In this episode of Startups For The Rest Of Us, Rob and Mike talk about the pitfalls of commonly recommended marketing tactics. This topic was inspired by a tweet from Scott Watermasysk from KickoffLabs. Some of the tactics discussed include split testing, affiliate programs, content marketing, and more.
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 the pitfalls of several commonly recommended marketing tactics. This is Startups For The Rest Of Us episode 412.
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 build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you with the same mistakes we’ve made. What’s going on, Mr. Rob?
Rob: We received a voicemail from someone, I believe he was in Brisbane, Australia, but it was definitely an Australian accent and I could barely make out the audio. The audio quality was so bad that we don’t even know his name or the question he asked. If that is you, please call us back or better yet, just record an MP3 on your local machine and just attach it or send us a Dropbox link to firstname.lastname@example.org. Because it sounded like a good question but couldn’t really make out what he’s saying during that. How about you? What are you up to?
Mike: I’m in the middle of testing a new road map process with one of my customers using Teamwork. The basic idea is that I set up a project in Teamwork, mainly because this customer’s been with me for a while and it’s not a really complicated stuff that they’re asking for what they need, but they need assurances or like timeline and implementation and everything else.
I’ve got a road map that I’ve been using in the background using Trello for a while, but I just haven’t kept up with it. I’ve never really gotten into Trello like most people have. What I did was I created a project in Teamwork and then I invited them to look at it. I took their […], threw them in there. Basically, I’m working through them and it gives me the opportunity to comment on those things directly and allow them to comment back on them as well. It creates this really nice feedback loop between those things.
I haven’t added any other customers into it yet, but I think that that might be something that I’ll look into the future. But I’ve looked at other road mapping tools in the past and I’ve never really quite found one that suited me.
Rob: Is this for communicating your road map to customers?
Mike: If a customer asks for something, how do I communicate it to the rest of the customers, like, “This is what is going to be going on and this is what the priority is.” It’s a little bit different than like a bug tracker, obviously, if there’s a bug or somebody needs support or something like that, it’s different, but I’m the only one who can add stuff in so that it’s visible, but anybody can comment on it, at least so it seems like.
Rob: I’m trying to think there’s a tool that we use at Drip and of course, I can’t remember the name of it and we always used it to announce what we had built. It’s like, “This is what we released in September.” It’s like a change log tool but it was user-friendly. It was not super techie. I’m trying to think if you could use that pretty easily to suggest like, “Here’s what we’re working on in order.” I think there was actually a little feature where you could just add a bulleted list, but it was super stripped down. It was a very simple tool. It was $10 a month or something. It’s probably someone’s side project, although it’s pretty well-designed. Is that all you need is just a list of things? Why not just have, maybe a public Google doc or even just a static page on your website that’s like /roadmap? It’s just five things in bold list like, “Here are the next major five efforts we’re doing.”
Mike: There’s two things. One is we’ve been going back and forth through email and I said, “Look, I understand you got all these different things that you want to see, but I need a list of them. Just going back and forth one at a time is really not working. Send me the whole list.” They sent me the entire list and broke it out into three different sets like, “These are things we need very, very soon, these are things that can wait a little while, and these are things we’d like to eventually see down the road.” I looked at them and they all mapped pretty well like my internal road map anyway, which I have in my bug tracker, but I’m not going to pay for other people outside of business to have an account there just because it’s going to get expensive.
I was trying to figure out how do I work back and forth with them because I had a bunch of questions on some of them and there were comments on other things. It was a question of, “How do I work with them to flesh out what each of these things is?” because if I got an email that’s, let’s say, two pages or something like that, like bullets that they email to me, it’s hard to go back and forth about one line item and five line items in an email. I really needed something that was going to break them out so that I can comment on things individually and separate them a little bit more. Does that makes sense?
Rob: It does, yeah. It’s not just for outbound communication, it’s kind of like you’re almost collaborating with a client. It’s not that they’re paying you for this and not that you’re going to build it exactly as you’re expecting, but they really are. It’s much more customer development process than it is, “Hey, we’ve got suggestions in here is what’s we’re going to build.”
Mike: Yeah, I’d say customer development is probably a better way to phrase it than I did. It is a lot of back-and-forth to figure out like, “Is this going to work for you or what exactly did you mean by that? How are you going to use this?” for example. Because some of the questions are like, “I hear what you’re saying and it makes sense but where you going to use this for? I want to know, is there a better way to do this or is there something else that we could do either short-term or manually that would get them there faster?”
Rob: Right. Cool, it sounds interesting. I think of it as less of a road map process and more of, I guess, it is impacting your road map, but it’s more like a customer collaboration or a customer development process that you’re doing using Teamwork. That makes sense?
Mike: Yeah, it is.
Mike: But I went on Google and searched for road map software a while back and I came across all these other things, like there’s ProductBoard, aha.io, ProductPlan, ProdPad, and things like that. It’s just none of them really seem to fit what I was looking for in terms of this back-and-forth communication with either individual customers or with small groups of them. I really think I just want to identify a couple of more customers to maybe work on this with, but it’s really a matter of, does it make sense in that particular context for that customer?
Rob: That makes sense. Have you seen MailChimp’s new branding?
Mike: I got an email about it, but I haven’t looked at it yet.
Rob: It’s a trip. I think I saw a news article. I think I was on SparkToro Trending. SparkToro is Rand Fishkin’s new startup and there’s a trending page and they talked–there was an article written about MailChimp’s new branding. Obviously, I think of MailChimp as the ESP. There are other email service providers but they are the biggest one. They are the ones that send a billion emails a day. Like the title tag on their homepage, which is what will appear on Google now, is marketing platform for small business.
I don’t know if it’s a pivot as much of just a rebrand. But like their homepage used to say, “We help you sell more stuff at MailChimp,” or something like that, it’s very much commerce-focused, but their headline is now, “Your business was born for this. Become the brand you want to be with smarter marketing built for big things.” It’s very, very interesting. It’s a gutsy move. The colors are different. I actually like the design of the site. It’s definitely jarring.
Remember when the Drip rebrand happened and there was the magenta and the other colors, I feel this is similar but different, but the headline and the value prop on it feels not nearly as focused as what I’ve always thought of as MailChimp. The fact that the sub-headline is “Become the brand you want to be with smarter marketing built for big things,” that doesn’t resonate with me as a customer and never would have at any point in my entrepreneurial career. I’m concerned. These guys are smart, let’s not fault MailChimp, but I feel like maybe they’ve made a misstep here.
Mike: I don’t know. I think it’s easy to think that if a company changes their brand name, that, “Oh, this company isn’t for me any more. This tool isn’t for me,” but at the same time, the tool itself hasn’t change. It’s really just a marketing message. I forget who said this, but the line is something along the lines of, “What got you here won’t get your there.” Like you said, they’re sending a billion emails a day but that doesn’t necessarily acquire them more customers faster, they need a marketing message that resonates with a larger group of people than they currently have or they’re currently after because they probably saturated the market. The ESP market is really highly saturated. There’s tons of players there so they need to differentiate themselves an go after people who are either just not using something or are using something else and want to find something that is going to fit them better.
Rob: Yeah. That makes sense and that’s thing. When you’re not inside an privy to the conversations that they’re having and who they’re competing against when they’re going for big deals, you don’t know. That’s where I’m like, “Who am I to say?” but this is my opinion on the outside. Again, with the Drip stuff when there was that rebrand, it was right before I was leaving the company. It was happening and rolling out. There were so many naysayers and haters on social media and all the stuff, but they were privy to the information that is actually going on inside the company.
I guess what I’m saying is, it could be so easy for me to sit here and just rail on this MailChimp rebrand because it’s “different,” but I trust that MailChimp is pretty damn smart and pretty good at what they do, and that they took the information. It’s either going to work or they’ll change. If that headline doesn’t resonate with people, they’ll change it. I think that’s the thing. When you make these big gutsy moves and you’re trying to land and expand or pivot into a larger space or whatever it is that they’re doing, apply to more people, as you said, you have to do risky stuff at some point.
What’s interesting is in the early days of a startup, you take a lot of risks but no one’s there to notice and no one cares. But when you have 1000, 10,000, 50,000 customers and you take these risks, a lot of people get up in arms over it, but really it’s the same risk that you’ve been taking all along.
Mike: I think for large companies like that, it doesn’t matter nearly as much as we might sit here in armchair quarterback it, you know Monday morning quarterback. Just because their existing customers are still going to be paying them money, it’s about them acquiring new customers, not appealing to the ones that they already have. That’s the way I see it.
Rob: That’s the thing. As long as you don’t do such a pivot that you completely turn your existing customers off and have a bunch of churn and stuff, man, that would be really hard to do, especially with ESPs where there is some lock-in in the space.
Mike: Yeah, it is hard to move from one to another. I’ve done that before. It sucks.
Rob: Yup. So what are we talking about today?
Mike: Today, we’re going to be talking about a couple of pitfalls of some commonly recommended marketing tactics. This topic was inspired by a tweet from Scott over at KickoffLabs and we’ll link that into the show notes. But he said, “One of the worst startup diseases is AB testing. Such a colossal waste of time when you don’t have significant traffic,” and it got me to thinking, what other things are there that are commonly recommended marketing tactics that I see and hear about or you’ve see and hear about, that are either colossal waste of time or there’s pitfalls or things that you don’t necessarily know about until you get into it, and only to realize that you’re walking into a hornet’s nest and there’s more trouble than it’s worth or it’s just not going to work for you or it’s something that you can do short term, but it’s not going to be sustainable for you.
Rob: Cool. Let’s dig in. I was pretty excited when you talked about doing this topic today because I think there are a lot of, I won’t say misinformation but it’s more like myths or people making things look easier than it actually is in order to sell things, in order to sell their software or sell their infoproducts.
Mike: I think that’s the big piece of it is that they think it look easier or sound easier than it actually is. For split testing, we’ll start off there because of the tweet from Scott but you need substantial traffic and most early entrepreneurs don’t have it. It’s not just that you need substantial traffic, you need substantial traffic and a short enough time window where your test is going to be able to give you at least some sort of significant results.
The other thing that I think is a little bit misleading is about whether or not the split testing that you actually could do, if you were to get 1% results or an increase every month for 12 months, would you actually be that much better off? I have seen some odd anecdotes where people will say, “Hey, we did all these split test or we split tested something against itself and one was significantly different than the other.” It does make me wonder a little bit as to whether or not with the resources that we as small business owners have available, can we actually even effectively execute on that stuff in a way that is going to move the needle for our business?
Rob: If you’re thinking about the early days of your startup and you’re trying to build something people want, you’re in customer development, you have a website, a little bit of traffic, split testing is the furthest thing from your mind or should be the furthest thing from your mind. You need to be talking to customers in those early days, to figure out what is that I can build that people are willing to pay for, that’s different enough from the competition that I can communicate that and people will sign up.
Typically, you’re going to split test your home page or your pricing page or your sign-up funnel, and I would not even consider it before I had, let’s say 5000 or 10,000 uniques a month. Really, at that point, it depends on what revenue is and if I have the time to test the headline here or there. But if I were to do split testing at that point, let’s say I had 10,000 uniques a month coming to their home page, I would probably just set up one or two alternate headlines and just let it run and see what happens. But it wouldn’t be some massive effort where I would be redesigning the entire page to spending a bunch of time to try to get some major difference in conversions, because there are other levers you should be pulling at that point. When you have 5000 or 10,000 uniques, you should be worrying about more traffic, or you should be worrying about, frankly, converting more of the existing trials you have to pay the customer. It’s going to tend to move the needle more than spending a lot of time on split testing.
Mike: The next marketing tactic is using affiliate programs. I see a lot of startups from Product Hunt, BetaList, and a couple of other places that startup it up where they’re pitching this affiliate program and saying, “Hey you can manage your affiliate program through our SaaS and you’ll be able to get more customers for your business.” But the reality is that the attribution itself is fine within those pieces of software, but finding the affiliates who are able to bring in enough leads to make it worth your time is actually pretty hard.
I’ve done this a couple of times. It seems to me the software itself is reasonably straightforward in most cases to implement, but finding the people who are actually going to bring leads that are qualified to you is a lot more challenging. It’s just, you have to do a lot of education to those people, you have to make it worth their time, and you have to be finding affiliates who have a substantial traffic source already or existing list where you can point them back to your website, give them an affiliate code or something like that, and give them an offer that’s actually going to get them to convert. If you don’t have all of those things, then it’s just not going to work. It doesn’t matter how many people you sign up for your affiliate program. You need the qualified leads to be coming in.
Rob: Yeah. Finding affiliates is way harder than most people think unless this is a primary strategy for you and you have a network. The people who I’ve seen make it work—let’s talk about Clay Collins of LeadPages—it was built mostly on the affiliate model. He did that because he knew all the people in the internet marketing space. He had the clout to get them to do webinars with him. It wasn’t just, “Hey, send me some traffic.” It was, “Let’s do a webinar,” and then he pitch an annual deal and it was 50% off, there was time pressure and there were bonuses, I should say, that you got if you sold there. That’s how he grew it that fast.
ConvertKit did the same thing. It was the same playbook. If you’re going to do that, then do that and go all in on it. I recall, at one point, Clay was doing 20 webinars a month or something in the early days, 15 or 20. It was crazy. He’s just a machine. In that case, you’re an exception. You’re not going to start from a cold network where you don’t know other people who have big audiences and make affiliate programs work from the start. It’s going to be a ton of work. In addition, the process side I just talked about, I’ve only seen it work in one niche and it’s in this aspirational business niche. It’s in the people who want to be bloggers or be info marketers and they’re being sold info on how to start your own biz from home.
You look at LeadPages and ConvertKit and they both serve that same path Flynn-ish niche. You can’t just go to enterprise software and think you’re going to do this big affiliate model, sell to Fortune 500 companies or Fortune 1000 companies using that. Or even freelancers would be possible because there are people with those audiences, but it wouldn’t work to the same extent that it does because the audience is just aren’t as big and they aren’t as prone to buy. I’d say there is one or two other spaces that I know of that are similar to that, that aspirational thing where you can sell them the idea or the promise of, “Hey, you’re going to have a landing page provider or here’s an ESP and here’s how to start your blog and make money.” But beyond those, it is really hard to get an affiliate program profitable one off the ground.
I had affiliate program with HitTail and Drip, and they made money, they were profitable, but they were not major driving factors. Even when we did joint ventures and we did joint venture webinars, we’d do JV mailings, it made money and it was fine, but these were not the major drivers of growth that I’ve seen in most of my startups. Again, not saying it can’t work but it’s definitely different than it appears.
Mike: Yeah, it’s definitely a lot harder than it appears. You have mentioned enterprise software sales where affiliate models wouldn’t really work and I agree with that, but there’s a slightly different model for those enterprise deals where it’s basically a reseller arrangement. You don’t have direct contact with the enterprise companies, you resell to other companies, you sign them on as resellers which is a slightly different take on an affiliate program, but it’s not substantially that much different. It’s the same basic idea–somebody else is bring in the lead in. The difference with a reseller is that the reseller is basically managing the customer relationship versus with the affiliate, they’re bringing them in and then they’re hands-off at that point.
The next one is content marketing. I think that the content marketing has been all the rage for the past several years and I don’t see it necessarily ending anytime soon, but I think the bottom line for content marketing is that it is time and resource intensive to general content on a repeated basis. If you’re trying to blog once a week or put out a few articles each week or each month, that’s fine, but it’s not just the generation of those which is time and resource intensive, it’s also the marketing and distribution of those. If you’re trying to post it to Quora and various startup list and out your email newsletter and social media, that gets to be time and resource intensive, especially if you’re trying to cross-promote between different channels and schedule everything–it just gets complicated.
There’s also very long lead time to getting results and getting measurable results from them. It could be anywhere from three to six months, it could be as much as a year or 18 months. Regardless if that, it’s a lot of time and effort to get that engine running. But once it’s running, you’ll do really well with it but it just takes a long to get there and there’s probably better places for you to spend your time if you’re early on.
Rob: Yeah, this one is tough because content marketing can and does work. You just got to remember content marketing is more about SEO and it is a long-term play. That’s why when we get the questions from someone like, “Hey, I’m at $2000 MRR. Should I start my content marketing?” It depends. Probably not, but it really depends what niche are you in? Are there distribution networks? Not even networks but like growthhackers.com and YCombinator are distribution avenues for you to get the content out and are there people daily reading stuff like this? Are you going to be able to drive it? Are you going to build your list? And then long term, are you targeting SEO terms? Organic terms that are going to bring traffic? That’s how the play has really been successful for these larger companies.
Of the three we’ve talked about so far, I think content marketing is the best and most viable, but your critiques are absolutely correct in that it often takes a long time to get results and it is very resource intensive to generate content at the quality, and these days at the length that’s required to make it dent because there’s so much noise, man. I have not been on the social news sites like inbound.org used to be one but it shut down. growthhackers.com is still there, Hacker News, even SparkToro Trending, I had not been on any of those. I just don’t go on them regularly.
I’ve looked at a few of them this morning and the volume of content is crazy. It’s so much more and so much of it is highly targeted and you can tell it’s targeted to try to just get clicks to it. It’s a startup that is trying to get people to come through from Hacker News or from Product Time or from whatever to generate traffic to then funnel into the leads. We’ve all been there. I totally know that playbook. I was doing it back in 2012-2013 or even before that from my blog in 2010, but there is just a lot of noise out there. To rise above that, it’s a lot of time and money to create content that is good enough to warrant people’s attention.
Mike: The fourth item on our list is social media marketing and by this, I don’t mean paid ads like if you’re going on Twitter or Facebook or Instagram, whatever you like. You can pay for advertising, but that’s not what I’m talking about. I’m talking about building an audience and then trying to market content to them. I think the reason that this can be a substantial pitfall for people is that it seems like it should be easy but it’s time-intensive to gain followers. When you post things, a lot of times only a fraction of your followers are going to see a particular piece of content.
For example, I think on Twitter, the stuff that I’ve heard is about 5% of your followers are going to see any given tweet that you put out. So even if you have 100,000 followers, only about 5000 of them are going to see that. So the strategy to overcome that is you tweet multiple times a day and use something like Buffer to put those tweets out at different times a day to try and catch people on different time zones.
At that point, I feel like you’re also oversaturated in the people who are on Twitter a lot and it could very well be a turn-off to those people, but again, it’s a matter of, “What type of product are you promoting to people and is it going to be relevant to the people who are on Twitter?” I tried Twitter advertising for AuditShark, for example, and it just absolutely did not work because the people who are in the enterprise are just not the type of people who are looking for security software on Twitter.
Rob: Yeah and that’s not to say that Twitter advertising won’t work for anyone. I also think LinkedIn could be better for you, but I tried LinkedIn many times with multiple products and never got LinkedIn advertising to pay itself back. Again, not saying it won’t work, it’s just going to take trial and error if you can get it to work at all.
Mike: On that note, James Kennedy is going to be speaking at MicroConf Europe on a LinkedIn strategy for acquiring leads, so that might be interesting to you.
Rob: Awesome. That would be a cool one. I agree, man, social media marketing is great for B2C and it can be great for prosumer stuff, aspirational entrepreneurship, or even photographers–they tend to be aspirational. But when you’re talking about real sales tools, or real email marketing tools, or real tools that you want people to buy and use for years, and you need businesses that are making decisions, comparing you to competitors and all that, social media is a nice to have. It is not something in general that’s going to drive your bottom line if you are a B2B SaaS app. I’m sure there’s one exception to this, maybe two, I’m sure there are a couple, but overall as a bootstrapper or as someone who is really just trying to block and tackle, there are so many more things that you could be doing than to tooling around on Facebook and Twitter.
Mike: I think the real challenge here is just the fact that entrepreneurs tend to be on the internet a lot, we see Twitter a lot and we see Facebook a lot, so it’s natural to assume, “Hey, I should test that out or use that as a marketing strategy.” But again, it’s time-intensive to gain the followers. The reality is that what you want and most of those cases is actually just send them over to an email list anyway so you […] email address. Assuming you can get an engine up and running that can do that for you then that’s fine, but you still need a way to make it work and it can be very time-intensive to gain those followers and it’s not obvious always how you’re going to be able to do that.
The last one we have on our list today is offline advertising. By this, you can take it a bunch of different directions. It could be billboard advertising, […] response in a conference or podcast or anything where the direct attribution is a little bit more challenging. That also include things like sending postcards or physical mailers to people. I think, is it GRC marketing that does that? They advocate that a lot for sending out the bulky mail to people just to get their attention. That works great for those situations where you have a higher price point product or it’s a service, and there’s going to be a relationship that you’re trying to establish with them or the dollar amount is high enough that it’s worth it to send those.
The biggest downside of those is that it’s extremely hard to do the attribution in most cases and then there’s also a much longer iteration cycle. Instead of looking at couple of weeks for paid ads on Facebook or Twitter, you’re looking at a month, two months, maybe three months for an iteration cycle to send out a mailer and then figure out whether or not you got results from it, track those back, then make some adjustments or tweaks, and then move on to the next group. It can get very complicated to juggle all of those things at once because even if you’re just doing it repeatedly over the course of a month or two, it’s just going to suck up all of your time and attention. You’re not really going to be able to do very much else.
Rob: Yeah, it is expensive, too. It’s a long turn-around time and the iteration cycles are just, I would say, too long for a startup. Now, once you’re down the line, you have product market fit and it you’re in a space where offline is a really good option, obviously you could experiment with it. But it’s not something I would be messing with in the early days. And as you said, attribution is rough. I did some trade publication magazine advertising for one of my products once or twice and it didn’t work. Again, it’s not saying it wouldn’t work for you, but I quickly realized how expensive it was and just how you can’t tell if it’s working.
There’s a little adage, “50% of advertising doesn’t work.” You just can’t tell which 50% and that’s when people are talking about magazine and TV and radio and that kind of stuff. Obviously, you can tell which 50% works when you’re online and we are spoiled by that, in all honesty. I think that’s a real boon to the online marketer today. Offline is not something that I think you should get into lightly unless you really know what you’re doing.
Mike: I do know people who make offline advertising work. The problem is just that the iteration cycles are anywhere from 8-12 weeks just to find out whether or not a particular mailer got through to the right people and whether they got those people into their sales funnel. It does work especially in his particular business, but again, it’s just the lead time for you to go from one iteration cycle to the next and get the information back. It’s just hard if you’re still trying to make ends meet.
I think generally speaking, when you are trying to evaluate a marketing tactic is to whether or not it’s going to work for you or decide whether it’s going to be something that you want to try, there’s a couple of things to keep in mind. The first one is, is there a complicated setup that needs to be done first? Are you going to need to go create a bunch of accounts or are you going to need to integrate a bunch of different tools together? Is there ongoing effort that needs to be done? Are you going to have to constantly be creating or doing things? Any of those things where it takes your involvement on a very repeated basis is going to eat into the feasibility of using that strategy in the long term.
For blogging, for example, or content marketing, if you have to do that every single week, it can be difficult. It’s not saying you can’t outsource it. If you have money, you can obviously substitute that in for your time, but again, that’s a resource trade-off that you’re going to need to make down the road. You can start off doing it yourself or you can outsource it to somebody else. But those are the type of things you need to think about when you’re trying to figure out, “Is this something that I’m going to try and do long-term?” or are there better places that you could be spending your time?
Rob: Right because it’s one thing to intentionally try something and know that it’s not going to scale, but to do it as an experiment. It’s another thing to try a bunch of different tactics that really you don’t have much hope of sustaining without really doubling down on them. If you shotgun it and you try five different things but all of them need a tremendous amount of resources and effort, and you only go 10% of the way with each of them, you’re throwing an article here and you set up an affiliate plan here, and you do a Twitter and Facebook post a week, it’s like you’re not doing anything well.
But if you dive into one and experiment, figure out is there any way to make this possible, you dig in for a month or six weeks or whatever it takes, and you do these sprints where you dig in, learn everything you can about it and execute on it or you hire someone to do that if you have the budget. Determine, “Is this going to work right now given my business, yes or no?” Answer that question and then move on to the next thing–that is much more of the approach that I would recommend and the approach that I’ve taken in the past. You don’t need many of those to work in order to scale your business. If you find one or two pretty substantial marketing practices and you figure out the angle and you figure out how to get in there, that can grow your business to well under seven figures. It doesn’t take 10 different marketing tactics to get there.
With that, we’ll wrap up for today. If you have a question for us, call our voicemail number at 888-801-9690 or email us at email@example.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on 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 306 | Mixing Subscription and One-time Pricing, Angel Investing, Options for Recurring Payments, and More Listener Questions
In this episode of Startups For The Rest Of Us, Rob and Mike answer some listener questions including mixing subscription and one time pricing, options for reoccurring payments, affiliate programs and more. Mike also gives some recent updates on his progress with BlueTick.
Items mentioned in this episode:
Rob [00:00]: In this episode of Startups For The Rest Of Us, Mike and I discuss mixing subscription and one-time pricing, angel investing options for recurring payments, and more listener questions. This is Startups For the Rest Of Us, episode 306.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome in building, launching, and scaling software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike [00:33]: And I’m Mike.
Rob [00:34]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Mike?
Mike [00:38]: Well, I’ve had a couple of pre-order cancellations in the past week, which is a little bit disappointing. But one of them never got to the point of going through the on-boarding process. They never even connected their mailbox to the system – to Bluetick – and their concern was essentially privacy. They were really just trying to limit the number of applications that have access to their mailbox. So there is really no way for the software to work right now without that, and I can think of things down the road that might enable that, but it’s just not going to happen any time soon.
That was one of them. And then the other one, they had some other tools that they were looking to replace and then the vendors came back and implemented some of the things that they were lacking that I was building. So it’s unfortunate on both of those things, but the first one there’s really not much you can do about that, and then the second one, I mean, that kind of thing is just going to happen. Like I said, it’s a little disappointing, but I don’t think that it’s any reason to panic at this point.
Rob [01:29]: I think that other vendor building that extra feature is a bummer, but it’s not the end of the world because you just need to out-feature them, right? You need to stay ahead of them and innovate and stuff. Is that competitor a large competitor that you think could swallow up the market, where everyone’s going to be telling you – kind of like when MailChimp launched automation and everyone was saying, “Oh no, and MailChimp launched automation. Is that better than Drip?” and then we just had to keep addressing it. Is that what it’s going to be? Or is this competitor kind of an also ran or a lesser known player?
Mike [01:56]: No, they’re a big competitor, and they’re funded. And – how do I put it? The things that they implemented still don’t completely overlap with what I’m doing. The reason that the person was switching was they had a short list of things that they had that they needed that the vendor just simply didn’t have. And then when the vendor went in and added them, they’re like, “Oh, I’m sorry. The vendor just added a bunch of these things. And they were the reasons why I was going to switch away, because you had them and they don’t. But I have all my systems set up through them.” So it would have been painful for them to switch, and there’s a lot of other things that they probably use with that vendor that the customer would have had to wait for me to implement. So it would have been kind of painful, and because it was so integrated in those processes, it would have been difficult for them to switch. So it’s probably best that this happens now kind of and left the door open to possibly switch over at some point in the future.
Rob [02:44]: I think you’re going to hear this again. So I think you’ll either need to figure out a way to counter that objection, or build out enough functionality that someone would consider leaving whole-hog from that vendor over to you, or from that competitor over to you. Because otherwise, I have concerns that if they become the de facto for this type of sending, and everybody knows that, it’s really hard for you to get a foot-hold in the space.
Mike [03:07]: The thing is, they don’t even do like the email sending. So that’s the thing, is like it was just this customer wanted certain features that the vendor didn’t have, and the sending of the emails would be really nice and helpful, and that’s not what they have and it’s not what they implemented, but they implemented enough that it’s like, “Okay, well, yeah, I’ll stick around for a while longer.”
Rob [03:26]: Right. But then the other one I’m actually more concerned about the fact that he didn’t want to connect it due to security issues? I think other people are going to balk at that as well. What kind of education could you put in place – I’m brainstorming here. How can you educate people? How can you overcome that objection in the future, because if one out of – what do you have 10 or 15 pre-orders? And if one person out of that many cancelled, I have to imagine that that’s going to come up again.
Mike [03:51]: I had pretty in-depth conversation with them about it, and it feels to me like it’s much more of an edge case than, I’ll say, a mainstream thought about limiting the number of applications that have access. So one of the things right now that I don’t have implemented is any sort of OAuth mechanism to access the mailbox. It’s all directly done through one-time passwords if you’re using Gmail, or just the regular passwords if you’re using other mail servers. So that’s something that I could use to allow me access without having to provide the credentials into my system, and then they can revoke it at any time on the other side. You can do that with one-time passwords as well, but there’s only so much that you can speak to those types of points. I mean, if somebody is just not fundamentally not comfortable with your products interacting with their mail server, there’s really only so much you can do. And I think that there’s enough people that are okay with it that that’s not going to be a big deal.
Rob [04:44]: Yeah. I think you’ll know more as you have tens and/or hundreds of conversations. Then you’ll start to see a pattern. We had concerns in the early days from early customers about deliverability, because they just – it was an unknown. And that was a big thing we had to educate them on, because they kept saying, “I’m on MailChimp. How do I know your deliverability is as good?” And at that time, we were actually sending through, essentially MailChimp servers, right? Because we were using Mandrel, and so we always brought that to the table and basically said, “Look, our deliverability is as good as them. We actually ran parallel tests and we saw the same results. It was within a tenth of a percent deliverability either way.” And so we took the time to really focus on that one, because it was – we don’t get that almost at all anymore, because we’re just now, you’re accepted as a major player, but in the early days, that was for some reason this big concern of everybody’s, and it’s funny because that’s never been a concern of mine. I know you need to worry about it, but I figure if someone’s sent an email, they probably know what they’re doing.
But all that to say, I think that in the early days since you’re not a brand name, and since people don’t know who you are, that you are going to hear these types of things, and the more you can have prepared to really address it directly, and to be like, “You can revoke this at any time. These are the only things we look at…” and blah, blah, blah – whatever you can do to basically minimize it. You’re never going to talk everybody out of that concern, but if ten people raise it over the next six months and you can maybe talk five of them out of it – and it’s really education. It’s not even talking them out of it, it’s just educating them to the point where their fears are allayed, I think you’ll be in good shape.
Mike [06:09]: Yeah. I mean for the, I’d say the first batch or two that I’ve added in, I don’t know if that’s going to be too much of an issue. Most of the people I’m talking to know what my background is, and I can explain to them, “Okay, this is how everything’s encrypted. All your user names and passwords are encrypted. You can’t even get the user names and passwords of mail servers out of the system. There’s not a way to do it. You basically have to crack open the system, hack into the entire server, pull out the database, and then decrypt the information inside of the database for each of the records.” And at that point, there’s much easier ways of getting information.
But I also understand that access to your entire mailbox could be a huge issue for some people. So, as you said, there’s only so far you can take that conversation and try to convince somebody that, “Hey, this is going to safe – or at least reasonably safe – and you’re not going to have to worry about it.” But my bigger concern is down the road, when there’s people who are signing up that I’m not directly talking to, that I’m not having those conversations with. And I can’t answer those questions, because they’re not asking them. They’re on a website.
Rob [07:11]: And that’s where having that as a question right next to the credit card form, or right below it in the FAQ on the pricing page, or just something where it’s pretty prominent, I think is going to be a win. That’s where these early days of hustling and talking to people builds up not just your customer base, but it’s education of what the standard objections are. If you start noting these down somewhere in a Google doc and you’re able to say, “This was the objection, this is the reason why that’s not a big deal,” and I saved reams of those things. I probably had 20 or 30 by the time that we launched Drip. I had objections, I had FAQs, and answers I provided via email. So I just had it all as text, and then we basically pulled from that to build the marketing site, and not only the marketing but the FAQ piece of it. That’s such a big win. That’s something you’re pulling out of right now. The learning right now is worth way more than the revenue.
Mike [08:02]: Oh, definitely. I have probably 50 or 60 pages of notes and in various Google docs with like – every time I have a conversation with somebody I take notes on it. So I keep all those notes in those Google docs, and I date them all so that I can just go back through and eyeball it and see who I talked to, and when I talked to them, and it’s all in one spot. Actually it’s in several different spots, but I think it’s in five different documents based on when I talked to them. So I keep each conversation in a single document that maps to where in the sales funnel they were at the time I had the conversation.
Rob [08:31]: Very cool. From my end, when to log in to my calendar app, it’s on my iPhone, which is called Sunrise. Have you ever used it?
Mike [08:39]: No, but I’ve heard of it. Didn’t Microsoft acquire it?
Rob [08:41]: They did, and in typical funded startup with no business model, Microsoft acquired them and shut the app down. And there’s been a bunch of notifications and so this is not a surprise, but it’s such a bummer because it is by far, in my opinion, the best calendaring app on the iPhone.
Mike [08:57]: Minor correction there, was.
Rob [08:58]: Was the best. Thank you very much. So I’ve switched. I’m using Tiny Calendar right now which is fine. And the Google calendar client for IOS, it’s decent, right? It’s not terrible but – and I’ve also tried to use the Outlook IOS app because they basically bought Sunrise and then tried to integrate some of that into Outlook, but it’s not the same. It’s nowhere near as polished and the UX just isn’t as good. So thanks to Derrick Reimer for initially introducing me to Sunrise, and now I think we’re all looking for a replacement of that.
And that’s a bummer. I don’t like it – it kind of irritates me when a startup starts with no business model and you’re just counting the days until they get acquired. I mean, right? In most cases that’s what’s going to happen. They’re either going to go out of business because they ran out of funding, or they’re going to get bought right before they ran out of funding, and the app’s going to shut down anyways. So it’s a little bit irritating.
Mike [09:45]: Definitely disappointing. So other Bluetick news here is we’re testing a pretty massive update to a lot of the backend infrastructure where we’re introducing an event messaging system, so that as different things happen in different parts of the application, that it will be able to send messages back and forth. And it allows us to react to different things that happen. So if somebody opens an email you can trigger a message that will perform a bunch of different actions. You can chain those things together. And there’s a huge amount of work that’s gone into this, but it’s kind of nearing the completion phase, but it allows the entire system to be a lot more scalable. And because those messages can be just pulled off a queue and processed, and if anything fails along the way then it’ll reprocess it. Obviously, there’s a lot of care that you have to have in certain cases where, if you don’t want obviously an email that could be sent more than one time, then you have to be very careful about concurrency aspects of that stuff, or whenever certain things are being shut down or started up. But like I said, it’s a huge update that we’ve been testing for probably close to two months now.
Rob [10:46]: Oh, man. Wow, that’s a long time, man.
Mike [10:50]: Yeah. Some of the stuff is just things that we’ve never worked on before, and then there’s error messages that we have to try and figure out exactly what they mean. I read one to you earlier. For the listeners, the error message I’m getting is, “The condition specified using HTTP conditional headers is not met.” which doesn’t mean a whole heck of a lot. So there’s a little bit of research involvement in some of this stuff.
Rob [11:09]: “Stack overflow. Help me!”
Mike [11:13]: Yeah, no kidding. No kidding.
Rob [11:14]: Cool. So well let’s dive into questions. I think we were talking about doing a more in-depth updates episode in the next few weeks, so we can dive further into this kind of stuff. But we have a bunch of questions today. I don’t think we’ll get through all of them. And actually, if you listen to this and you have either a topic suggestion for Mike and I to discuss, or a question that you have about anything startups, SaaS related, even tech related, tabletop gaming related – no I’m just kidding about the last one – but send it in to firstname.lastname@example.org, because we are at this point running a little bit low on questions, so I bet we’ll be able to answer your questions sooner rather than later. And at this point we do have some guests lined up over the next few months. We don’t need topic suggestions with a guest included, because we don’t like to do a ton of interview stuff, because we’re not really an interview show, but definitely questions or topics are welcome.
So our first question is from Brian Matheson and he says, “Hey guys, many thanks for all your work on the podcast. I’m a big fan and I’ve learned a lot over the years. I’m a freelance videographer and I’m working on launching a new project that doesn’t require me to do stuff on a project by project basis. I want to collect recurring payments and communicate with businesses in this new project. At the moment, my plan is to use Stripe and link that up to my CRM. I’ve been researching payment systems, but Stripe looks like it offers the best long-term rates and compatibility with payment methods as well as CRM and other software. I’ve never dealt with recurring payments before and my question is, should I go with Stripe or are there alternatives you’d recommend? Also, are there any pitfalls I should be aware of, or advise you could give regarding setting up and managing recurring payments? Thanks for your help. Brian.”
Mike [12:53]: So one piece that you actually left out in that was he had said, “My intention is to begin with annual licenses, though I may offer monthly plans in the future, and potentially even three or five year deals for some material.” I think that based on that piece of information, I don’t know as I’d worry too much about the recurring payment side of things, because if you’re charging people on an annual basis my guess is that the price points for those are likely going to be high enough that you’re going to have to have conversations with people just to get them sold on it. And then you’re going to have to invoice them. So I would look for something that allows you to send invoices and then make sure that they get paid. There’s a lot of different pieces of software out there that do that kind of thing. FreshBooks is one, for example. There’s probably a bunch of others. I’m probably most familiar with FreshBooks. But there’s a variety of different ways to do that.
The other thing that you could do is you could wire up your website to take the payments through Stripe and then have just like a special page – or a set of pages – to one side that are private or hidden from the public world, and you just send links to those pages to get people to pay you online. I don’t know if I’d worry about the recurring aspects of it, just because I think that people are probably going to be a little bit leery of giving you a credit card for that they know is going to get paid on an annual basis. Now, that’s not to say that you can’t do that in the future, but I think that getting started when you’re spending all this time trying to focus on that piece is probably the wrong place to be focusing your time.
Rob [14:12]: I would agree. If you’re going to have a high price point, you’re either going to invoice. If they are willing to prepay with their credit card, that’s great, so you don’t have to do Net30 or whatever. In that case, I would really consider just setting up a WordPress install on WP Engine and then buying Phil Derksen’s plug-in called WP Simple Pay. In fact, I think they just rolled out subscription support, so it’s pretty simple to get that kind of thing set up and not have to worry about another layer. There are services like Recurly and Chargify that are SaaS apps, and they provide you with subscription billing infrastructure. But for what you’re doing, it just doesn’t sound like you need to scale that much. And they charge an extra chunk on top of your Stripe fee, whereas something like WP Simple Pay – and I’d imagine there may be a non-WordPress approach that’s similar to that that you could buy that would make it simple for you to just get that up and running if you do think people are actually going to want to sign up on your website. But as Mike said, if you’re going to be having conversations with them anyways, and it’s going to be either in person to start with or phone, then as far as I know, you don’t even need the website piece of it. I think you could set up a subscription right through just the Stripe web admin area. As long as you get their information from them, you can just start billing them right there, and things should work. That’s probably the simplest way. And I agree, Stripe compared to a traditional merchant account, or PayPal web Payments Pro, hands-down, I would go with Stripe, as long as it’s available in your country, and it sounds like it is.
Mike [15:36]: The other thing to keep in mind is that because you’re doing an annual payment for this stuff, you’re essentially just kicking that problem down the road by 12 months. You don’t have to fix that problem now which is, it sounds like you’re trying to fix the problem of scaling those payment systems, and you’re just not going to have the volume right now to have to really worry too much about it.
Rob [15:55]: So thanks for your question, Brian. Our next question is about pricing. It’s about mixing SaaS – or subscription – and one-time pricing. This is from Basel at Techsol Software and he says, “Hey, we just launched our product Clock. It’s a cloud time and attendance-based solution. So it’s at clockit.io. As part of generating some immediate cash flow we’ve been speaking with companies who are willing to buy for a one-time cost. Usually, it’s our expected lifetime value, plus an annual maintenance contract of 20%. Is it common for SaaS apps to do this? What, in your experience, are the pros and cons?”
So one piece about this I’m a little confused about is, he says, “Usually we’re trying to charge the lifetime value up front, and then have an add-in annual maintenance contract,” Typically, you figure out what the monthly subscription fee would be, you multiply that by 12, and you either charge that, or maybe charge 15% discount on that amount or something. But I’m not sure how he’s calculating “lifetime value”. Because let’s say your lifetime value for a time-based solution, it might be – for a time clock solution – it might be three years or four years of a lifetime. So if you charge ten bucks, is he then multiplying that by 48 and charging all of that up front with annual maintenance at 20%? I’m a little confused by that specific piece. I think exact numbers would be helpful here, but maybe we can answer it even with that kind of confusion in mind.
Mike [17:18]: Yeah. I think the issue here is that there’s a little bit of confusion, or crosstalk, between the idea of the delivery of the product versus how something is being built. And I understand how this is very confusing, because people tend to talk about them as being the same thing for a SaaS product, where you are delivering it over the web and you are billing for it on a recurring basis – whether it’s monthly or annually, it doesn’t really make a difference. But I think in this case what you’re really talking about is that SaaS is the delivery model, where you’re delivering it over the web, and it has whatever those ongoing costs are, but then your pricing model is actually much more geared towards a one-time fee. So it feels odd to me that somebody would do this, because there’s going to be those inherent costs moving forward for being able to deliver the service. And if you’re just charging them that one-time fee, as if it was a one-time downloadable piece of software, then it seems to me like you’re probably going to run into problems down the road at some point, in terms of the profitability of each of those customers. Now if they stop using it after 12 months or 15 months and you’ve charged them for what would have effectively been 24 months, then you come out ahead. But there’s going to be those customers that sign up and you expect them to stick around for 12 months, and then they end up sticking around for 5 years. I know somebody who runs a SaaS app that does time tracking, and a lot of their customers have been customers for five, six, seven, eight years, and they don’t leave because it’s just a pain in the neck to change. They’ve already got it integrated in all their systems.
Rob [18:46]: I’m not sure I have much to add to this. I think that trying to charge a lifetime value up front sounds a little weird to me. It’s more of an enterprise approach to things, and I think that one of the benefits of SaaS is that your revenue is fairly even. Even if you have some annual and some monthly plans, it is just a more stable revenue stream. So it’s easier. It’s more predictable, it’s easier to build a business on that. If you do this, it’s nice to get all the cash up front, but then realize you’re going to have to be perpetually selling and getting only that 20% renewal is going to be kind of painful. Imagine if you sold pretty hard for a year and you got revenue up to – whatever – half a million, or a million that year. The next year you only have 20% of that that’s recurring. And so that is an unusual approach. You’re not going to get SaaS multiples doing that, because you’re essentially taking so much cash up front that you don’t have a ton of long-term value. And so it all depends on your goals and all that, but I would personally consider having a more even keeled thing and just charging the same amount every year. That’s the model that I’m typically seeing working.
Mike [19:51]: Especially on a SaaS model where you’re continuing to deliver it. And I think that that’s the piece that is the difficult part here is because essentially you’re telling them, “Hey, you’re going to have to pay full price for this first year, but then every year after that, you get an 80% discount.” That’s difficult for you as a vendor to make work.
Rob [20:07]: So thanks for the question. Hope that helps.
Next question is from Bob and he says, “Should I seek investment advisors or both?” He says, “I have a product where the lifetime value is between $500 and $1000. I currently spend nothing on anything but my own expenses, minimal hosting costs, and as a result the product has been ramen profitable for years. Due to various reasons, this has now become my primary source of income. The product market fit is nearly perfect. In recent months, surveys have said they would not change a single thing about the app and more than 80% of users would be somewhat, or extremely disappointed, if they could no longer use the product. I have to do so much work to move it beyond ramen profitability, but I don’t really know what to do. I’ve read and read and read, but I’m paralyzed with the potential monetary black holes that I cannot afford because of the aforementioned ramen profitability. So my options as I see them are: number one, try and get another source of income going. Option two, take on an investor. Option three; take on an advisor who could guide me on next steps. Option number four, take on an advisor who is also an investor, and option five is find some low-hanging fruit.” What do you think?
Mike [21:08]: I think what I’m not clear about is what things have been tried at this point? So it sounds to me like the product is stable and it’s making enough money to support you, but probably not much more than that. And I think that that puts you in that difficult position, where your app is not growing enough – the app has stable income – but the growth curve is simply not there. And in order to push on that and make that growth curve higher, then you need to spend money in order to do it. And running all those different experiments to do different things to try and push the app forward, it’s resource intensive, in terms of cash and time and everything else, and that’s just a difficult position to be in. And I think it would depend a little bit on how many of these different things you’ve tried, and how many that you’re looking at that you think would be likely to succeed. And you have to do a risk analysis to figure out whether those are things that you want o try or if you’re just going to go in another direction and potentially offer a completely different product, or find an overlapping market where you can sell a product that solves a different problem to the same audience, which is probably the better direction to go. But I don’t know specifically what the product does, so it’s hard to judge whether or not that makes a lot of sense.
In terms of taking on investors, or advisors who are also investors, that seems to me to be pretty risky. It’s hard enough to get something to a profitable point where you’re making enough money that it supports you, and basically putting yourself in a position where you owe somebody else something seems like it’s probably the wrong approach. I might look around to see if there are mastermind groups that you can get in. Talk to other business owners. I would go that route first. Unless you stumble across something where you really are almost sure that by getting an investor you know what channels need to be pushed, and what gas pedals need to be pushed, in order to make the products much more profitable than it is, but you need the money in order to do that. I don’t think it’s a wise idea to get the money in order to run those experiments. You need to know what’s going to work first, and then spend the money on it, versus trying to use that money to basically guess at it and run the experiments. That’s the classic problem that most people who start out and they’re looking for funding are running into, is that they try to get funding to fund their business so that they can run experiments. And investors don’t want that. They want a business where they know that they can put money into it and they’re going to get more money out of it. They want all that experimentation done and out of the way up front, so that they can just push on the gas pedal.
Rob [23:38]: Yeah. I feel like we’re lacking some information to properly advice on this. Like, I’m wondering, you have product market fit, but do you have 10 customers? Do you have 100? Do you have 500? What’s the pricing model like? There’s things that I would need to think through before I could even consider giving advice, but to me it’s like finding the next lever, right? And I think the reading and reading and reading isn’t super helpful at this point. Obviously, it’s paralyzing. But it’s like, what is the problem that is keeping you from making more money? Is it a pricing issue? What do your competitors charge? Do you think you could increase pricing 50% tomorrow, and – not on existing people but on new people? And do you think that that would have an impact on your bottom line and not hurt sign ups? Or just run the test and just do it. Just increase it 50% and see what happens. That’s one test you can run.
Another one is, it’s a question to ask, is how many uniques do you get per month, because if you get 1,000, then you have a traffic problem then, right? But if you are only converting a tiny percent of people to a trial that hit your website, then you have a conversion problem. And if only few people are getting on-boarded and you’re bleeding them out after the trial, then you know you have essentially an on-boarding problem. And so that’s what it is. Identify the next thing that just looks all – that looks messy. And you know in that episode with Ruben Gomez, it’s what, 50 episodes ago, we laid out specific numbers and percentages that I like to see, and I know that if we don’t hit those that we have a problem in that area. I also outline these in at least one Microconf talk – and unfortunately, I forget which – but that’s where I would look if I was trying to improve this. The question of whether to take an investor or do it yourself is: Do you have the energy to attack it? The paralysis, you’re going to have to get over that, and you’re going to need to either talk to somebody, you’re going to need to get into a mastermind, like Mike said. Some exterior voice is going to help you push past that.
Mike [25:19]: I think the paralysis much more – other than the fact that certain experiments just take a lot more money – or he’s perceiving it to take a lot more money than he has available.
Rob [25:27]: But all this stuff you can do without money. I mean, with almost no money.
Mike [25:30]: I agree.
Rob [25:31]: That’s the issue. It’s like when I was bootstrapping back in the day, I had almost no money to spend on this. These days I do things differently and I can move faster. And if you raise funding you can certainly move faster. But if you want to do it yourself, you can do this yourself. And you can do it with not a ton of money. It’s just going to take longer. That’s my take on it. And so I think trying to find an advisor, if you have zero network and you’re trying to find an advisor, it’s like, “Good luck.” I think that’s going to be very, very hard. Just because everybody is busy. In fact, the people who know how to do this stuff are busy with their own projects. Finding an investor with zero network, it’s certainly possible, but there’s a lot more that has to be done. It’s not just something that – those are the harder roads to go unless you already have ins, you already know somebody who can vouch for you, you already have some type of online reputation, you have something to show for it. If you don’t, then I would personally turn your head towards your app, think about what are the quickest wins and what are the ways to do that without spending barely any money, because there are those wins out there. Right? There’s the SEO and there’s the content marketing which means you create it – whether that’s a video or text or audio. There’s social media stuff, there are a really cheap clicks. So it will take a little bit of money, but there are really cheap clicks on some sites these days. There are a lot of cheap/free – except for your time – marketing approaches, and those are the ones that, if you have a traffic problem – again it’s identifying if it’s a traffic problem then do one of those things. The conversion stuff. If you already have enough traffic and you’re just not converting, then it’s looking at what other people have done, like how does DRIP do their on-boarding and why do they convert so many people into their trials? It’s thinking through how to optimize this stuff. So I think with more specific information, we could probably make a better recommendation, but that is the thought process I would use to go through this.
So our next question is actually two questions, both about affiliate programs. So the first one is from Eton, and he says, “Hey guys, big fan of the show. I would love to hear about affiliate programs. In particular, how that plays into DRIP’s growth as a marketing channel, experience working with Ambassador, et cetera.” And then there’s another question from Robert Brandl from chattooltester.com and he says, “How do you set a program up? How do you find good affiliates? How much do you pay them? Your own experience, et cetera.”So it’s just kind of a little quick mini-episode maybe here on affiliate stuff.
Mike [27:38]: I have very little to offer on this, because I’ve just never really gotten into like the whole affiliate marketing thing. So why don’t you go forward?
Rob [27:45]: Yeah, cool. I have some thoughts on this. So in terms of affiliate marketing as a marketing channel, I think that I have used it on a couple of products, and certainly have had affiliate programs for most of them. I’ve seen really mediocre results in most cases. You have to be extremely deliberate about it, and I think if you have a really strong network, and you have a network of people who have audiences, or you’re willing to build that network, I think affiliate marketing can be exceptional. If you look at Leadpages, all their growth in their early days was from affiliates that Clay Collins knew, because he was an information marketer and everybody respected him, and he knew all these people from speaking at conferences and they had already done JVs for info. So then when he launched this software, there was a bunch of people lined up that he knew that had these massive audiences – 10,000, 100,000-person email lists. If you have that – very, very few people do – but if you have that, affiliate marketing is going to be awesome for you.
If you are literally going to sign up for Ambassador or sign up for referralsaasquatch.com or whatever else affiliate programs you have – and if you’re going to do it, I would definitely recommend finding a SaaS app to do it – that’s the best way to set it up. Just setting it up and then pinging your customers periodically, kind of promoting it, sending them emails, it’ll work. You can build a decent channel there, but it’s not the number one thing I’d be doing. If you really are time-constrained, and you’re bootstrapped, and you’re focused on getting new customers, without the network, you do have an uphill battle.
Now how to find good affiliates? I think that’s all about the network. I think cold approaching people can work, but you have to have something to bring to the table. And you have to have a better product and you have to have a really nice affiliate commission. So think about it. If you’re a SaaS app, the range I’ve seen is recurring subscription affiliate commissions, and I’ve seen it range between about 15 and about 30%. I think these days like an email marketing as an example, AWeber pays 30%, and I think MailChimp might pay 25%, and Drip pays 30% as well. And I think Leadpages pays 30%. So that kind of gives you an idea of where marketing SaaS apps fit, but other industries and such may have different norms, so you really just want to take a peek at some affiliate programs and see where you wind up.
Those are really my general thoughts on it. I think that affiliate marketing can, and has been, a really good channel for some SaaS apps; some people launching software. But it really does mean I think you need to have your own audience, and then have good network and a solid network of other people who are willing to promote it up front. Otherwise, I would prioritize affiliate marketing and blow a lot of the other marketing approaches that we talk about here on the show. So thanks for your questions guys. Hope that’s helpful.
Mike [30:10]: So as Rob said at the beginning of this show, we are looking for questions, so if you have a question for us you can call it into our voicemail number at 1-888-801-9690, or you can email it to us at email@example.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us on iTunes by searching for Startups and visit startupsfortherestofus.com for full transcript of each episode. Thanks for listening and we’ll see you next time.