to do it. But you do need to think about this.
Whether you’re gonna have to make phone calls, that’s the other thing. Are you gonna call people or are you just gonna email them, because you’re gonna get a lot more credit card members and accidental churn, in essence, or involuntary churn as it’s called. You’re gonna get a lot less of that if you make the phone calls. But do you have their number? Do you have the time to do that? I would say if you’re at any scale that it is worth your time to collect that phone number and give them a call, even if you’re not and you’re just in their early days, I would definitely use email. You’re gonna have to hit them up multiple times. You’re gonna wanna retry the charges as well, so there’s a lot to think about here.
That’s the cool part, if you do think about using Stunning or Churn Buster. They have figured out the best practices, so you don’t have to do that. I will disclose that I am an angel investor in Churn Buster. I’m not trying to necessarily promote them. But I do know that they get better results than you will probably get early on until you’ve done some testing, and you’ve seen what works, which may or may not be worth the effort.
Mike: That’s kind of the benefit of using those types of services. They’ve already got the process laid out, because they’ve worked on it, and implemented it with multiple people. If you’re doing all of this yourself, then you’re essentially forced to figure out what that process should look like, then evaluate later on whether or not it’s a good process. They’ve done that work for you so that you can just pay them. It kind of gets taken care of versus building it all out yourself and doing all the work and then kind of recovering from the mistakes that you’re gonna make along the way.
I think one of the most painful things that I’ve found is dealing with currency, taxes, and invoices. Depending on what it is that you’re selling, you may or may not have to collect sales tax for it. But currency, being able to accept currency in multiple denominations, and be able to provide invoices to people, it seems like you wouldn’t necessarily need that. But there are people in certain countries where they absolutely have to have an invoice, and there’s really no way around it. You can do them manually but it’s still painful to have to do it.
Early on, you can just do them manually, and you get on with your life but it’s nice if you can batch them up. But having an invoice in the apps so that your customers don’t have to ask you every single time, once you get to a certain scale, it really is not feasible to do them manually anymore. You just can’t do it. Either you have to build something, or you can use off-the-shelf services like Chargify or Chargebee, Biddly I think it is. Spreedly, I think that’s what they’re called. But a lot of them will create these invoices for you so that you don’t have to do it. But again, there’s downsides to that, because you have to do all the integrations with them. They will take care of a lot of these things that we’ve already talked about.
Rob: Invoices are something that will be a pain for you, if you have customers in the European Union. Because in the US, you don’t need to give every customer an invoice and they’re able to write stuff off. But in EU, they need an invoice with a bunch of specific stuff on it in order to be able to write it off.
What we did early on is just made a simple Ruby on Rails template, and it’s an invoice. You just click it right from your billing page in Drip and it spits out all the info that you need. The first few times I was doing it manually in a Word doc, and it gets old really quick, especially if you’re gonna have to do that every month. Something you’d wanna think about once it starts becoming a pain but don’t prematurely optimize that one.
Mike: Then, the last thing to think about when you’re looking at a billing system is whether or not you’re going to have multiple products. Are those products gonna be tied to specific subscription plans? For example, if you have three-tier subscription plan, and you can buy this particular add-on or service, but it’s only available if you buy the third tier. Those things have implications on your backend design, and how you account for it in not just the billing engine, but also in your reporting as well.
These are things that can be difficult. They can be hard to figure out how are you going to put those in but it is something to consider because you may get to a point or a situation where you realize that your product itself is probably something that could stand alone. But it may do better as a productized service offering where you have this add-on service, or there could be other add-on services that you discover later on, and say, “Hey, I could make an extra $500, or $1000 per customer that I sign up,” or maybe you have an onboarding fee, or a consulting fee, or something like that that you add in there.
They could be potential revenue generating opportunities, but it impacts how you implement and design everything. Those are things that are worth considering. But I wouldn’t say, as Rob said earlier, don’t premature optimize for those things. But just be aware that they do exist, and there are other opportunities there.
Rob: Lastly, you’ll wanna think about reporting. How are you going to see which payments are failing? How are you gonna see how many new trials you have, how much money you’ve made each day, how much money you’ve made each month? Are you gonna build out extensive reports, or are you just gonna have a raw sequel query in the early days?
If you’re a developer, that’s what I would do. But you gotta think about that as your team grows. As you start getting other people on board, you will need to build some type of dashboard if you don’t have one from your billing system provider, or something like a Baremetrics that can just link right into your Stripe subscriptions.
There’s pros and cons to both of these. I think if you have the ability to just use a third party, do that because building these things is such a pain. But you do get more control when you build them and overtime you can extend it. You can do exactly what you want with it, again, since we didn’t use Stripe subscriptions, we did build our own dashboards. We have some pretty killer stuff inside Drip that’s abled, that’s predictive, and then there’s also historical.
I can tell this by looking at a few numbers kind of where we are in the month at any given time. You will definitely wanna have some kind of nice reporting with the SaaS app, because your metrics are really the lifeblood of the company.
Mike: There’s advantages to integrating with these third party subscription management software companies, but at the same time, you don’t necessarily wanna go down that road early on if you can’t afford it. That’s just the tradeoff that you need to make. It’s like the classic. Do you build it or do you buy it? We kind of talked a lot about the different things to be careful of if you’re building it. If you don’t wanna go down that road, then, buying something off-the-shelf is also an option.
Rob: Well, Mike, I’m off to go eat a sandwich. If you have a question for us, call our voicemail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt. It’s used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.