Episode 147 | SaaS Pricing, Segmenting Customers, Selling Before Coding, and More Listener Questions

Show Notes


[00:00] Mike: This is Startups for the Rest of Us episode 147.

[00:03] Music

[00:11] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.

[00:19] Rob: And I’m Rob.

[000:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?

[00:24] Rob: The word is Drip is in prelaunch. I have 310 emails going out and it’s basically kind of a chunk of our launch list and we’re doing as a test just to make sure that everything works and all the sign up and the trial emails and billing and all that stuff works but it’s pretty exciting. I have a four email launch sequence that I use often and two of those emails of have gone out. So tomorrow is the email that actually lets people in and gets them start using Drip. So it’s kind of the first time that we’re launching to a group of people rather than doing one off stuff.

[00:54] Mike: Yeah, that’s really nice to see.

[00:57] Rob: I want you, AuditShark here like next week or two weeks from now, that’s where I want you to be.

[01:02] Mike: Because I’ve been thinking a lot about how to deal with the issues for remediation. Just because doing things on an automated basis to like remediate them is kind of a scary thing and I’ve actually been looking at putting together kind of a hybrid model where the software does some stuff and then on the back end, there isn’t software that automates it but I can go in and do things myself. So essentially have the software cost one price and then if you want remediation in addition to that, I can charge you an additional fee on top of what the software costs and we’ll go in and manually take care of that.

[01:35] I’ve got a couple people who – there’s one guy that’s really good at operations stuff. He’s worked in a lot of larger production environments and so have I. So either one of us could actually go in and make those fixes and understand the implications of all the fixes that we’re doing. Of course that becomes something of a hybrid offering where you got some software and some services. But I think that because there’s a combined services and software offering, I could actually charge a significant higher price to do that because people are going to understand oh well here’s the cost of the software. Here’s the cost of the remediation effort beyond that and it does bring up the price of the overall offering.

[02:12] You know as well as I do when you first start launching a Saas product that the ramp up is going to be slow and I think adding in services like that is going to ramp up that revenue stream very, very quickly.

[02:21] Rob: Yeah. I think that’s a really good idea. For those who are listening, if you don’t know what remediation means, AuditShark finds problems or confines security issues and remediation means fixing those. And you’re talking about doing some manual work where a person has to be involved and you’re right. It raises your price point but it means you provide so much more value because if you think about what AuditShark probably does is it will add items to my to-do list as a server owner.

[02:46] And this is the same problem I saw with HitTail. It’s the same problem you see with a lot of apps that will cause churn like people feel guilty about it. They don’t want to pay for something that is not actually fixing something. It’s just telling them something needs to be fixed. There’s a big, big difference between those two end points.

[03:01] So I mean I’m doing it with Drip. We have a concierge service where we will write someone’s’ entire email sequence for a fee. We did it with HitTail where we automated the article publishing. We have writers who write articles for people to take that off their to-do list. It’s adding human powering your Saas app basically and it’s taking up the next level both in price point and in the amount of service that you’re able to offer.

[03:24] So yes I fully support that and I think is the future trend because so many of the low hanging fruit Saas apps are being built and they’re done. How much more can you do with invoicing and accounting and these other things? I think that over the next few years we’re going to see these hybrid approaches because most software developers don’t want to do them because they’re messy. We want everything to be code. We want everything to scale.

[03:47] So adding that human powered side to it, you just have such a chance to grow revenue faster and to offer so much more value like exponentially more value to your end customers than you can just do with code.

[03:57] Mike: I think the other significant advantage of doing something like this is the fact that you may not know upfront what its going to take to do all that remediation at least from my product there’s obviously different problems that needs to be solved for other products but for those, there’s going to be a different manual process in place. And you’re not going to necessarily know how to handle that in every situation automatically. So you’re going to have to go through those manual steps.

[04:20] You sometimes have to do things, they just simply don’t scale. And then once you get a handle on how to do them, then you try to automate them and I think this is just a natural extension of that is to be able to do these manually, try and figure out what sorts of things we going to regularly check to make sure we’re not breaking other stuff. And then make those changes, test everything, make sure everything’s still working and figure out what those additional things are that need to be done to make sure it’s still working and automate those down the road.

[04:46] Rob: Or you have a Saas app, you’re thinking about one, ask yourself this question. What can I do to do more for my customers? Even completely non-scalable requires manual labor. What can you do for them to provide them more value and therefore give you the ability to be better than your competition and to be able to charge more. And so you’re going to have a higher revenue for growth.

[05:06] Music

[05:10] So we both hired bookkeepers.

[05:11] Mike: Yeah. How was yours going?

[05:13] Rob: Mine’s going really well. I’ve been happy with him. He’s been doing all my Numa group Books for about two months and he has me setup in Xero which is xero.com and I’m pleased with the software. It’s easy enough to use and finally I’m not like dreading taxes in next year because he actually went all the way back to January and did InDinero, manually migrated my books. He charged me for it which was fair and then now he’s keeping it on a monthly basis. How about you?

[05:41] Mike: Yeah. My book keeper’s been really working out as well. She came in, I think she was here yesterday and worked through the rest of the stuff and all the bills and stuff that I had to pay for the month and I just walked her through the process. So far it’s working out great. I mean it was really nice to just hand her everything and just kind walkway and say let me know if you have questions. I just didn’t even have to think about it. It was awesome.

[06:01] Rob: Yeah. It’s definitely a way off my shoulders. It was reasonably easy when InDinero work but once we started having bugs I was spending a lot of time on it. So it’s nice to know it’s taken care of. It’s like too expensive to outsource in my opinion when you have good software that can do it or if you have a simple solution. If you have a pretty simple scenario where you have one product that’s generating revenue, I would recommend using outright and you can probably do it almost completely automated. If you setup a few rules, even with Xero, you can setup a lot of rules. You can probably most automate it and don’t need a bookkeeper. But once you get more complex or I think like you Mike, you have a lot of paper that you process.

[06:35] Mike: Yeah.

[06:36] Rob: That’s a point where your time is more valuable than sitting there. You’re doing something basically that’s not pushing your business forward. We have two congratulations, two new product launches over the past couple of weeks from long time Micropreneur Academy members. The first is Ivan. He not only launched his split testing plug-in for WordPress but he saw his first sale within a day or two of launching and that’s at abpressoptimizer.com and he gave us a coupon code for our listeners. If you use Startups25 that will get you 25% off.

[07:14] And he dropped us a little note. He said the Micropreneur Academy gave me a realistic outlook and the tools I needed to launch my first product. Having the support of the academy community gave me the motivation to finish my product and made me accountable for my progress. He says out of everything I’ve built in my career, nothing has been this gratifying as when I got that email for the first sale. So definitely, congratulations to Ivan.

[07:36] The other launch is Nitesh Singh  also been with the academy for several years and he launched auctionplugin.net it’s also a WordPress plug-in. it enables you to launch an auction site in a few minutes.

[07:48] Mike: I’m just getting a lot of people going to the WordPress space and launching a lot of different plug-ins.

[07:54] Rob: Lot of opportunity there. And it’s like we’ve talked about on the podcast now for the past six months of kind of getting that early win. Because these are the first products that these guys are launching and you launch it and you get – even if it’s a few thousand a month like it shows you that you’re capable of it. It gives you that early win. It gives you confidence and it also teaches you a lot about the different elements that you need to then grow and kind of a more – maybe a more complex app or a complex market. And it’s a stair step approach right? Of starting small and kind of moving up. I think it’s really cool.

[08:26] Mike: I think what I find really interesting is I’ve seen some people launch in these WordPress plug-ins and they don’t know anything about WordPress development. They’re essentially outsourcing the entire thing to other people and then they’re simply attacking the marketing side of things to understand how to sell it, how to put the site up and everything else and really focus in on the marketing and letting somebody else deal with all the code behind it. Even though they are developers and they could theoretically figure out if they wanted to but they’re just not…

[08:53] Rob: Right. I think that’s the nice benefit of something like a WordPress plug-in over Saas is that it’s so much less complex that you can hire a developer and more easily outsource it. There are also a lot of decent WordPress plug-in developers around and they’re not super expensive. Again, building the Saas app can take four to six months of pretty heavy development whereas you can get a plug-in developed in a month and kind of what you see is what you get. There’s just a lot of fewer moving parts and I still maintain that. Right now it’s still a good strategy for someone just getting started.

[09:26] Music

[09:30] Today we are going to be answering some listener questions. Going to the back log. Our first listener question is a voicemail about the best pricing strategy for a B to B Saas app.

[09:41] Dan: Hey my name is Dan and I am representing Chart Breeze. That’s chartbreeze.com it’s charting for your Trello projects. I want to know what’s the right strategy to take when trying to price your Saas project and specifically when trying to price for potential businesses to buy your product not necessarily consumers. Thanks. I’ll listen to your answer. Bye.

[10:06] Rob: So I think Dan really has two questions. First part, he’s kind of asking what’s a general approach for it but I bet he also may appreciate some advice about his site specifically which he said is at chartbreeze.com. In terms of general Saas pricing, I think almost all Saas apps are going to be business to business. There are very few B to C Saas apps that I’ve seen actually work because consumers don’t really love subscriptions.

[10:31] I think in general when you are talking about Saas pricing, just assume that its B to B. There’s a bunch of different approaches you can take. I think that I always like to price on value meaning if it saves someone money or makes them money or saves them time, then you can somehow justify the price that way. Now I know there’s argument about whether or not that kind of pricing actually works but it helps at least shape the thought whether you use that in your marketing or not, it helps at least shape it in your mind of what could this potentially be worth to someone.

[11:00] The second approach that I think about is like a gut feeling of what I’d be willing to pay and I will also ask a handful of people what they think it would be worth. You run the risk – if you’re trying to do both do customer development and develop the product as well as ask them about what they should pay then you kind of have two conflicting things going on. Right. So you can’t do that. I feel like you need to figure out your feature set first, figure out what solves the real paying point and start building that and then ask a separate group of people here’s what I’m building, would you buy it? And how much would you pay?

[11:30] And then, once you get a number that you start feeling comfortable with, like these things are like $29. $29 a month might be a lower number, then go back to the first group and say alright, I’ve solved your problem and I’m going to charge $29 for it. Are you good with it? And then you’re going to see reactions all over the board.  Some people will say that’s a no brainer and some people will say it’s way too much. And then try to figure out what’s the different between those guys. Are they both Saas companies buying your app? And is one of them just makes so much more per lead so they’re willing to pay more for it?

[12:03] Try to figure out the point which you can segment and that’s the trick. Its figuring out is it the number of emails sent per month or the number of subscribers that they have or the number of documents they upload. There’s these things to pivot on. You’ve really got to dig in to start figuring that out. It’s not a trivial process. There’s been a lot written on this. I actually like sixteenventures.com which is Lincoln Murphy’s site and he’s written a lot about Saas pricing so if you want to go deeper I would definitely check out sixteenventures.com.

[12:32] Mike: I think for chart breeze, one of the things that strikes me is the plus plan for example is listed at $29 a month and for anyone who’s not looking at it, there’s basic plus then enterprise priced at $9, $29 then $59. If you look at business class Trello, its $25 a month or $200 a year. So to me it seems a little odd to charge more for an add on than for the product itself.

[12:58] Rob: Got it. And for people, Chart Breeze is charts for Trello. It says create gorgeous charts for your Trello boards.

[13:05] Mike: The Trello business class only cost $200 a year. So to me it seems a little odd to charge more for charting capability than it does for the product itself. It’s not to say you can’t pull it off. The other end of the spectrum is that you also have to understand that this is being built on a product that could theoretically be free. So people could be using the free version.

[13:26] I have a hard time coming up with a pricing plan that is an add on for something that’s theoretically free. You can kind of look back at WordPress and say well that’s free. You’re paying for the plug-ins that extend the functionality. And that’s one way to look at it. I don’t know with chart breeze how you would justify that. I really think you need to start digging and find out what people are using it for and then try to come back with a pricing scenario that makes sense for the problems that they’re trying to solve.

[13:52] The other thing you could do is find ways that people are using Trello and build something around that such that your add on product really addresses those needs in a way that leverages the Trello back end and uses your front end. And then essentially what you’re doing is you’re using the Trello engine to power your application as a value app.

[14:10] Rob: Yeah. I think Chart Breeze doesn’t really have a pricing problem. I think it has more of a value proposition problem because I use Trello and I manage. I have now several Trello boards and I’m using it to manage some different things. But I don’t know why I would use Chart Breeze. The homepage headline says Trello plus charts, so that’s what it is, not what it does for me. And it says create gorgeous charts for your Trello boards and my next question is okay, but why?

[14:37] So then there’s three benefits listed on the homepage. See the bigger picture. Work smarter not harder and clearly communicate victories. But none of those freely apply to me or they feel so vague that I don’t understand. I almost need like a case study or multiple case studies specifically how would I use this today? How is it going to save me time, make me money or save me money? That’s really what I want to know when I come to you as a business.

[15:00] Mike: And that’s kind of why I was pointing to finding out what people are using it for and then building a front end that is going to leverage the Trello back end to specifically solve those problems and use it as their value added. Because obviously, you could use Trello for I’ll say bug tracking if you really wanted to but is it really setup for that? The answer is no. But could you build a front end that would leverage that Trello back end using the API’s and make it into a great drag and drop bug tracker and you probably could.

[15:28] So those are the things I’m thinking that would probably be applicable but I think it goes right to the heart of the matter what you just said as why would I use this? I don’t know why anyone would want to chart things in Trello and I think it really depends a lot on what they’re actually using Trello for.

[15:45] Rob: Right. And so if its only software development companies that give you an agile development using Trello then that’s it. Chart Breeze becomes are you on agile development, are you a developer? You want all of that verbiage and you want to tightly niche it to them. If it turns out that realtors want charts because I know there’s a continuum of realtors who are using it then book, that’s when charts becomes in realtors Trello charting app.

[16:08] So I think there’s more digging to be done here to really find out the value prop that you’re offering, very, very specifically boil down into one sentence and to find out the audience that needs that the most. If you don’t know that yet, that’s okay. You just have to do some digging and continue to look for it because I think at this point if you launch with this app, I don’t know if you’ve already launched I don’t think you have a pricing problem. I think you have like I said a value problem and you need to dig deeper to find that before you’re going to be able to really start attracting customers and solving a deep paying point. So thanks for the question Dan.

[16:40] Our next question comes in from Brandon Crocket. He says hey Mike and Rob. My partners and I have been listening to your podcast for a while now and find it very informing. Our company is called Qdaptive web based truly adaptive question generating app that uses class notes to generate study material. Our question is what do you recommend for a small business checking account? We have an LLC formed and we are finding tons of fees associated with the business accounts. Do you have any recommendation for us?

[17:08] Mike: Having recently gone through this process of finding a new bank for my businesses, I’ll give you the one that I think is probably the best for anyone who’s starting out and they’re essentially in a pre-revenue state. Look for local credit unions. And the reason I say that is because if you go to any of the big box banks like bank of America or Wells Fargo, what’s going to happen is you’re going to sign up with them and get an account with them. But the problem is because you’re not carrying a large balance, they’re going to start charging you monthly fees and those fees can be anywhere from $15 to $30 a month.

[17:39] And if you don’t want to be charged those fees then you have to carry this minimum balance which is probably in the neighborhood of $10,000, $15,000 or $20,000. Now when you go to a smaller bank, those smaller banks probably have a little bit more flexibility but it’s really the credit unions where you can start to leverage their business banking side which they don’t necessarily concentrate on. The smaller credit unions concentrate on consumers but they do offer business banking accounts.

[18:04] So for example near me there’s a bank called DCU and they’re digital federal credit union but they have a lot of business services and they actually have some substantial backing on the business side because they take all the stuff that they offer their members and also offer them to businesses because many of the members own businesses. So in order to offer their members more options in terms of banking let’s offer these to our members who own businesses as well.

[18:32] And they’ve kind of grown that so they will offer stuff to a business even if you don’t have personal accounts with them. But because it’s a digital credit union, they are trying to move everything online so for someone like me, that works out really, really well. But you can leverage that too. You go to a local credit union, find out what sorts of business options they have. I did a search in Massachusetts and found half a dozen credit unions that offer business banking and almost all of them were no fee. Almost all of them did not have a monthly minimum that you had to maintain. $5 is a small price to pay to be able to get that business banking account and not have to pay any fees.

[19:08] Rob: I was going to answer this with a BofA (Bank of America) account. I’m not a huge fan of BFA but they do have a nice online banking and you can deposit checks through their mobile app and I don’t pay any fees on any of my accounts but then you pointed out that it’s because I keep a minimum balance. So when you’re first starting out, you’re right, a big bank is always going to charge you fees until you get to that point of having whatever the minimum balance is typically $10,000 to $20,000 for a business checking account in order not to not pay the fee.

[19:36] Mike: Thanks for the question Brandon. Hope that helps.

[10:38] Rob: Our next question is from Sean Walberg about segmenting customers. He says hey Rob and Mike, I enjoy your podcast each week. Thanks for taking the time to share your experiences. I created a tool over at isithacked.com that checks a website for hard to find spam and it’s been doing a great job at catching infections that other tools have missed. People have been asking me to add a subscription feature that will notify me automatically rather than having to go to my site to check their own sites.

[20:04] I’m not sure how I should build pricing plans to segment my potential customers. I’d like to have some way of making product available to micropreneurs but also make sure I have higher price plans that cater to larger customers. Any guidance you can offer will be appreciated.

[20:16] Mike: There’s to different ways that I can see of kind of segmenting the market. The first one would be for those people who only have a limited number of either websites or servers. I don’t think it would actually be all that difficult to figure out whether or not somebody has one website on the same server or 15 different websites on the same server. What I think you’re going to have to deal with is of somebody has 10 websites are they a large business or are they a small business?

[20:43] It can fall either way and I think that’s going to be the challenging part is trying to figure out whether or not they fall into more of a higher tier business plan versus somebody who just has 5 or 6 small products that they’re trying to work and they happen to all be on the same server but they’re just trying to figure out what is going to work for them and that’s what’s not and they just throw away the other ones.

[21:05] Because the problem that they’re going to have is even if they’re making a fair amount of money from one of their products maybe let’s say its $500 or $1,000 a month and the rest of them are making almost zero, you still want those other ones protected if they’re on the same server because if something gets on to one website, it could theoretically cross infect all the other ones or infect the entire server. So you may need to do a little bit of leg work on an individual customer basis and set up pricing tiers to say okay, well based on this number of servers or this number or this number of websites, you’re going to end up in a different tier.

[21:36] You can also combine those a little bit and say one server or up to five websites and kind of say they’re the same thing. I think WP engine talked a little bit about in a podcast I heard about how they segmented their customers and they realized that if somebody had 10 websites, chances were really good that only 2 or 3 of them have a lot of traffic and the rest of them had virtually none and that was applied primarily to bloggers but it has to do with the distribution of how those are spread out.

[22:03] Another way that I can think of to segment the market a little bit is to identify how many times you’re going to hit their website in either a day or a week or a month to say okay we’re going to check it on this time period to see if it’s been hacked or not. Multiple business are going to say I want to know at least once a day or maybe I want to know every hour because I want to make sure that website or the web server isn’t getting hacked. And if it is, I want to know immediately versus somebody who’s just doing it on a more casual basis once a day or once a week is probably fine for them especially if they’re not making any money from it. So those are kind of my thoughts on how to monetize the site.

[22:39] Rob: I think those are all good thoughts on it. The other thing I would look at is I would go to pingdom.com and look at their pricing going to I’d go to sucuri.net because these are related services. Pingdom checks your up time and some other stuff frankly and then Sucuri is malware detection alert and clean up for websites. So they’re more of a competitor for you. And I imagine when you said that you pickup stuff that others don’t, it might be Sucuri whose not because I think they’re kind of the leader.

[23:07] If you look at how they do it, they say one website is $90 a year. Two to five is $190 a year and then six to ten is $290 a year. They kind of do all inclusive plans. I think it’s a reasonable way. You can think about having a one website. If you really want to help out micropreneur you could have a one website tier that’s a little cheaper and then as you get more websites realize well they’ve probably have more revenue so kind of increase the price accordingly as they go up in bulk from as an enterprise that has many websites should be paying more.

[23:38] The other thing, but they’re all these things that Mike said you can pivot on and Pingdom has them as well its like how many SMS alerts do you get? How many email alerts? Do you multi user capabilities? Because if you want multiple users to log in, you have a team of people, then you should definitely be paying more. And these are things you probably don’t have built yet and may just be on your feature list but those are ways to start segmenting your audience.

[24:04] The other thing is if you start doing integrations with anything whether its reporting, pulling in data or pushing data out that in order to use your API you can move that into like a middle tier or a higher tier because just the basic person who simply wants the basic scans might be willing to forgo that in order to pay a lower price. So good question Sean. Thanks for sending that in.

[24:24] I also like the website I have to admit. I think he did a good job here because the headline is “is it hacked?” and then you can enter a URL and they’ll take a look to see if its hacked. And then below that he has want to know more about keeping your site safe? Subscribe to our mailing list. I bet by now he has a decent mailing list of people that when he does go to launch a Saas version or subscription version of this, he actually has a head start.

[24:47] If he hadn’t had that in, I mean you basically have – you’re starting from scratch and even though you site’s been up all this time you don’t have assets. So even though he’s basically doing a free model at this point, Sean is still getting something out of having this site live. He’s basically building a list of people who may be interested in his subscription service down the line.

[25:04] Mike: The other thing I can think of is this type of service just in general I think is aimed more at business than it is at consumers anyway. So I would think that most people are going to be willing to pay for it. I almost feel in many ways if you start down the road of looking at security then changes are good that for somebody to be interested in paying for security, they have to have something that they’re willing to protect or that is on the line that they want to protect.

[25:32] So once you get to that point, changes are good that you probably have money to spend on that anyway. So I don’t know as I would worry too much about the pricing. I understand if you want to try and give back to the community, there are certainly ways to do that. I mean you could have regular pricing plans and then after that, underneath you can say are you a single founder or do you run a small business with one employee? Click here and let us know and we’ll work with you with special pricing or something along those lines.

[25:58] Rob: Our next question is about building a Saas app for a client and turning it into a product. It comes from long time listener Scott Underwood who his emailed before. He says I have a client who requested a proposal for a web app. I have a feeling the bid to develop the app will be higher than he’s expecting. It’s in a niche that I think I might have some promise to market the app as a Saas app.

[26:17] The client has three similar businesses that he would like the app customized for. The apps will be similar but will apply to three distinct business types. So I think it would appeal to a wide market and could be further customized for other similar businesses. My thoughts on how to work these are 1) provide the client with a proposal to create the app for a fixed fee with a monthly maintenance fee and I would retain the intellectual property rights to use the code, to resell it, create a Saas app etc.

[26:42] Option 2) offer to create a Saas app providing him with the functionality he needs and he can be customer 1. I would require him to commit to a minimum 12 month subscription paid monthly so he has an initial lower upfront cost and I have a customer for 12 months. I would also utilize his input and his industry knowledge to improve the app by getting feedback from him and his employees.

[27:01] Option 3) try to get an initial payment of 50% of his first year subscription and then give him 50% off the monthly fee for the first 12 months. There are only one or two similar Saas apps out there in the space and they’re dated so there is room for improvement. The price points for plans are $99 minimum for one location. $600 average for six locations and a high end of about $1,000 for ten locations. I don’t have industry experiences in these businesses but the initial client could provide a lot of feature request and improvement so that the app provides more value.

[27:30] I’ve emailed 10 similar businesses to get their feedback and whether they would be interested in it, benefit from and subscribe to this web application. I’m leading towards option 2 where he agrees to subscribe for one year minimum to the app. The app isn’t overly complex so I think it’s something I could create the initial version of it in a reasonable amount of time to get them up and running and then use his monthly payments to cover improving the app over time. Looking forward to hearing your thoughts.

[27:52] Mike: I think the first thought that comes to mind for me is in your question, there are a couple different ways that you’re trying to get the customer on in committing them to 12 months and paying you on a monthly basis. I would think if this customer really has three different businesses that they’re trying to get this application built for, then it would probably make a lot more sense to charge them upfront a year fee for the entire thing. And that way you don’t have to worry about monthly recurring payments that collections process. You don’t have to worry about it. It makes things a little bit easier. You can probably just get them to cut you a check and be done with it.

[28:24] That does alleviate a lot of the issues with providing them with a price quote that’s going to be well outside of their price range and I think I would first go to them and say flat out look, I think this price quote is going to be far outside your price range. What do you think of this as an option? Let’s just kind of talk through that. So you can kind of float that to them without bringing together a full blown proposal and that’s probably where I would start.

[28:47] In terms of going through and actually making it work I would definitely just try and get them to pay the 12 months and commit upfront to the whole thing. The problem that you’re going to run into that you and the customer are going to need to decide on is when does that time period start? When does that day one of that 12 month contract start because there’s going to be a lot of things that you do that you’re going to try and put these things into the program and you’re just not going to have time for all of it on day one.

[29:15] So there’s going to have to be a line in the sand that you draw to say look, at this point we’re going to pull the trigger and this is when the time period is going to start otherwise you’re going to run into problems down the road as to when the customer thinks that the time should start versus when you think it should start. And you may want to go down the road of having a deadline set at some point. So let’s say right now it’s August. Let’s say you decide December 1st that’s when you’re going to pull the trigger and that’s when the time period is going to start. At some point before then you collect the 12 months.

[29:42] So those are my thoughts on it like I said I would lean towards that initial 12 month subscription and try to get them to just pay all of it upfront and then you can provide them a yearly plan from then on.

[29:53] Rob: My initial thought is this is complicated. While I don’t think it’s a bad idea, I think it’s a last resort. And I think if you could possibly fund this yourself for doing on off hours it’s just going to be easier. It’s going to be less complicated. Because while you’re not technically taking on a partner who has equity, you are going to have someone who maybe thinks that they can dictate every aspect of the app. What if they request a feature and you don’t want to build it? It doesn’t apply to anyone else. It takes a long time to build it. There are a lot of potential conflicts that could come up here.

[30:29] And so I think dealing with the right partner who has an open mind and is willing to work with you on this and is pretty easy to deal with, I think this is realistic. But I think if that person is demanding and or entitled and thinks that by paying you an upfront payment of say $600 a month to about $7,000 for an annual, if they think they could suddenly dictate every aspect of your app that would have otherwise cost him $50,000 to build then that’s a real problem because its going to sideline you. Its going to cost you a lot of time. And potentially a lot of money.

[31:04] If you think about it, building this app, it would be good to have this person’s input because they do have the industry knowledge but frankly marketing it and trying to find that next market, because if you build three versions, I don’t know if you’re going to own all three of those, how you’re possibly going to market all three of those, that’s the real concern. That is an enormous amount of time. If they really are Saas apps that need full on kind of marketing and scaling and all that. It’s not something that one person could easily do.

[31:33] Mike: I think what he’s trying to do is solve the same problem for three different businesses and he’s charging the person for three different subscriptions.

[31:42] Rob: Yeah. That is the thing. You would need to charge for three subscriptions because although you may not have to write the code three times you are going to have to support three different apps, three different instillations, three different deployments, all that stuff. If your client thinks that he can basically pay once and then get three versions out of it, I think that’s another thing to think about is that there’s always a lot more with having three apps than just writing that shared codebase. So in general, I’m not wild about this idea. I don’t think it’s terrible but it’s not an ideal situation. It’s not a scenario I personally would embark upon.

[32:14] Mike: Would you be more comfortable with it if he built the whole thing first and then basically work through the issues with the person and then said okay, if this meets your needs then I’ll charge you for those? Because it seems like that’s really the sticky issue is getting the customer involved so early on the they feel they’re involved in the development effort and its really being customized for their environment.

[32:36] Rob: That’s right. That’s my big concern is you have kind of a marriage there that needs to be well defined as to what their role is and your role is in the specific ownership and who can dictate what gets in the product. Because if stuff goes down in the middle and they request a feature and you say no we’re not going to build it and they get really upset about it and what are you going to do? How do you resolve that? So thanks for the question Scott.

[33:00] So our last question today comes from Brian Donahue. He says hi guys I’m a newbie academy members and I attended my first MicroConf in April. I was very glad I was able to attend. There was one idea that was espoused repeatedly that I’m struggling to understand how to put into practice, the idea that you should sell your product before you’ve written any code. That sounds great but gives me all kinds of anxiety just thinking about it. I’m wondering how the looks in practice.

[33:25] What is the sales pitch? What promises do you make? Are you promising a delivery/lawn schedule? If they actually give you their credit card and you take their money, how long can you reasonably wait before they have something usable? If you have any experience or stories you can relate about this was done successfully, what things need to be in place and how to pre-launch customers engage in and get value from the process, I think that would make for a great show. Well if there’s some info you can point to me that I missed that explains in more specifics, I’d love to find it. Thank again for all your hard work. It’s usually inspirational.

[33:54] Mike: I think one of the things you have to keep in mind when you’re asking people for money or you’re asking them to commit is not necessarily that you’re asking them for the money. It’s asking them for a commitment to at least give the product a fair shot. When push comes to shove and you deliver the product or you’ve handed it to them, put it in front of them and said hey this is what I built. Let me know what your thoughts are. Is this something you’re willing to pay for? And that’s really what you’re trying to get. You’re just trying to get that commitment.

[34:20] It’s not about the money. That money could be a dollar. It could be down payment on a house and to the actual dollar amount in some cases are somewhat immaterial which you really just want is them to give it a fair shot and be in enough pain that they’re willing to come back to your site later on based on an email to actually follow through and sign up. And that’s what you want. You want that commitment. It’s not about the dollars. It’s not about them saying yeah, I want this and I want it in three weeks or three months. Chances are really good if they have this problem now they’re still going to have this problem in three months. They’re still probably going to have this problem in six months.

[34:54] And depending on how painful that is, if the problem is so incredibly painful that they need a solution immediately, there are going to be other people out there like them. So I don’t know as I would worry too much about them finding another solution because if they do find another solution that’s market validation for you. It means there are other products in the market that are solving that problem and you’re going to be able to carve out a space for yourself in that market.

[35:17] Rob: I think Brian’s talking about – a few people pointed out that you should actually get a credit card and charge their card or get a check from them maybe and don’t cash it. As a true commitment that until you have that, you don’t have a true commitment that they actually are going to value what you’re building. I’ve never done that. I don’t think it’s necessary. I do think it’s probably better or I know it’s better than getting a list of emails.

[35:43] But I find that asking someone for a purchase commitment upfront before you’ve built it will – if you do it online in pages in example, it will substantially reduce the number of people who you’re actually going to be able to engage with later on because you have to really sell hard on that page in order to get them to put their credit card number in. Whereas if you promise what the app is going to do and then you get email addresses, you then have a way to contact them and a way to explain what you’re doing and give them updates and get buy-in on the process and hopefully convert them by engaging with them over time and showing them what it is you’re building.

[36:18] So if I was going to do a solely online, that’s definitely how I’d do it. That’s how I’ve done Drip. And for an example you can go to getdrip.com right now you can see the landing page and that’s the promise that I make to people. That’s how I sell before coding. On the flip side, I do know there are people who cold call or get in face to face conversations and then do actually ask for the credit card. I think if that feels odd to you, if it feels scary then maybe don’t do it this time around and wait until you have your legs under you or wait ‘til you have an app that you’ve launched you feel more confident about it and consider at that point.

[36:51] I don’t think that there’s only one right answer to this question. I don’t think the end all be all way of doing it is to always get credit cards because again I think it limits the number of people – not only limits the number of people who you can kind of get in to your early access but it means you really have to flush out early on exactly what you’re building. Because if you explain kind of a vision or a value prop, it’s hard to get someone to write a check for the first month or the first six months of that. It’s really hard.

[37:17] But once you have something to show them then you can say alright, does this do it and how can I chance it so that it does provide you with the value to write that first check? There’s a range here of things you can do and what you feel comfortable with is probably what’s going to work best for you and I do think multiple options are viable here.

[37:34] Music

[37:37] If you have question for us, you can call it in to our voice mail number at 1-888-801-9690 or email it 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 or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. See you next time.



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10 Responses to “Episode 147 | SaaS Pricing, Segmenting Customers, Selling Before Coding, and More Listener Questions”

  1. Mike, every time there is a mention of Auditshark you come up with some technical speech on why you haven’t gotten it out.

    Check out Episode 66… that was almost 2 years ago… 2 years!!

    You have got to let this go.

    Why not start afresh, pick a new idea, create a MVP, get your first customer without having a product, and then come back and tell us about it.

    I’m currently not learning anything from you, except what not to do in a startup.

  2. Link to Episode 66 here:

    Note: It was JANUARY 2012. … going onto 2 years from this episode, and who knows how long before that Audit Shark started. It’s way too long man.


  3. Always love when you guys have an episode where I feel I need to listen to it a second time. Thanks!

    Re: credit unions, you hit the nail on the head, Mike. I just moved states and was looking for a good, local credit union for my personal and business accounts. I hadn’t heard of DCU, but will definitely put them on my short list. It’s rare to find a credit union with a full-fledged app that also allows check capture/deposit. In looking at their site, I don’t currently meet any of their membership criteria, however I can join a non-prof for $10 and that qualifies me. Once qualified, you’re good for life.

    Thanks for the heads up on this one and keep up with the great work you guys do. – Tony

  4. Sandy,

    Whilst your words may be interpreted as harsh, I must agree with your critique of Mike’s endeavours with Auditshark.

    Theory and application are certainly different things.

    Despite this, I have a message….Mike keep up the persistence!

  5. Sandy,

    Listen to the beginning of the show. It says “we’re here to share our experiences to help you avoid the same mistakes we’ve made”.

    Mike is sharing things that we should avoid, which is invaluable advices for us.

  6. Hey Guys,

    I think that Mike is trying hard, and we should support him. Maybe this is a change to discuss accountability in the podcast. Do accountability coaches help you achieve your goals instead of deferring?

    Just my 2 cents.


  7. Hey guys,

    I hope my comment wasn’t taken harshly, it’s just I’m trying to point to a hard truth. Things such as blogs and podcasts work on credibility, but Mike has lost mine long ago. Rookie mistakes: built it and they will come, not failing fast, not going on to the next idea when the first on fails, etc. etc.

    Xu: I agree completely, my issue is that nobody is accepting that they’re making mistakes. Mike (and Rob as cohost) is just ignoring whats going on, pretending everything is fine, when this product hasn’t EVEN been launched after several years.

    Aaron: Actually this is a good question. Maybe Rob can be Mike’s accountability partner? Who wouldn’t want Rob in this role?

    I would love Mike and Rob’s feedback in this sense.

  8. We’re discussing the topic of AuditShark on Episode 149. Podcast episodes are recorded roughly a week in advance, so by the time you comment on an episode, chances are good that we’ve already recorded the next one so it’s hard/impossible to incorporate those comments on the following episode.

    I think you’ll see significantly more progress on AuditShark (among other things) from now on.

  9. I’m with Xu – Mike & Rob aren’t putting themselves out there as all-knowing gurus who are telling us the One True Way to do a startup – they’re a couple of successful developers and businesspeople who are giving us a look behind the curtain at their experiences.

    Not all startups can go by blue-sky “lean” principles, and it can be hard to know when to pivot, when to quit, and when to press on. I’ve had products and entire businesses that I’ve shut down, and I learned a lot from them. Regardless of where AuditShark ends up, I appreciate the learnings Mike is sharing, and I’m not going to hold him to some standard of startup perfection that few, if any, people could meet.

    – Jack

  10. (I’ll add that I’ve also suffered years-long medical conditions that really put a crimp in my businesses & projects, so I’m especially empathetic to Mike’s situation after hearing about his…)

    – Jack