In this episode of Startups For The Rest Of Us, Rob talks with Jordan Gal of CartHook about his big move to stop his free trials, move to demos, and increase his prices.
Items mentioned in this episode:
- Bootstrapped Web Podcast
- CartHook Pricing Change Blog Post
- Lincoln Murphy blog post about Qualification
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on this show, we cover topics related to building and growing ambitious yet sustainable startups.
This week’s guest is Jordan Gal. You may know him from BootstrappedWeb. Also, the founder of CartHook. In this episode of Startups for the Rest of Us, I talk with Jordan about what I’ve seen as one of the gutsiest price increases and sales process changes by going up market that I’ve ever seen. The quote that I’m using in the title is, “We went from hundreds of free trials to a few dozen on purpose.” This is Startups for the Rest of Us episode 476.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome in building, launching, and growing startups, whether you’ve built your fifth startup or you’re thinking about your first. I’m Rob and today with Jordan Gal, we’re here to share experiences to help you avoid the mistakes we’ve made.
It’s a great conversation today. In fact, often times I say we have many different episode formats. This one is less of an interview and it’s more of me and just letting Jordan go on this topic. He thought about it so deeply with his team. It was their realization of, “Our churn is way too high and we’re just running on this treadmill that is getting faster and faster, and the business doesn’t feel healthy. How do we fix that? It’s not one tactic. It’s not changing, making people email to cancel you. It’s not moving to annual plans. It’s not the little tactics. How do we revamp our entire sales, onboarding, pricing process, and go up market to change the nature of our business?” That’s what we’ll talk about today.
You can tell during the interview that I’m obviously impacted by it. I was impacted from the outside. I’m an angel investor in CartHook. CartHook has raised a small amount of money. It’s still very much in that bootstrap indie-funded mindset. Jordan is super capital efficient. He’s not on the constant churn to raise that Series A to Series B and go there. He hasn’t raised that institutional money that forces him to go after that. He’s very much like a Brennan Dunn […] with the RightMessage.
A lot of the other companies we hear about that are in our MicroConf community, they’re in the Startups for the Rest of Us community, they’ve raised a small amount of money to hit that escape velocity. They’re not looking to unicorn or bust. They’re not looking to be that one billion dollar company, necessarily. Jordan’s in that camp. I love the way he’s meticulous. He really thinks these decisions through. I really enjoyed the conversation today.
To set the stage, if you haven’t heard of Jordan, years ago he ran an ecommerce company, ecommerce business. If I recall, it was with his brother. Maybe his dad. It was like a family member. They sold that. He had a small exit there. Then, he wanted to start a SaaS or a software tools for ecommerce. He wound up starting CartHook. Originally, it was just cart abandonment emails and they’ve since stopped doing that.
They eventually got to the point where CartHook essentially replaces the checkout on Shopify. The headline of CartHook is “Maximize Conversion Rate and Grow Average Order Value Today.” They have a real competitive advantage that’s very much differentiated from a lot of the other products in the ecom space, and he’s got a lot of traction.
As we talked about during the interview, they’re doing several million dollars in ARR, which is a big deal. They’re in the 25-30 employee range. He’s really just been grinding it out for years to get there.
What I like about this conversation is I was getting investor updates and then I saw a blog post where Jordan was talking about increasing prices. That’s always such a dicey proposition. I then started chatting about it. I asked him what the thought process was and how they’ve gotten blowback. They basically led to the conversation that we have here on the podcast today.
Without further ado, let’s dive into the interview with Jordan Gal. Jordan, thank you so much for coming on the show.
Jordan: Rob, thanks very much for having me on.
Rob: It’s great to chat again. There’s a lot that we’re going to dig into today. It’s been a fascinating journey. From the outside, I have an inside seat as an investor in CartHook. I’ve watched this transformation that you’ve taken over the past year or so. I’m really fascinated to begin with that.
The nugget for this episode actually came when I saw you raised prices. You did it so well, you did it so elegantly with (I believe) almost no pushback. I read a blog post, it was a blog post that you put on the CartHook blog, and I was like, “Man, I really want to get you on the show to just talk about what the thought process was there.” There was so much more to it. It wasn’t just a price increase. There’s this whole story that were going to dig into today. You want to kick people off with letting us know where we’re headed today?
Jordan: This is a topic I’m excited to talk about, something that I’m proud of. The best way to get started is to give some context around what these decisions are, what they entail, and why we got to a point of wanting to take these bigger actions.
What I need to do is to ask everyone to go back with me for about a year. The history of our checkout product, 2017, is when we came out with it. It was very difficult, technically. It was just one challenge after another. Then, we released a version two where we made a lot of big fixes. That’s when we start to hit traction.
2018 was our big year of growth, where we 3X revenue and got to multiple millions in ARR. That was this wild ride. It was fun. I look back on that year very fondly. That’s how I always want to feel.
The holidays in ecommerce are always big, obviously. Black Friday, Cyber Monday, and then the holidays. The end of 2018 for us was gangbusters. Then, January–February 2019 comes around. We start to be able to catch our breath, really look at the company, and analyze how things are going. There was one number that stood out that was a problem. It was an obvious problem and something that could not be ignored. That was churn.
In January–February 2019, we’re cruising at 12%-14% monthly churn. Ecommerce itself has high churn. There’s a reason Shopify does not disclose their churn rate because it’s much higher than other software companies. It’s partly the nature of ecommerce, the nature of the market, whatever else. Still, 12%-14% monthly is unsustainable.
On first glance, it looks like the company’s a washing machine. It’s just bringing people in, spitting them out, and that’s not going to work out for the long-term. When we started to really analyze it more deeply, what we realized is that the situation was not nearly as bad as 12%-14% looked. What was happening was that we were attracting a top tier of merchants that really fit with our product. What they were selling, the way the company was set up in terms of the number of people, how technically savvy they were, all these characteristics from revenue point of view, cultural point of view, product point of view, and so on. We really lined up with this nicely. Those customers were sticking around for the longer-term.
The issue was that we were also attracting this lower-end merchant that did not fit with our business. It didn’t fit with the software, sophistication level required, pricing, all that. That large chunk was not staying. Those customers were coming in, doing a free trial, either leaving before the free trial ended, or paying once or twice, then leaving after that. There was a real bifurcation in these two populations.
The challenge was, how do we improve the health of our business, overall? We had a few goals. Why don’t I list out a few of the goals that we came up with when we start to tackle this? We wanted to do things like take more control of our business. A lot of it felt like we were not in control. We just had a ton of word of mouth. It was just a bunch of incoming demand. That did not feel like we were really controlling who was walking into the system. We obviously needed to reduce churn significantly.
At the same time, we also wanted to increase our pricing to align with the value we provide. We hadn’t changed our pricing since we launched and we were significantly better than we had launched. Overall, the saying that we came up with was “fewer, more qualified merchants.” That was our goal. To work with fewer merchants that were much better fit and much bigger overall. Those were the goals.
The way we did it was changing two big things. We changed our pricing and we changed our process. You started off this conversation talking about a pricing change. From the outside, it really looks like a pricing change. In reality, it’s more of a process change like a sales process, like how we bring people onboard. The pricing change served that larger process change.
Rob: Yeah, that makes a lot of sense. I have a couple of questions for you. You used this phrase, “To take control of our business.” You touched on that a little bit, but is it that you’re controlling who comes through the gate such that you only deal with customers that you deemed are nice or that are qualified? Or is it taking control? Are there any other aspects to that?
Jordan: There are a lot of different aspects to it. What’s happened over the past years as I have gone further away from the frontlines and from the customer interactions, is I have become shielded from the kinetic activity, actually talking and rubbing up against customers on a daily basis. I don’t feel that nearly as much as when I started to.
The anecdote I give was I had a conversation with our support team. I asked them, “What percentage of your work is for people who are in trial that won’t convert or people that have converted but are only going to stick around for a month or two?” They looked at me and said, “Probably 80%.” To me that sounded horrible. I’m setting up my employees to run on a treadmill at a very high rate of speed and looking at them saying, “How do we increase the speed?” That’s not a recipe for a happy employee.
What I mean by taking control over our business, it wasn’t just like this external-facing, “We only want to work with big merchants.” It was also, “This feels like a mess internally.” We’re doing an enormous amount of work for people that don’t fit. The reason we’re doing it is because they just walked in the door on their own and create a free trial. All of a sudden, we are forced to engage with them. It’s definitely unexpected that one of the biggest problems in our business is how to limit the number of people using the product. That’s not what I expected. I expected, how do I beg people to use our product and make them successful with it? That was a reality.
Rob: Yeah. You’re in a unique position, for sure, to be able to do this. There is no model for this. I’ve heard of apps going up market or changing. Drip went from generally as […] to focus on ecommerce. Obviously, that drove some people away in terms of that pivot or that focusing. There’s a model for that.
While you are going up market, you did it in a different way. You didn’t just raised prices. As you said, pricing is one piece of it. That’s where Ifind this whole decision and process super gutsy. It feels risky to me hearing about it. Did it feel that risky to you upfront? Were you just like, “No, I know this is going to work”? Or were you like, “Oh my gosh, this could completely tank a lot of things”?
Jordan: There was definitely a lot of fear. We’ll get into a bit of the math around what helped me overcome the fear was just being very objective in the math and saying, “No. This isn’t going to work out. Even if it’s not very successful, it’s still going to work out on the math and finances.” All of this comes back to the finances. If we had raised $8 million in a Series A, we would be trying to gather as much of the market as possible. That’s not what we’re doing. We raised a little bit of money. We want a healthy, profitable company.
If you want healthy and profitable, then you need to live within your means. The reality of our situation, just taking on as many customers as possible, was not leading to that outcome. It had churn way too high. The amount of work that was happening internally was too high for customers that didn’t make sense. That’s what helped us come to the conclusion of, “Okay, I’m going to take a risk, and we’re going to gather the forces. Let’s get into what we did.”
Rob: Jordan, I want to interrupt you real quickly. When you say it wasn’t working for you, I know that CartHook is doing several million in ARR. It was working to a certain extent, but was it really the churn? That double digit churn that wasn’t working for you?
Jordan: Yes. It’s all relative. Yes, I really shouldn’t be complaining. It is working to a degree because the revenue is where it is and all these. That’s from the outside perspective. From the inside perspective, sitting in my shoes, I have to acknowledge what’s good and what’s bad. Just because I can say we’re at several million in ARR does not mean everything is good. I was fine with that. A lot of this role is holding two things in your head at the same time that are completely in conflict with one another. That’s just the way it is.
The truth is, it wasn’t working for us in a sense that I didn’t like the way the future looked. There’s a straightforward formula that everyone can Google. I don’t remember exactly what it is. It basically tells you what your maximum revenue is. Given your growth and your churn, this is the maximum that you will reach. It will not go beyond that because that’s how math works. You will get to a point where a 12% of your revenue equals the amount of growth your getting, and then you’ll stay there forever, mathematically.
I looked at that and that wasn’t that far off on the horizon based on where we were currently. We still had room. We still had another 100+ MRR to get to that point but I felt that we need to move on this now before we hit that and then all of a sudden everything hits a wall. That’s what led into it.
Now, let’s get to the first big part of the decision. The first big part of the decision was on July 1st, 2019. We are doing two big things. We are shutting down the ability to create a self-serve free trial and we are changing pricing. Two massive things at the same time. A lot of complexity came out of that because when you do that, you don’t want to just do it quietly and not say anything. You do have to acknowledge it with your existing customers because they’re going to ask, “Hey. I noticed you changed your pricing. Does that mean that my price is going to change?” There’s a lot of communication with the existing customer base that went along with the changes that were intended for the non-existing customer base.
Rob: Yeah. I find that’s a good moment where, certainly, if you are going to raise prices on your existing customers, whether you grandfather them 6 months or 12 months or whether you don’t—there’s a whole conversation; we’ll probably going to get into around that—or if you’re not going to raise on them at all, it’s still a good time to get in touch. If you’re not going to raise on them right now or in the future, then you’ll let them know that. “Hey folks, we just raised the prices. We’re not going to do that for you. We’re going to grandfather you for now.” It’s a nice way.
If you aren’t going to grandfather them, it’s a perfect time to get in touch and say, “Hey, by the way, we’re going to grandfather you for a certain amount of time, but then change it up later and here’s why,” and give the whole defense or the reasoning behind it.
Jordan: That’s right. Now, for our situation, we did want to raise prices on existing customers. That’s a complicated thing because people are not used to that.
Rob: Yeah. I was going to ask. There is obviously a debate in the SaaS space. Every founder has their own opinions about it. It’s like, “I heard people say…” You know I’m not a fan of absolutes, right? So I hate it when you say, “You should always grandfather. You should never grandfather. You should blah-blah-blah.” I don’t think that’s the correct way to think about pretty much any of this.
I think there’s something in between and there’s a spectrum. I’ve often thought, “Hey. There are reasons to not grandfather, especially if you can communicate those reasons well in a letter, a blog post, or an email to your audience. If it makes sense to them and if it’s the right thing for your business, then these are the times when I would think about doing it.
I know that had been a hard decision. Grandfather for a period of time is what you ended up doing. Talk me through that.
Jordan: Yes, it was a hard decision and an easy decision at the same time. The math of it was very straightforward, that we would be foolish not to change pricing on existing customers. Here’s why. When we started the business, we didn’t have a full understanding of exactly how our business work from a financial metrics point of view. We thought we were on the software business, where we license our software to people to pay a monthly subscription fee to have access to the software. It’s a traditional SaaS.
The reason we thought that was because that’s what we had in our hands at that time. “Here’s the software. You can use it.” What we didn’t realize was the significance of the payment processing that we would be doing. We do significant payment processing. Hundreds of millions of dollars annually. We did not factor that into the business model. That resulted in our very heavily underutilizing our GMV (Gross Merchandise Value), the total amount of money being processed into our system. We were not monetizing our GMV.
If you look at, for example, Shopify, at scale, they make 50% of their money, $400 million annually around monetizing their GMV. That’s somewhere around $28 billion worth of GMV in total. They’re out over a basis a point. Over 1% of their GMV turns into revenue for them. $400 milion on $20 billion is 1.2 or so basis points.
We were well below that. Our pricing was 0.1%, a tenth of a percent. Shopify was making 10X what we were making on a monetizing GMV perspective. We didn’t realize that when we first started the business. Where we ended up was grandfathering pricing for existing customers on the subscription fee. If you pay $100 a month, $300 a month, $400 a month, or whatever that is, that will stay that way forever. On the GMV that you’re processing through our system, we move it up from 0.1% to our new pricing of 0.5%. It is a 5X but still very much in line with our competition, with Shopify, and with the market overall.
What we had to back it up was our software had just gotten so much better. It’s tough to describe how much better—how bad it was to begin with and how much better it is now. What we did is we put ourselves in their shoes and we said, “If I were a merchant and I had been with CartHook for a year, I had been around when it sucked, now it’s better and I’m happier, but I stuck with you guys this way, how would we want to be treated in that situation?”
What we decided to do was write that blog post that you alluded to earlier, that we should link up, because that was a very complicated blog post to write, and then make a promise that we thought was fair. That promise was, this is the new pricing for everybody, for new merchants. You will be grandfathered into your subscription price forever but your transaction fees will go up. However, we will let you go through the entire holiday, Black Friday season of 2019, and the price increase will only go into effect in January of 2020.
Basically saying, we’re not going to be bastards and raise the prices right before the holidays to maximize the amount of money we can make off you and you have no choice because you’re already using the system. We said, “No. We’re going to forego that revenue because that’s the right thing to do. But we will be raising it after the holiday’s over in January.” That makes sense?
Rob: Absolutely does. The thing I’m fascinated to hear is how did it go over? How many positive, negative comments? What was your sense of what your customer base responded with?
Jordan: The truth is we’re in the middle of it now. We’re halfway through. We sent out an initial email in July. Two weeks ago, we sent out another email. What we sent in July along with the blog post was, “Between now and January 2020, we have six months to earn that price increase in your eyes. Here’s what we’re planning on adding to the product and this is part of the justification of the price going up.”
What we’ve been very conscious of internally and from a product and prioritization point of view is that’s coming due. We will need to send an email to all those existing customers telling them that the price is going up next month and, “This is what we promised you and this is what we’ve accomplished.” We have an internal list of, “These are the things that are worth noting in that email that we can say these are significant improvements and significant additions that helped to justify the price increase.”
When we first sent it out in July, we heard nothing. Just no negative reactions. A few emails about clarification, a few questions, and then all good. That tells me that it went over pretty well and that a lot of people didn’t read it. That’s the reality of it.
Now, things are ramping up. We communicated again two weeks ago saying, “Hey, just as a reminder. In January 2020, your pricing is going to change. We will get back in touch in December before that happens to make sure that you are fully aware.” That communication started to cause a little bit more of a pushback. A lot of it was our fault because we communicated what the pricing change was. What we really should have done is personalize it.
“Last month, you did X and paid Y. In January, if you do the same X, then your pricing will be Z.” We should have laid that out more specifically and we didn’t. Because we didn’t, people started doing math themselves. If you do the math emotionally, you’ll get the wrong answer. We had a lot of emails back and forth just clarifying, “Look, it’s not going up 10X. Here’s the change for you.”
On the positive side, what it has also done is it has armed us with a bargaining chip with larger merchants. If you’re a large merchant and you’re processing $2 million a month in our system, and you don’t want to go from 0.1% to 0.5%, then let’s have a conversation to make sure you don’t go all the way up to 0.5%. Let’s set something up that makes sense, maybe get you in a 12 month contract. Let’s partner on this and do it the right way.
It has helped us get a lot of our larger merchants talking about pricing and moving toward annual contracts in order to lock down a predictable cost for them as opposed to something that’s variable.
Rob: There’s a number of things that I won’t even pull out of that because it’s the right way to think about it. It’s very smart, but one of the things you said was, “Let’s think about it from their perspective.” I imagined that that sentence, that phrase was uttered many, many times in your office when you were trying to make this decision. You thought it through. You and your team thought it through to the extent of some people could say if they were your customer, it would be a little outrageous. I could come out and say, “You 5X-ed my pricing. Even though technically I know I’m still grandfathered in the monthly, but 0.1 to 0.5 is a 5X. I’m going to come on and be outraged.” The fact that people didn’t do that indicates that you had (a) a case. You had justification. And (b) you communicated that in a way that made people feel comfortable. You weren’t screwing them.
Jordan: Yeah. It was not abstract. It was very real. It was, “How is […] from Native Deodorant going to react to this exact email that we’re about to send?” We’ve gotten to know these people over time. We worked for them in a long time. How is this specific person at this company going to take this? Are they going to go write to the Facebook page? Are they going to email us? Are they going to ask us for clarification? Are they going to want to get on the call?
Everything in that communication was based around real reactions. It was a lot of, “We’re here to talk about this. Here’s a Calend.ly link to set up a call with somebody if you want to talk about it.” It was thought through that way.
Rob: That’s the power of being a founder or a CEO who’s in touch with your customer base. Even at several million ARR and at 25-30 employees, you still know a bunch of customers by name. Not only do you know them by name, you know how they’re probably going to react to an email. You think it through deep. The best founders, best CEO that I see doing this, doing hard things and not pissing their customer base off, are the ones who are in touch with them. That’s a big key to this.
Jordan: Yeah and that’s gotten harder. I would say that it shifted away from my responsibility being super aware with these specific merchants, their personalities and relationships, and more just understanding that that’s important. And then, looking at my success team and saying, “Okay. Let’s think about these people. What’s your opinion on how’s this person is going to react?” Just knowing that that is a key thing to keep in mind is now more important than actually knowing and understanding the relationships themselves.
The conversations we’re having internally here is I’m asking my leadership, the people who are in these communications, in these difficult email threads of, “Does this make sense?” “Should I leave?” “You guys are being greedy.” These really difficult email conversations. What I have to do is I have to ask them to put two hats on. “Here’s your empathy hat for when you’re talking to people and we wanted the right thing by them.”
Then, I’m also going to ask you to switch hats, come to the conference room with me, and look at the spreadsheet that says, “When we make these changes, if 30% of our customers leave, and that still results to adding $100,000 to MRR, can you acknowledge that? Do you think 30% of our customers are really going to leave?” The answer is no. Can you carry both those things at the same time? Can you be very empathetic to people and make sure we’re doing right by them?
At the same time, acknowledging if someone leaves, we have to be able to accept that because the math will work out for us. That sets us up to be a healthier company, hire the people we need, and then get a bigger office that we need. We have to have that as part of the goal. It’s not just about what the customers want. It’s also about our business. It’s both together.
Rob: And that makes a lot of sense. That’s a big reason that you did have success with this. What’s next?
Jordan: That’s really the pricing change. Our existing customers, we had to communicate with them. That’s not done, but it’s going in the right direction. Now, the bigger change is the process. Making the switch from self-serve free trials to an application process with demos was the harder call. That was the scarier thing because we started getting good, we started getting to the hundreds of free trials every month. Then, you’re taking that flow of potential revenue and you literally just shut it down 100%. We took a faucet that was all the way opened and we closed it all the way. Now, people could not create a free trial unless we sent them a link to create a free trial. We shut the faucet all the way down.
We went from hundreds of free trials a month to a few dozen. That’s where it got scary because if you think about the nature of churn, it carries on for a few months. If we have this messy washing machine of merchants that don’t fit and only pay for one or two or three months, then they leave, when you shut down free trials, you are now going to hurt yourself both ways. You’re not going to be getting new customers and the customers from the past 90 days are still going to be churning.
It was like, “Alright guys, our revenue is about to go down. Everyone be okay with it. We’re going to keep calm. We’ve had this amazing run of growth. Everything’s going up. Now, we are purposely just going to chop off 10%-50% of our revenue over a 90 day span and we’re just going to be okay with that.” That expectation setting was super important so nobody freak out because I saw what was going to happen. We’re going to go from a few hundred to a few dozen and then the churn is going to continue on.
Rob: That’s really important to point out that, (a) you called that out to your team in advance, but (b) most people who have never run an app, where you have big waves of customers coming in and a lot of trials, if you shut that off, it’s exactly what you said. It’s like this huge wave. The churn is going to crash but it never crashes because your trials bolster it. It just keeps going up, and up, and up. But the moment I’ve had a couple apps where we had hiccups, whether it was suddenly Google downgraded us, the ads stopped working, whatever it is, our trials plummeted.
It wasn’t just, “Oh. We didn’t grow that month because we didn’t have as many trials.” It is devastating because oftentimes, your first 60 or first 90 day churn is way, way higher than your 90 day to infinity day churn. That’s the part that just crashes. If you don’t keep that constant influx top of funnel, it can be devastating. Like you said, 10%-15%, 20%-30%, I’ve seen with smaller apps. It’s painful if you’re not aware, if you don’t look at the math in advance.
Jordan: Yes. This […] back to what you’ve mentioned a few minutes ago, where I should be happy because things are going well. I knew internally that this is what was happening, that the trials were just keeping it afloat. The trial’s just kept overwhelming the churn. If anything happened at all to the trials coming in, then we’ll be exposed. Making this move was like, “Let’s do that on our terms instead of someone else’s terms.”
It’s also why we did it in the middle of the year, July 1st, literally right in the middle of the year, well in advance of the holidays so that we would have our act together now. That’s what happened. We completely stopped free trials and the churn kept going for 90 days. That hurt, but the benefits were amazing and immediate.
July 1st comes in and we just shut it down. You can’t see a free trial on our site. It’s apply for a demo. That terminology was super important to me. It was not “request” a demo, it was “apply.” It was a position of power. This is really good. You’ve heard about it. You’ve heard about the success people have with it. If you want it, you need to apply. We soft pedaled it on the site.
We’re not like, “Apply here to see if you’re good enough for us.” That sucks. That’s not good positioning. It was really, “Apply to see if we’re a fit.” People are like, “That’s […]. You’re basically just saying that we’re not good enough if you only want to work with successful merchants. We’re up and coming. You don’t want to work with us because we’re not big enough. That’s not cool.” In reality, it was much closer to, “Let’s make sure we’re a fit.” Think about all the things we’ve been talking about. It’s not just, “Do you make enough money?”
I read Lincoln Murphy’s blog post about qualification. He had a great write-up about the different types of qualification, where it’s strategic, cultural, financial, all these different things that are in line. We have some merchants that makes $1,000,000 a month, but we absolutely cannot stand working with them. That has now become a factor in the qualification.
Now, we have an actual pipeline. That sales process that was happening inside the product and a few interactions with support is now happening with people, with an application that people fill out, then every morning the success team comes in and either denies or accepts the application. Right now, we’re denying roughly 50% of the applications. We’re just saying, “It does not make sense for you to work with us. Here’s a link to our competitor that might make more sense for you.” We literally linked to the competitor in that rejection email.
Rob: That’s crazy. It’s such an unorthodox approach. It’s the Velvet Rope Policy. It’s just letting in exactly who you want. As we’ve said, it’s a luxury. Most apps needs all the trials they can get. You hit a certain point where that made sense, but I do think that more companies should think about doing this once they hit that point.
Jordan: When I spoke to other founders about this, I got the sense that people were like, “Can you do that? Is that okay?” To me it felt like, “That’s what I think we should do. It felt very strange to be like a slave to the fact that people want to use it, therefore we have no choice but to let them. What? That doesn’t make sense.”
Rob: I’ll tell you what, it’s way better to do it upfront than to let people in. Whether it’s just people aren’t qualified or they’re the toxic types of customers that you can identify pretty early on that you’re like, “Oh boy. This person’s never going to be happy with anything. They’re just going to rag on my staff the whole time. They’re going to Twitter the moment we don’t answer their email in four minutes.” If you can get them upfront, identify them that way, and not have to fire customers who’ve been with you for two or three months who are a pain in the ass (which all of us have to do, it sucks), for that alone, this is pretty valuable.
Jordan: Yes. We call them category four. We have category one, the best of the best direct-to-consumer brands that we recognize. We’d love to work with them, absolutely get them in, let’s give them the white-glove treatment. We have a category two that are a good fit. We have category three that are not quite there yet, it’s on the bubble. It’s the success team’s call whether or not they should come in or not. And we have category four that are jerks. It doesn’t matter how much revenue they make. If they’re just going to make us miserable, they just don’t get in.
Rob: Yeah. Isn’t that a hurricane category one?
Jordan: Yes. Think about what this has done internally. A few things that it has done. First is establish an actual sales pipeline that we can optimize. What we did there is first, we took a stab at what we think the pipeline actually looks like. Think about the different stages. We get a demo whether they get approved. They get the link to set-up a time to talk. Then, they get the link to sign up after that. Then, they create a free trial. Then, they’re launched and have a processed revenue. And then, they’re into the conversion piece of it.
Before, we didn’t have those steps. It was just a free trial and then hope the product does its job. Now, what we did is we set up the pipeline and those steps. We have in HubSpot, but I got a good recommendation from someone (I can’t remember exactly who) to put it up on the wall. I’ve got a bunch of index cards, we’ve got a bunch of markers, and we’ve got these tacky stuff that sticks to the wall. We created the categories as columns on our wall. Each prospect got an index card with their name on it and we would physically move the index card from stage to stage. It was just mimicking HubSpot. You would move in the HubSpot, you’d go to the wall, and you’d move it from one column to the next.
What that did is it showed the entire company in visual, physical format, what was happening with our sales pipeline, instead of just, “I don’t know. We have a few hundred trials.” The second thing it did is it was a dead obvious way to see where the friction was. The friction is the columns that have the most people, pretty simple. What it tells us is that stage in the pipeline is where we have a lot of friction, and that’s where we need to get the communications and marketing teams to create content.
Now, what does the success team need in order to help merchants get from that column to the next column and then start creating content, videos, support docs, to help people through that, so that the success team could provide those and the merchants can also get on their own?
We did it for three months or so. We’ve since taken it down. It’s no longer useful as it was in the beginning. At first, we made the switch. It just had this amazing impact. I have a bell on my desk. When someone became a paying customer, I would hit the bell. It was like this visceral experience for people. We’re not a company that just answers emails. We’re doing something specific. We’re finding people, identifying who the right people are, moving through this pipeline, and getting them to success.
Rob: I love that idea, the visual nature of it. Just seeing cards, it must be obvious visually and just be an amazing queue for you guys. That’s really cool.
Jordan: Yeah. They were just a very large vertical stack of prospects that didn’t go from, let’s say, approved but didn’t schedule the actual appointment to do the demo. Okay, we need to be better at that. An obvious one was also like they’ve created a trial, but they’re not processing revenue yet. They need to get over the hump of actually using the product.
One thing I did mentioned earlier on the pricing is that not only did we remove self-served free trials but we removed free trials entirely. We asked for the first $500 upfront at the time of sign-up that we have a 30-day money back guarantee instead of the free trial. It’s all toward the same type of positioning of, “Let’s make sure that you’re a good fit. Once we know that you’re a good fit, then you commit to us. We’re committing to you. You commit to us. Let’s do this together.”
Rob: Yeah. When you look at large, enterprise companies, let’s say HubSpot or Salesforce or something, they get a bad rap for being enterprises. They’re a pain in the ass to deal with, they’re too expensive, and their sales process sucks. You’re moving somewhere between self-serve and what they do. It sounds like there is less friction. Is your pricing public on your website?
Jordan: Yes, it is.
Rob: So the pricing’s public, that’s a difference. They tend to hide it behind a thing, then it’s a negotiation, blah-blah-blah. The difference is there. You put up the velvet rope. You’ve gone upmarket. They’re typically not free trials with these really expensive enterprise plans. It typically all annual. I don’t think you’re there yet, but my guess is you’ll be moving there because there’s a lot of reasons to do that. Both predictability with the merchant but also predictability for you. You are taking that step towards the upmarket playbook, right?
Jordan: Yeah. The results, if you think about internally, going from hundreds of free trials to a few dozen, what we’ve been able to do is give love to the right merchants. We’ve told our support team, “Guys, we’re no longer doing things. It’s not about crushing tickets. You could take your time. You can spend 45 minutes on an email as long as on the other end the person goes, ‘Wow. That was everything I needed and you took your time. I feel great about it.’”
The fewer, more qualified merchants is the theme. We’re much common internally. Our support staff finish things up by 11, then they’re doing support docs, they’re helping testing on the product team, and everyone’s happier. People who are jerks, no one feels the need to like, “Hey, I guess I can’t turn down money because it’s not my business.” Now, they’re empowered. If this person sucks, tell them to get lost. People are more empowered. They’re happier. Our monthly churn went from 12%. It continued on for those few months. Five or so months later, we’re at 5% monthly churn.
Rob: Oh, man. Wow. That’s crazy. That’s such a testament. On the podcast and in the whole MicroConf community, what’s funny is before we started talking about this, let’s say in 2010, there wasn’t just this common knowledge on a lot of things that we talked about. Lower price products have higher churn. The customers are more of a pain in the ass. We all know that now. You know that if you’re selling a $10 product, everybody’s price sensitive. Your churn is through the roof. They want all the features. It’s just known now.
Then, there’s the next step up of $50 price point average revenue per customer or $100 average revenue per customer. You guys were at such a high volume that even those numbers didn’t make sense anymore. It just didn’t make sense to service them because they were such a small portion. They were huge portion in your customer base, in your trial base, very small portion of your actual revenue. Now, we can only bother or we should only focus on $500 to $2000 a month average revenue per user.
That’s the step. It’s obviously very deliberate and I’m just struck by the impact. It’s not one thing. It rippled through the entire business in mostly positive ways, it sounds like. The fact that you support people now have the ticket, the ticket volume is whatever it is, a tenth of what it used to be, is just phenomenal.
Jordan: Yeah. The way we look at it is that we really made a healthier company. The growth in 2019 was nothing nearly 3X of the previous year. But now, we’re in a position to grow in a much healthier way.
Going back to the faucet analogy, now that we’ve tightened it up all the way, fully controlled everything, now that we have our systems in place, we understand who the right matches are, the systems are better, the people are happier, now we can start to open up a little bit on our terms, and grow faster but in our way. An example is when someone’s a category three, they’re qualified but they’re not one or two, we send them a recorded version of the demo. Now, we can open that growth back up, but on our terms and under control. If we don’t like the way that’s going, we’re just going to shut that back down.
Rob: We talked a lot about the positives. Was there a major negative repercussions to this?
Jordan: Just finances.
Rob: That’s short-term.
Jordan: Yeah. The short-term financial hit that hurt is just a stressful thing. We did that with what I felt was enough money in the bank, that we wouldn’t get to the point where I felt like I have to go raise more money. I wanted to get through this in a way that we come out to the other side.
Really, if you think about all the way back, the decision to increase prices on existing customers and that kicking in January, what we really needed to do was just get through this six month period. The increased pricing on that GMV that is coming on the door already is going to overwhelm all of the negative impact of it. Then, we’ll be in a position where we are much more profitable and much happier at the same time. Just six months of pain but all towards putting ourselves to a good spot in 2020.
Rob: Yeah, and that’s playing long ball. You have a long-term mindset. You’re not churning and burning, “Oh, how can I maximize revenue now to raise the next round? Or have an exit?” or whatever it is. You’re thinking, “If I’m going to run this company for years, what is the healthiest company? What company do we all want to work for? What’s best really for the customers that are the best fit? What’s best?” The six months of pain, I’m sure, has sucked but you’re basically coming out on the other side of that. I hope January is truly an amazing month for you.
Jordan: Yeah. Thank you, man. I appreciate the ability to talk through the whole thing. I’m actually writing a blog post about this. I’ll let you know when that’s out.
Rob: Sounds cool.
Jordan: I know it’s all unique to each individual business, but the big lesson I hope people get from it is that you don’t have to play by what you think are established rules. You should do what you think is best for your business.
Rob: Love it. We will link up the price increase blog post that you talked about. I have that link right here. I googled Lincoln Murphy’s blog post about qualification and hopefully it’s the same one. We will also link that up. If you get your post published before this goes live, we can throw that in there as well.
If folks want to keep up with what you’re up to, they can go to @jordangal on Twitter and carthook.com is your app. Any other places they should keep their eye on?
Jordan: Yeah. I also do a podcast with my good friend, Brian Castle, called BootstrappedWeb. Those are the three places: Twitter, CartHook, and BootstrappedWeb.
Rob: Sounds great. Thanks again for coming on.
Jordan: My pleasure. Thank you.
Rob: Thanks again to Jordan for coming on the show. Also, I should call out episode 452 of this podcast. Just a few months ago, Jordan came on and answered listener questions with me. If you’re interested to hear more of his thought process, go back and listen to 452. You can hear his take on several listeners questions.
If you have a question for me or a future guest, leave me a voicemail at (888) 801-9690 or email firstname.lastname@example.org. As you know, our theme music is an excerpt from a song by MoOt. It’s called We’re Outta Control. It’s used under Creative Commons. You can subscribe to us in any pod catcher. Just search for “startups” and visit startupsfortherestofus.com if you want to see a transcript of each episode as well, to see show notes, and comments by other loyal Startups for the Rest of Us listeners. Leave a comment of your own if you want to give a thumbs up, your thoughts, constructive criticism, whatever it might be on any of the shows. Thank you for listening. I’ll see you next time.
Episode 447 | Platform Risk, Pricing, and Customer Development
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including pricing and customer development. They also continue to discuss Mike’s verification journey with Google.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about pricing, talk about doing customer development in a crowded space, and about how much testing is too much testing. This is Startups For The Rest Of Us episode 447.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes that we’ve made. To where this week, man?
Mike: Remember how there was a couple weeks ago where I mentioned there was this ongoing Google app authentication approval process I was going through.
Rob: Yes. Seems like that’s been going on for quite some time.
Mike: Yeah. Like I said, they had announced it back I think in October or November. But they didn’t really give any details on it other than what was published on their website and they’re slowly adding to it and then earlier this year, they started ramping up requests for information, and all these additional things. I got an email the other day saying that they’re basically going to start yanking access. I’ve actually been going back and forth with a couple of people inside of Google who reached out.
I just want to say thanks to those listeners who do work in Google and been listening, but they forwarded it over a couple of my emails, and started pushing through some things. Hopefully, things are moving a little bit faster, but I did just get an email this morning saying, “Now, you have to go through this security review.” I’m trying to figure out or find out more information about exactly what that looks like and whether it’s absolutely required. It’s just been a red date nightmare is what it really comes down to.
Rob: Yeah. I have questions for you about this. It sounds like this could be an existential threat to Bluetick, is that right? Could it basically put you out of business overnight?
Mike: Yeah. It absolutely could.
Rob: And does that scare you?
Mike: Yeah, it does. The whole reason I chose IMAP was because I didn’t want to be beholden to the Gmail API and I didn’t want to have to deal with anything that they could come in and say, “Either change” or maybe they say, “Oh, we’re not going to offer this anymore.” I didn’t want to deal with latencies and things like that associated with it because I knew people were running the problems with that kind of stuff.
Fast forward a bit, and they decide change policy and suddenly, policy says you have to go through all these red tape in order to verify your app. Now, because of what I’m doing, I have to go through security review and it’s a third party security review. The cost for that is pushed on to me and they don’t even give you an actual price for it. It’s like, I have to pay for it and it’s anywhere from $15,000-$75,000 on an annual basis.
Rob: And you totally have that in the couch cushions, right?
Mike: Yeah. Get the money from the tooth fairy or something. I don’t know.
Rob: It’s an existential threat and you genuinely don’t know what’s going to happen. They can literally yank access in two days and just say, “You didn’t comply,” or whatever. Is that accurate?
Mike: I wouldn’t think that it’s two days. I suppose it could, but I could take an email like a couple of weeks ago saying that they were going to extend the timeline to I think, June 15. I don’t know whether the security assessment needs to be done by the 15th or there is something else in there that said, “If you’ve had it done before January 19th then you have to have it done by the December 15th or 19th,” or something like that. I don’t know whether there’s this six months’ time frame. If it’s been done in the past six months, you’re fine, but before that you have to have a new one done. I don’t really know. They’re not forthcoming with direct information when you ask them questions and it’s just slow responses.
Rob: Is this anywhere? Have you gone online to forums? Other people have to be experiencing this, right? Have you gone into forums and looked? Does anyone have clarity in this? Or who do we know that has an app like Superhuman, as an example—now, we don’t know the founders of that—but who has an app like that that also relies on Google or Gmail specifically, that you can connect with, and ask if they have any clarity on it because this does feel like something where it needs more than one person because it sounds like you are not getting answers. If we cobble together, three or four founders who’ve had experience with this, then maybe you can get some clarity.
Mike: Yeah, I don’t know. I can certainly go looking for those. I’ve been following there’s a—it’s not a blog—I guess it’s a set of blog posts from a couple of different people. Contacts.io was one that I was looking at. They have this blog article that they talked about where they’re basically shutting down the whole thing because they can’t meet the requirements. They’re like, “Yeah. We’re just done.”
Then there’s another one I’ve been following, I forgot the name of it, I’ve got it bookmarked, but they’ve been documenting the whole process of what they’ve asked, what they’ve gone through, what the responses where, what they said, and they got all the way to the point where they have to have a security assessment done, and they said out of respect for that company, they’re not posting how much it cost. But I was going to drop them an email today—and that’s a recent post that they put out there—I’m going to drop an email, and be like, “Hey, look. What does this actually involve? What does this look like because I’m not getting any answers I need either.” Since they’ve already gone through it, I’d love to hear more.
But things have been really rushed over the past two weeks because that’s when they started sending out those emails saying, “Hey, here are the days where we’re going to start notifying people who own these domains that you’re no longer going to be allowed to access the API.” Or, “Your app is no longer trusted or hasn’t been verified yet.” Over the course of the next four weeks or so, three to four weeks, they say that they’re going to yank everything if you don’t meet the requirements. But I just got an email this morning saying, “Hey, you’ve gone through this final verification.” I checked my database log, and it’s like, “Yeah, they actually logged in, they did add a mailbox.” Apparently, I’m past that point, but I still need to have this security assessment done.
I wrote a long email that I guess they’re forwarding around internally that basically, laid out all these things. It’s like, “I probably know more about security and compliance than most of the people you have working on this, and definitely more than the average developer, and not to sound arrogant about that but I actually do.” I pointed to different places where, “I’ve been the author of one of the centers for internet security benchmarks. These are independent publications where you can see my name is on them.” I offered them. “Isn’t there some sort of exemption that can be put in here? Isn’t there money set aside in Google for small companies? Isn’t there something there that says that if you’re below a certain threshold, it doesn’t apply to you? It’s not like I’m out here trying to scam the world or anything. I’m just trying to carve out an existence here for myself.” They’re like the government, I guess, that’s kind of how I see it. It’s like they’re large and inflexible, and I don’t know what to do. It’s like arguing with the IRS. You’re probably not going to get very far.
Rob: The hard part is that you know the scrutiny that they’re coming under now, with all the Facebook privacy security crap. So you understand why they might have a policy like this even though it doesn’t necessarily feel fair.
Mike: I do. I get it. I understand. But at the same time, when you look at the discrepancies between what the benefits to me are for having this security assessment done, like all that does is it benefits Google, it benefits their security baseline, benefits their security posture globally. What does it do for me? Zero. It does absolutely nothing. It doesn’t get me more customers. It doesn’t add to my marketing footprint. I don’t even get really listed anywhere where it’s going to get a large amount of traffic or anything like that. I get virtually nothing. I’m the one paying for it, and Google is reaping the rewards and benefits of it.
From that justification, “Why should I pay for this?” They’re making $15 million-$16 million per hour. They actually had to go back and forth with me to say, “Please create a free account for us so that we can log into your app.” It’s like, “Really? You can’t sign up for a free trial from Google. Nobody there’s got a credit card?” It just boggles my mind that they’re treating people this way.
Rob: The part about the credit card I get because, in a big company, very few people have credit cards, right? Because they don’t want people just willy-nilly—you can’t track all the expenses, and you wouldn’t know what’s going on. It’s not that they don’t have the money to have credit cards, it’s that tracking credit cards is a pain in the butt in an organization with thousands of people. That part makes a little more sense to me.
Mike: It makes a little more sense, but at the same time, it’s a free trial. There should have been a credit card someplace that they’ve got and said, “Look, there shouldn’t be anything paid going on this and if there is, contact whoever it is and if you need to do a chargeback, do a chargeback.” But that shouldn’t be a two-week back and forth between them and the developer. I literally waited for two weeks for them to get back to me. I was like, “What email address are you using to register?” Nothing. Two weeks, nothing. It’s not a hard question. I could have done it, and I did eventually hear back from them and got it all taken care off, but then even after I sent it to them, I said, “Hey, here it is.” It was still another week.
Rob: That’s the hard part, I think. To mean them not having a credit card, I would give them a pass on. I just know how it is at big companies, and on, and on. I don’t blame them at that point. The fact that it took them two weeks or three weeks or whatever you’re saying is, that’s the part that gets really hard when they have a deadline. You are trying to meet it, and they’re not getting back to you quick enough. It sounds like they’re not staffed up enough in this department, and some arbitrary person somewhere decided, “Oh, we have to be compliant with this by this day,” but didn’t actually make the decision to staff up or give the proper resources.
I think, to circle back on the audit, how it benefits Google and not you, I don’t disagree with. It’s the same thing with Apple and the app store—it is a monopoly in essence. They can do what they want, they can screw the developers if they want, that’s the hard part, that’s the bummer of building on someone else’s platform. Until it’s antitrust, and the government gets involved, you kind of can’t do anything. You’re in an odd position because I know that you didn’t intend to build on someone else’s platform and that you did the IMAP stuff on purpose.
You’ve said that multiple times. I remember talking in the early days, and that was the point is you were going to do something that isn’t reliant on someone else. For them to just come in and say, “You need to drop $15,000-$75,000.” They can do it, and it sucks, but I cannot imagine them bearing the cost for all the developers who use their API because I think that’s what you’re saying is, you want them to bear that burden of it. I don’t know of a large company, with such a large public API, that would do that. Are you thinking they would have their own internal team that will do it, and they would just have people on salary to do it type of thing?
Mike: I would think that they have something along those lines. Honestly, my initial thought was, “There are going to be companies that can bear the burden, and it’s not really that big a deal for them.” Fine. Those aren’t the ones that I’m publicly advocating for here. It’s the ones that are in a position like me where, very limited resources, I’m not funded, I’m not making the type of money that would make a third party audit like that particularly easy, I’m doing everything myself. If I had 5 employees or 10 employees bringing in $1 million every year, okay, that’s a very different story.
There should be something set aside or some sort of exception process in place for companies that are not meeting a certain threshold, very similar to when the government comes in and say, “Oh, if you are 50 employees or more, you have to provide healthcare for your employees.” But there’s that threshold there because the burden on super small companies is so incredibly high whereas Pfizer or Facebook or Apple, they don’t care, it’s a drop in the bucket to them. They even have an entire compliance division, I’m sure. But a six-person company? No. That’s not the case. When you get into those super small companies, basically, what they’ve done is, they’ve taken this blanket statement that says, “These rules and regulations apply to everyone.”
Personally, I understand why they’ve done that, I understand what their intent is, but the application of it and applying it to every single business—big or small—it’s skewed in a direction that benefits the big businesses by pushing the smaller companies out of business.
Rob: Yeah. The thing I struggle with is, I can see it from their perspective and that the smaller companies are most likely going to be the ones that have the security holes, I would think, right? Maybe not in your case because you know security and you did it for so many years, but think about how many two-year developers, junior developer, hacking something together in PHP getting the API key, they’re not thinking about the security at the level that you are or that Google would require. I actually think that the risk to them is higher on the low-end. I don’t think there could be exemptions. It’s almost like you want more of a scholarship. That would be it, right?
Mike: If you look at exactly what you just said, the risk for a large company versus a small company is actually very similar. The reason is because a large company will have a much larger footprint, so they have much more data available to them and a larger customer base; a smaller company would have very few customers. The likelihood of any one of those getting hacked or them getting hacked or something happening—some sort of security breach—even if it does happen, the footprint of that breach is going to be much smaller.
Think of like T.J. Maxx, however many hundreds of millions of credit cards got hacked is because they are huge. If let’s say that Stripe was hacked, that’s a very similar thing. If you look at something like Bluetick or Level, for example, which Derrick Reimer just decided that he was going to shut that down, let’s just say that he was, for whatever reason, storing credit cards on his server and that got hacked, how many people have put their credit cards into that? The answer’s going to be, it’s much smaller than T.J. Maxx.
Rob: Right. It’s a higher likelihood of it getting breached, but (a) fewer people are going to want to breach it because they know it’s small, and (b) even if it gets breached, it’s just isn’t as nearly as big of a deal.
Mike: Correct. It’s about impact at that point.
Rob: Yeah. Their policy is obviously, very hard on what you are doing. I think the question I feel like, as a founder is like, you’re fighting this now, if you somehow win this battle, this conversation, do you have concerns moving forward that this is going to continue to be an issue?
I bring that up because with apps that I’ve run in the past when Google or someone else broke when it was platform-built, they broke every year, 12-18 months, 6-18 months, whatever, they just kept breaking my stuff. It was an ongoing thing, and I think I want to post that question, (a) have you considered that, and (b) is that a reason to move on? I’m not saying you should, but have you given that thought, has that gone through your mind of like, “I shouldn’t be doing this? I should look for a different idea?”
Mike: It has crossed my mind, and I have given it thought. I think this situation is a little different in terms of the platform itself breaking because I’m relying on IMAP, not anything else. From that perspective, I don’t think that’s an ongoing issue. The policy changes could be because if they change policy once then, there’s no reason to think that they couldn’t decide that they’re going to change policy again.
Could that come up in the future? It absolutely could. Could come up next year or the year after? Yeah, it absolutely could. Am I worried about that side of it? Probably not because I think with Bluetick, it’s one of those things where I evaluate it and say, “Look, this needs to move forward at a certain amount of time, and if it doesn’t, then I should go on to something else.”
Rob: Yeah. That’s something I think we should probably dig into an episode or two. I know we don’t have it on the books today and no, we haven’t done a prep but I think it could be an interesting conversation, for you and I, to talk about where you are with Bluetick and just hear more how you’re thinking about it and where it stands in your mind especially given the light of what’s going on right now. I mean, this is a lot of hassle for—like you said—for an app that is not as successful as you want it to be.
Mike: Right. I even went in and took a screenshot of revenue and sent it to him like, “Look, this is how much this is making and you want me to do this? This is absurd.” I don’t know. We’ll see what they have to say. Hopefully, in a couple of weeks, I’ll have more information. But I mean, I may not, I don’t know. I’m spending so much of my time with Red Tape right now—and I have been for several months now. I’m not moving. It sucks. I don’t know what else I can do.
Rob: Is it taking up that much time? I can imagine replying to emails, you screenshot, you make the argument, then you sent the email, and then don’t you have the rest of your day to then build features, or market, I would say? Maybe you shouldn’t be building features right now, maybe it should be more marketing, but whatever, to do things that push the business forward.
Mike: It’s really distracting. Having that in my brain bouncing around, it’s really been distracting. It’s a little bit harder to focus.
Rob: You’re saying, you fire the email, and then you’re hung up on it for an hour or two, and you’re half struggling to work done. Is that the idea?
Mike: Some of it. In the past two days, there were two different emails that I sent. Each of them took me like an hour to put together. It just takes time to do that, which sucks, and I don’t know, maybe I could provide a lot less detail. I don’t know.
Rob: Yeah. It sounds like it’s tough because when I hear that I think, “Oh man, that is a waste of time.” But if you don’t put the thought into it and write a well-crafted email in this situation, it could be business-ending, so where’s the time best spent? But if you spent an hour to send an email, you still have the other six hours of your day, or seven hours of your day, depending on how much you work. Are you then distracted for that time or are you able to just let it go because that’s where you got to get, if you want to move this forward is to let it go and be like, “I’m going to move forward.” You do have a timeline. It’s like two weeks, three weeks until you know for sure, I’m assuming.
Mike: Sure. So, this morning, I spent some time doing support stuff this morning, and then I spent an hour on one of those emails, and then I’ve got this call for an hour, and then I’ve got another call after that for an hour, and that takes me to 1:00 in the afternoon. My kids get home at 2:45 PM, and I haven’t even eaten lunch yet, so I’ll hopefully start getting work done around 1:30 PM, and I’ll have an hour and a half to two hours before my kids get home.
It’s hard to get things done when that ends up in your schedule, so I don’t know, I don’t have a good answer at the moment, but it’s something I definitely need to think about offline, but we can discuss it next week or the week after or something.
Rob: Yeah. Let’s do that because I do think this is worthwhile digging into. I don’t want to derail this whole episode, but I think this is such an interesting topic because this is the real side of entrepreneurship, right? These are the hard things that we all go through that are scary, and you often don’t know what to do, and it’s stressful. I have to imagine that when work ends, your kids get home, you’re probably stressed all evening—I would guess—unless you can let it go.
There’s a lot of ways we can talk about this. Thanks for sharing that, man. I know that it is not easy stuff to talk about, but I think this real conversation is important.
Mike: Moving on.
Rob: Yeah. I have some updates, but I’m going to leave them until the next episode because they’re just not that time sensitive. I wasn’t thinking […] I was doing. Let’s dive into a listener question, we got a voicemail question about pricing.
“Hi, Rob and Mike. First of all, thank you for your podcast. You’ve definitely made many […] journey and things like […] enjoyable. My question is yet another question about pricing. Something that’s been playing on my mind for a while. While I’m not trying to promote, I thought some background really helps these questions, otherwise, it turns into a whole load of, it depends. I run a successful SaaS called […], that runs digilization backups. However, the vendor lock in and the fear of digitalization releasing daily backups and making my life difficult is real. I’ve been working on my next product Ultimately. For SaaS products, they integrate payment gateway with your payment gateway, so you can do emails. Another work for that integration is without any code. It’s a bit like if Drip and Churn Buster have a love child. I’ve been struggling to work out pricing though. I want it to be in line with the value a customer receives, so I thought of a percentage of monthly recurring revenue, have it settle on a hidden percentage game saying, $9 per 1,000 MRR. However, talking to customers, the percentage model seems to strike fear into people with unexpected cost. Do you have a better suggestion before I roll with that because it’s just become a distraction. Thanks again, Simon. You can learn more about […] at […].com. Thank you.”
You have thoughts on this, Mike?
Mike: Yeah. Definitely. I’ve heard from other people who have apps that are kind of in the space and they have kind of reiterate the same thing that you’ve just covered, which is people really hate having a percentage model of any kind because they want it to be predictable. I think it’s interesting to see them make that argument because if you look at what you’re doing for them, you’re basically saving their money and preventing churn, and you don’t get paid unless they receive more money.
The reality of the situation is, they’re going to make more money by using your service, but they’re concerned about the fact that it’s going to cost them more money even though they’re making more money by using your service. For whatever reason, they have it in their heads that the cost fluctuates per month, and they’re not sure if they can afford it and this is a huge hang up for them. I’ve heard it time and time again.
What I would do is I would actually go and look at some competitors and don’t try to reinvent the wheel. Look at what they’ve done for pricing models and how they are putting things together and how they’re presenting them to customers. Don’t lean toward this model where people are going to hate your pricing. Find out what other people have done, copy what they’ve done, and then show how your solution differs from theirs. Don’t differentiate on your pricing model because that’s going to actually make your job of presenting it to customers a lot more challenging because they’re not going to understand it.
They’re going to look at your competitors and say, ‘”Well, they have this pricing model and that one, and this thing that you’ve come up with is completely, not insane or ridiculous, but it’s just very, very different.” They’re going to have a hard time processing it, and they’re going to mentally, cross you off their list because they don’t understand your pricing models.
Rob: Yep. I have tried to innovate with pricing models before. I have seen founders do it, and it is very hard to do. It’s like saying, “I want to invent a new category.” It’s like, “That sounds like a great idea. Call your app an integration email blah platform,” or something. People are like, “So, what is that? How are you different from MailChimp? How are you different from Zapier?” Those are the questions you get. People want to categorize that in their mind. Pricing is similar.
I think your advice is dead-on. The way I would approach it too is to at least look around at what other players who have similar models, how they’re approaching it. There are the ones that produce churn, but then there are also ones that help abandoned carts, there’s a whole gamut of things that make people money directly using email. Personally, I would pull out my Moleskine notebook, and I would just go around and do a big survey, boom, boom, boom, write it all down, and look at how that pricing is structured, and start from there. What you may find is that everyone does it based on a percentage as well, and you’ve just hit a few customers who don’t like it, and that’s fine. Your sample size is really small, and that makes it hard so far.
As you said, Mike, I would start there. Then the more people you talk to, the more data points you’ll get, and at a certain point, you will know. If you’ve talked to 20 people, and 19 will have a problem with it, it’s a real problem. But if you talk to 20 people, and it was the first two or three who said it, then it’s a little more clear cut.
I hope that was helpful, Simon. Thanks for sending your voicemail in. As always, voicemails go to the top of the questions queue. Our next question is from Martin at quoshift.com.
He says, “Hey, Rob and Mike. My name is Martin. I’m from Australia. I’m looking to start a new SaaS business in a fairly mature space. There are about three competitors in the $10 million to $100 million range in annual revenue that I would eventually like to compete with. I’ve compiled a large list of current users of those solutions. I’m going to go ahead and reach out to schedule some interviews. My platform would be easier to use while providing an objectively better technical solution than other companies. Easier to use, objectively better. What are the top three questions you would be asking these users to see if they would be interested in switching to my product? By the same token, how can I get people to pretty sign up to my solution?”
What do you think?
Mike: I think I would start by asking them what is the single thing you hate the most about what they’re using now because that’s probably going to drive them to switch. It’s not going to be, “Oh, this could be a better solution. It’s going to be better, technically or the UI is going to be better.” You have to hone in on the things that they absolutely hate. Use that as a lever to try and move them from whatever else they’re using because they’re going to want to avoid that pain, more than to incrementally improve, what they have now. That’s where I would definitely focus. Beyond that, just the language, I’d say, in the email is a little bit concerning because you’re saying that it is objectively better, technically. Dude, your customers are not going to care. It’s more about their experience with it and what they are going to get out of it.
Rob: Yes. Switching costs, whether they’re high or not, in actuality, they are always high in someone’s mental–in their mind. You can’t make an app that is 30% better and expect people to switch. You need to make an app that is two times, three times better and have a real, compelling way to communicate that to the customers. Building a better mousetrap is a really hard way to get people to switch SaaS apps.
The switching cost on mousetrap is not high—I’ll put it that way. I like your idea, the number one question of like, “What do you hate the most? What are two or three things that you hate most about this app?” I think, to tie it in, you talked about Derrick Reimer earlier deciding not to do Level. He wrote the blog post on derrickreimer.com, about deciding to shut it down, and the process there. He felt like he didn’t do it as well as he should have. He referenced the book called, The Mom Test—the subtitle is—How to Talk to Customers & Learn If Your Business is a Good Idea When Everyone is Lying to You. One of the big questions in there is not just, “What’s your biggest pain?” But that then followed up with, “What have you done to try to get around this pain so far? What have you done to solve this pain so far?”
Because if they say, “My biggest pain is I can’t integrate with this other product. If you build that integration, it would be great.” What have you done to solve that pain? Well, if they haven’t tried to hire a developer, or write any code to do it, or tie into Zapier, or do anything to actually fix the pain, then the odds are good that that pain actually, isn’t that big of a deal. In their head, they’re thinking, “Yeah, this is a pain. This is something I dislike.” But if they haven’t taken the time, or the money, or made an effort to fix it, it starts to sound like, “Well, maybe this isn’t that big of a deal. I think that’d be the follow-up question that I would ask about each of those pain points and I would […] The Mom Test, of course, to even hope further because there’s a whole bunch of questions in that book.
You know one other thing I would consider asking is because from a customer development standpoint, you want to find out what to build, and the early things to build. I would be curious to ask, “How long have you been using this product? How hard would it be to switch? Have you considered switching in the past? If you have, why didn’t you switch to another?” You know what I mean? Go down that logic, that path, of trying to really get into it to figure out when it comes time have they actually thought through what switching to your product looked like because if they haven’t, they can get right up to the end. They actually build all these integrations, and then like, “Oh, I haven’t thought that I’d have to get a developer involved.” That’s a no go. Those are the types of questions. That’s the path I wouldn’t follow. Thanks for the question, Martin. I hope that’s helpful.
I think we have more time for one more question today. This one is also about customer development. It’s about setting up initial meetings when all you have is wireframes. It’s from Scott.
“Hi, guys. I have a question for you. I’m trying to validate my idea by talking through wireframes with people, but before that can happen, I’m sending cold emails to people that I’m assuming are the target decision makers. In my case, it’s HR Managers of companies with around 250 or so employees, which may or may not be right. I wondered if you could talk about your experiences with getting those initial meetings set up. I don’t have a website at the moment, just initial product wireframes, do you think that’s a mistake at these early stage?”
He gave us a sample email, which I think is well-written. Any thoughts on this?
Mike: I like he led off the email by saying, “We’re in the early stages of building an app,” because I think it conveys to the person on the other end that you’re, I’ll say, as an aspiring entrepreneur. I found that that’s actually, a really good opening way to position yourself because you’re essentially soliciting them for their expertise and their advice.
A couple of things I would keep in mind though, the people that you talk to very early on like this—depending on how long it takes you to get your app out the door—it could be that these people are just not going to ultimately, end up being your customers. Just bear that in mind. Don’t bend over backward for every single one of these people, thinking that you’re going to get all of them as a paying customer once you start shipping the app or you have something to ship.
There’s a bunch of different reasons for that. But the fact of the matter is people switch jobs or their priorities change. All kinds of things can happen between the time that you first talked to them, and then you have something that you can show to them. I don’t think it’s a mistake to just show them wireframes. I mean, you need something to show them especially if you want to get any sort of prepayment or commitment from them.
The reason I would lean more towards that prepayment is because it essentially overcomes a hurdle which is that they’re saying they would pay for something, versus they will pay for it. If they give you a credit card as a prepayment, then they are willing to pay for it versus, “Oh, this sounds like a good idea. I would pay for it.” But the reality is, they want to see it, and they want to be able to play around with it. There’s going to be a bunch of people who fall into that category where they would pay for it except, and then they’ve got all these different reasons, that until you ask them for their credit card, they’re not really going to tell you because they want to be helpful. Nobody wants to be the person who says, “Oh, this is a bad idea.” If they’re trying to give you advice, they’re going to say those types of nice things which is going to what you want to hear, not necessarily what you need to hear.
Rob: Yeah. The hard part here is, if you’re an HR Manager of a company with 250 employees, you’re not going to prepay for something like this. Prepayment is such an SMB thing. When you’re talking to a single founder or a founder of a five-person company, yeah, they’ll totally give you a hundred bucks or whatever, put it in a credit card or whatever, but that type of thing, it works very differently as you get to the mid-market where they have these massive budgets, and everything is tracked.
You could feasibly do prepayment. But it’s going to be like, “Would you pay us $5000 or $10,000?” Then you’re going to need contracts. You’re going to have to go through procurement. That’s what this process would be like at that point. You’re trying to fund this based on customer pre-sales with larger companies, then it is definitely, much different—we would think—than if you’re dealing with just smaller companies.
Mike: Well, I don’t think you necessarily need to get to the point where you’re funding at with their money. In my mind, it’s more a matter of are they willing to commit to paying for when it’s ready. It’s a different goal than if you’re trying to get money from them to fund the development of it. That’s two different things, depending which direction he was trying to go.
Rob: Yeah. That’s fair. You don’t have to fund it, fund it yourself, but getting someone who runs HR at a 250-person company to give you their credit card number and say, “Yes, I’ll give you a few hundred dollars.” I wouldn’t do that. I worked at larger companies, and I just know the politics and everything that goes on in there, and you’re just so busy trying to push things forward that unless the solution is there in front of me, there are so many people marketing and trying to sell to these HR managers or to any manager at a company. That it’s like, them giving you the time to even give you feedback, and then them going out on a limb and then giving you money with the thought that you might build something. I mean, if they don’t know you, did they know that you’re going to build good software? Did they trust that you’re going to deliver […] ever? It’s a whole different ball game.
You’re not going to have a reputation like you might if, let’s say, I went to our audience and was like, “Hey, I’m going to build something that is going to solve whatever your problems.” There would be reputation factors, right? People know me, and hopefully, like me, and trust that I’m going to build something good, but he’s not going to have that with these HR Managers because it’s just cold outreach.
Mike: I think, what I would lean towards doing in that case is saying, “If the products says this, this, and this, so what are the roadblocks to you purchasing it and pain for it?” That gives you a little bit of insight in to the internal politics of how that company operates. If you’re asking that company that specific question, you’re going to get, I would think, a reasonably decent cross-section of how companies at that level operate in terms of purchasing and requisition.
Like, “Some are going to need to go through the IT department and they have to hand it off to them and the IT department has to purchase it. Some of them are going to have a credit card, they’re going to be able to just buy it themselves, and tell the IT department afterwards. Some of them purchases above a certain dollar amount, they need to go through somebody.” You can ask them about, “If the pricing was this, what would you think? If the pricing was this other thing, what would you think? What are the roadblocks that lead to those different points?” That’s what you need to know is how are you going to sell to these people assuming you built what they want.
So, one line of question is, “What is it that you want and need and what would make it so that she would pull the trigger and buy it and say yes.?” The second part is, “What does it take to actually get it into here?”
Rob: Yep. I think those are good points. He asked two other questions or he asked two questions in the email, and I don’t know if we’d addressed them very well. His first one was, “I wondered if you could talk about your experience with getting those initial meeting set up.” Yeah, the experience is, you have to send a lot of emails to get very few meetings. The funnel is wide, and people are busy, and they aren’t going to want to talk to you.
Other thing that I’ve done is use my network/audience to try to get that. Whether you’re going on LinkedIn, whether you are emailing everybody you know to basically say, “Look, I’m an aspiring entrepreneur or I’m a founder, and I’m in the early stages, I need advice on an HR product. Could you make an intro?” That’s how you’re going to get people who will at least talk to you on the phone. My experience is that it’s frustrating, and takes longer than you want and you get a lot of, “No, I’m not going to talk to you.” Eventually, your persevere, you figure it out, you talk to enough people.
Then his second question is, “I don’t have a website at the moment, just the initial product wireframes. Do you think that’s a mistake at this early stage?” I could go either way on this. I think wireframes is fine, but I think non-technical people have a tough time feeling wireframes as real things, but I’m less worried about how the screens worked, and I’m more worried about what is the headline. What is the headline of the website? There’s kind of this old marketing thought, and I think it’s good, it’s something that I’ve done from time to time, where you build the marketing page first, you build the landing first page. You go from there to then building the product. By the time you get that headline in there and some bullets of what the copy is and what it does. I mean, that’s how we did with Drip.
I’m trying to think, my book was that way too where it was five sentences on a page and then I took that and said, “Now, I’m going to go manifest this into reality.” That’s what I like about you building a marketing site is whether you do it in Squarespace or WordPress SaaS theme, it doesn’t have to look amazing, but it’s really about you getting it on paper, getting the marketing thoughts and the copy even in front of yourself, and maybe if they asked, you can send them there, it’s just an email opt-in, it kind of depends, but I think I lean towards in doing that. I think it’s a helpful exercise, especially for those of us who tend to want to go to the code.
Mike: I was going to mention exactly that. I don’t think that having a website in and of itself is going to help you, but I think the process of putting together the website makes you seriously think about what it needs to say, and how you’re going to position it, and it helps you craft a better story when you’re talking to people about the solution on a call, and you’re demonstrating those wireframes. It just helps you position it better so that if they look at your email, “Well, let me just take a look at the website before I reply back to this.” That should tell them very quickly whether or not they want to even waste their time at all or whether you’re serious. If you don’t have any website at all, who knows?
I mean, I feel like, this is definitely more me than anything else, but if somebody sends me some email and says, “Hey, I’m thinking about this,” and they’ve got literally nothing on their website at all or they don’t mean to have a website, it’s really hard to take him seriously that they were even going down this road.
Rob: Yeah. I think that’s a good point. Hope those thoughts are helpful, Scott.
Rob: Well, thanks for the questions everyone. If you have a question for us, you can call it into our voicemail number 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. It’s 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. We’ll see you next time.
Episode 388 | GDPR, Why You Should Strive For High Prices, and More Listener Questions
In this episode of Startups For The Rest Of Us, Rob and Mike continue their discussion on GDPR and get additional insight from a listener. They also talk about why to strive for higher price points.
Items mentioned in this episode:
Episode 356 | Finding Pricing for a New SaaS App, Small Business Banking, Selling to Companies Outside the U.S. and More Listener Questions
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include finding pricing for a new SaaS app, creating a new product category, choosing a name, and small business banking.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about how to determine pricing for a brand new SaaS App, small business banking, and selling to companies outside the US, as well as answer more listener questions. I also ask Mike what his favorite food is without having given him advance notice. Hey Mike, what’s your favorite food?
Mike: I don’t know, I like sushi a lot. That’s my answer.
Rob: I thought you were going to say Whiskey.
Mike: You said food. Yeah, we’ll change that to grain.
Rob: This is Startups For The Rest Of Us Episode 356. Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re going to share our experiences to help you avoid the same mistakes we’ve made. Aside from eating Sushi this week, what’s going on, sir?
Mike: I’m looking to push a pretty major update to Bluetick. It unfortunately breaks all of the existing routing for the entire app. I’ve been watching to see who is logged in, when they’re logged in, what they’re doing. Pretty much all hours of the day right now, somebody is doing something. It’s kind of problematic to do to just push out a major update like that. I kind of have to wait until the weekend.
Rob: Yeah. It’s a good problem to have, right?
Mike: I know.
Rob: So many people in your app that it’s hard to push updates.
Mike: I know. It’s funny, I was complaining to my wife, “This is totally a first world problem, but I can’t push an update because people are using it.”
Rob: That’s interesting. With Rails, shadow upgrades where it waits for a particular server to not have anybody else. We have load balancers and a bunch of web servers, but we have a process for there won’t be down time, or you won’t lose your session when it updates. Is .NET still the old paradigm of if you load it and someone’s in their session, they’re going to lose stuff?
Rob: Got it.
Mike: I’ve also got a bunch of trials that are set to convert to paid in the next week or two. I made the next step to transition from a 30 day trial to a 14 day trial, so I’m going to see how that goes as well.
Rob: It’s a good move. Shorten that trial. The shorter you make it, the faster you can test. This is my soap box since day one on this podcast. Shorter trials are better. No trials, the best, because it’s so easy to split test. But you want someone to get value so it’s like 14 to 7, you can split test faster, you get your money faster, it encourages people to get on-boarded faster. But obviously the shorter you go, at a certain point, you give them so little time to get set up that you’re going to have less returns, you’re going to have fewer people making it to paid, so you got to find that balance.
Mike: That’s why I went to 14 instead of 7, I think it’s a good balance between giving somebody enough time and giving me enough time to reach out to them and to make sure that they get through all of the on boarding steps. Because if they don’t, clearly they’re not going to get any value out of the app, but I want them to get value before the end of the trial.
If they’re not doing things in the app and they’re not responding to emails or any of my on boarding stuff, then doing 30 days is not going to make any difference over 14.
Rob: I agree. I have tweaked with trial lengths with pretty much every app that I’ve ever run. I have found that you can just ratchet it down, ratchet it down, and then when you go too far it becomes kind of obvious if you have any type of volume going through it and you know your numbers, you know the typical trial to paid. You’ll either start getting complaints that trials aren’t long enough or you’ll just notice that people aren’t getting stuff done on time. I think this is a really good experiment. If you get it down and stabilized at 14, I would totally look at a 10-day next, maybe in a couple of months as you have time. And as your on boarding gets better, you can do that because it gets people through that part of the funnel quicker.
Mike: Yeah, 10 days might be interesting. The only issue there would be it’s part of a week, or maybe it’s not a big deal, I don’t know. I’ll probably test it at some point, I’m sure.
Rob: We have a ton of new iTunes reviews and iTunes reviews are so helpful to this podcast. A, they give us motivation to keep going. B, they help us rank higher and get more listeners. Right now, we have 531 reviews worldwide in iTunes. One from [Bob Moff 00:05:07] recently said, “Filled with so much great content. You will explode.” I like that one.
One from [00:05:13], he says, “The best. This podcast is amazing. I have a small app business and the advice they give is super helpful in my business. I listen to a number of podcasts for small business and passive income and this podcast is the most beneficial to me.”
Another one from [00:05:26] that says, “Thanks for an awesome show for Startups. Thanks for providing a great show for us.”
If you haven’t ever left us an iTunes review, you don’t even need to go in and write anything like these kind folks did. You can just deal with the clunky iTunes interface or Stitcher, click five stars. It takes two seconds, we’d really appreciate it.
Today, we’re answering listener questions. If you haven’t ever sent in a question, you can call our voicemail number which is super cool because then we get to hear your voice. That’s 888-801-9690. You can always email us at firstname.lastname@example.org. We have five or six people today who did one of those things. Let’s dive into our first one.
Listener: Hey Rob and Mike. I just want to say first off, I love the podcast. You are by far the most actionable podcast that I listen to. My question today is about pricing. I have a SaaS company starting up and I know you’ve touched on pricing before in the past briefly. I’d really love to hear you go more in depth on how you would figure out pricing for a new SaaS just getting off the ground. Thank you so much, I look forward to hearing from you.
Mike: I think this is kind of a very general topic. What I did for Bluetick for this specifically, to try and find out what people were willing to pay for, was I asked them. When I put people through the initial validation process and I started taking preorders for Bluetick, I asked them how much value do you think this provides to your business? I gave them a text field. It said you tell me how much it is that you’re willing to pre-pay for and then we’ll multiply by how many months. I got ranges anywhere from about—I think the lowest was $1.29—most of them were between $47 and $50 and then I had one that came in at $100. It gave me a good idea that the $50 price point was probably not out of range for most people. That’s what people thought it was worth.
I think there’s other ways that you can do that as well. One of them is to anchor the pricing to something. You can either anchor the pricing to the value that you provide, and in your copy and the things that you talk to people about. You say look, this is what it’s going to save you, or this is what it’s going to help you avoid. You can use that to figure out what the pricing should be and you can use that copy to help you justify it to the customer.
Another thing you can do is look at what competitors are out there and what their pricing looks like in comparison to what it is that you want to do. And then you can either go higher if you want to offer more of a premium offering, or you can go lower if you want to be more of a commodity choice or a lower end option for those people.
I’d say those are probably things that I would look at. Rob, I’m sure you’ve got a ton of things to say about this. What do you think?
Rob: That’s actually a pretty good summary. A, ask, because you probably should be or are going to be doing customer development anyway so you should ask early and then start—as you’re doing customer trial—pitching different prices to hear how people react. I think that’s a great idea. Competitor pricing is always important because people, if you say you have no competitors, you’re probably fooling yourself because even apps that don’t have direct competition have some other form of competition. Even if it’s an Excel spreadsheet and three hours a week of someone’s time, that can be a competitor to you. You can start just doing even loose math about what is three hours of someone’s time worth in the role that they do this? Multiply that times 4.33 and that’s one month. Now alright, I’m going to charge a fifth of that, or a tenth of that, or something.
Another way, something that I did early with Drip was I kept asking myself how can I build an app where the lowest price point was $99 a month. That was the initial brainstorms or one of the thought experiments I did. By the time we launched, Drip was only at $49 a month but our average revenue per user is much higher than that because it scales up with subscriber count.
That’s another way you can think about it, try to dig yourself out of this I’m going to be a $10 a month SaaS app or a $20 a month SaaS app to start. Those apps are going to be great little lifestyle businesses but they are going to tend to have high churn and it’s really, really hard to grow them past, depending on churn, and let’s say $20k, $30k, $40k MRR. It’s just at that low price point, you have to find so many customers.
I think it’s an interesting angle to come at it from that other direction of alright, I’m a developer and I know I’m building an app for X. I know it’s accounting for lumberjacks. How can I make that worth $49 or $99 a month? Does it have to then, in order to provide that much value, go out and scrape people’s bank accounts? Does it have to do 10 times what Quickbooks can do? What does it have to do? I think it’s a third angle to think about as you’re doing this.
I think the last thing I’ll say is with competitor pricing, I think competitors give you a really nice level set or comparable price of what someone might be paying. That doesn’t mean you have to be the least expensive, that’s the thing. I would tend to argue you probably want to be more expensive than most of the other ones. Maybe in the very, very early days you can’t be. But as soon as you start getting some traction and you’re moving fast and you’re shipping fast, people, depending on the industry, often want to use the new cool thing. You’re going to probably have a better UI, better user experience, you’re going to be more responsive because you’re such a smaller company.
When we priced against the MailChimps, AWeber, Constant Contact, we are more expensive than all of those apps. Some people would say, “I’ll just stick with MailChimp because I can save my 10%, 20%, 30% a month.” Our answer was well, we’re more powerful, we’re more responsive, our support is better. Even over time, as we talked about a couple of episode ago, our pricing is now even a little higher than 20% or 30% over MailChimp or Constant Contact. We’ve earned that right. The price premium is a bit of positioning and positions us as much more of a premium offering in the space. I hope that helps, thanks for the question.
Our next question is about creating a new product category.
Listener 2: Hey, what’s up Rob and Mike? This is Chris Badgett from Lifter LMS which is a WordPress Learning Management System Solution for creating and selling courses and membership sites. I love your guys’ podcast. My question for you, it’s about introducing a new category. We’re growing really quickly, disrupted the market a little bit with a free frontend product and an add-on model, premium pricing, things are going really well.
We’re about to pour gasoline on the fire and really introduce a new category. What I mean by that is something similar to how InfusionSoft introduced the marketing automation category and that was really big. We see an opportunity in the learning space and how we can move into a new category outside of just learning and courses and the membership sites. I’m actually having a hard time naming it. I know what it’s going to be and how it’s going to work, but I want to pick that name kind of like marketing automation or sales automation or those big category names and make it simple and rememberable and not too techy and not using insider lingo and techno babble.
Any advice on naming a category? A new category which is going to involve some education and teaching people about that new category, I would really appreciate that.
Anyway, keep up the great work, guys. Thanks a lot, I appreciate it.
Rob: Thanks for the question. This is a big one and an interesting one. Most people will not face it in their lifetime. I think to start with, you mentioned it, InfusionSoft introduced marketing automation. As far as I know, they did not, they just brought it down from the enterprise. Marketo, Pardot, HubSpot, Eloqua, those guys were kind of around, some of them. InfusionSoft was around before that but it was more like back office for lawyers and brick and mortar. By the time they became marketing automation, there were other players. I don’t know that that’s critically important but it is a clarification I want to make upfront.
Inventing a new product category is very, very hard and very expensive. Since you already have a business and you already have customers, you may be able to gorilla market this to them and have it spread. I’ve been involved, either peripherally or directly, in this type of exercise before. One thing, back in the day, as I was looking for a different term for an entrepreneur who wanted to stay solo and start small software companies.
Micropreneur is this term that I came up with and got micropreneur.com, we launched the academy. All the stuff happened. It was years and years of saying the same thing and talking about it and speaking about it and writing about it and still the adoption of that term. There are some people who used that term, but even with the reach into this space of those people, it still doesn’t resonate with a lot of folks. They don’t call themselves Micropreneurs.
There’s a bunch of reasons why that might be the case, number one, because it’s just really hard to come up with a new term that resonates with people and to define it and have people get behind it. Another reason could be that perhaps the name itself, I didn’t choose it very well, meaning that maybe it’s hard to say, it’s hard to spell, maybe it doesn’t resonate with certain people. I think that’s what the first takeaway is. A, are you sure you want to do this? It’s going to be really, really hard. It’s going to be a ton of money.
Another one, I had a specific conversation with Dharmesh Shah from HubSpot. He and I have known each other for years, blogged, guest posted, we speak at conferences and we talk. We talked about HubSpot inventing the term or getting behind the term inbound marketing. They wrote a book and they pumped money and money and money into it. It was a casual-ish conversation, it may even have been on Twitter, actually. He was saying it was $5 million or $7 million and years for them to get traction with that term to where people associated it with their company. It’s a couple data points, but I will say that this is a lot harder than you think.
Going with that in mind, if you still want to do it, go on with that in mind. It’s still definitely doable. I think that nailing the name and nailing that concept like inbound marketing, certainly those words existed in english language before. But they brought it together and they gave it this tight definition, and then they just kept saying that definition over and over in different ways. That would be my advice for it. Honestly, I would consider—if you’re really going to do this—hiring a design firm or a brand agency or somebody to help you with that name. Because if you know what it is but it sounds like you don’t have the name yet, the name may be 80% of the battle. If you get that wrong, no matter what else you do, you’re going to be hosed because it just has to resonate with people and it has to have a deeper meaning and conjure up the meaning in people’s minds. That’s hard to do, it’s hard to come up with that on your own.
Mike: Sounds to me like this is just one of those classic branding exercises. When you’re trying to come up with a brand, I don’t view it as too much dissimilar from coming up with a name for your product or your company. It needs to fulfill a couple different requirements. It needs to be easy to say, easy to pronounce, easy to spell. You don’t want people to misspell it or get it slightly incorrect and end up in the wrong places on the internet.
I think the fundamental thing that is the most important of that is it must resonate with people and accurately describe what it is that they do or what the product category is in a way that makes them affiliate themselves with whatever that term is.
Coming back to what Rob was saying before about micropreneur and why that hasn’t really caught on, I think people feel like I’m an entrepreneur, micropreneur sounds a little bit like you’re couching how well you’re doing in certain things. People want to be viewed as successful. If you say micropreneur, oh, I’m a small entrepreneur. No, that’s not really the whole point of it, so I feel like there’s certain connotations along with that that turn some people off. You need to make sure that you’re cognizant of what those types of things are with whatever the term that you come up with is.
Something else I think about is is there any real value in being known as the company that established this name or created the name? Is there something else that you could latch onto that isn’t necessarily yours or wasn’t created by you but you can then build enough stuff around it. Like Rob said, HubSpot spent millions and millions of dollars and tons of repetitions saying the same things over and over to their customers and everyone else’s customers that inbound marketing and inbound marketing and inbound marketing. That’s how they ended up making that into a term that people affiliate with HubSpot.
You can do the same thing even if you don’t necessarily come up with a term. I’m hesitant to say that there’s value in being known as the company that came up with a specific term, like you said marketing automation and as Rob pointed out, InfusionSoft is not the company that came up with that, it was someone else. It would be very easy for people to misattribute it anyway.
Rob: Yeah, and last thing is given the importance of this, there are people out there who come up with names, they’re naming experts. A lot of them do it for companies, but if you have the resources, since you already have a company that sounds like it’s profitable, the name is a critical piece of it.
Someone who I heard recently on The Tropical MBA Podcast, it was Episode 401, What’s In A Name? Listen to that episode and figure out if she might be a fit for you. I forgot the name of the company but it was a fascinating exercise. Dan and Ian from Tropical MBA are wanting to rename their brand, their podcast. They want to get rid of the Tropical part.
They’ve now renamed twice. They were called The Lifestyle Business Podcast, and then they renamed to Tropical MBA, and then they’re renaming to something else. You can see how hard this is because for them the podcast is part a movement, it’s part of a new term that they’re coming up with. As their careers have shifted and their businesses have shifted, you can imagine that it’s difficult to pick something that’s going to hang around forever.
The cool part is that question and the thought about choosing a niche and name is actually our next listener question. It’s from email@example.com. He says, “I have a question that applies mostly to Rob, but I’d like to hear both of your takes on this. Your podcast is geared towards solo founders and bootstrapped entrepreneurs, ‘The Rest Of Us.’ As Rob is now part of a larger organization, he’s switched boats a bit. Would you still name the podcast the way you did if you would have to pick a new name and a new niche now? Or to broaden the question, how do you pick your niche and even your name so you’re sure you don’t outgrow it yourself? Or that if your preferences change, you’re not stuck with your initial niche. Thanks, I’m a big fan and I appreciate your open discussions. Thanks for the great show.”
I’ll insert a little bit here, Mike, just because he asked that part about me and then you can come in with your thoughts. What’s interesting is I do work for a larger organization but I actually don’t feel like I’ve switched boats. I’m still a bootstrap founder at heart. This is the thing, you get into this mindset of if someone has raised any type of funding, are they still a bootstrap founder? Look at Jordan Gal with CartHook, look at Justin McGill with LeadFuze, look at Churn Buster, yes, they each raise small rounds. Are they still bootstrap founders? Yeah, I guess by a technical definition, they bootstrapped to a certain point because they all had revenue and then they raised a small round. Maybe, technically, they’re no longer bootstrapped but at heart, they’re still super scrappy, super cash efficient, and they’re not doing the $100 million company or bust, they’re building real businesses.
That’s the bigger difference I see, it’s partly a mindset thing and it’s partly how you approach problems. Jason Cohen who’s writing WP Engine, I’m an angel investor but I have no inside information. They’re either going to get acquired by a massive company or they’re going to have an IPO here. Big time stuff. He still talks about bootstrapping in a higher level than most of us can, still he’s given the best talk I’ve ever seen on bootstrapping. He bootstrapped WP Engine to a lot in revenue before he bought on any outside funding.
I guess I would probably push back on that a bit to say that since I am working inside a company of 150 people or whatever, that I’m no longer a bootstrap founder. Every problem I approach, I still approach it that way. I guess all that to say is I still love the name Startups For The Rest Of Us. I feel personally, not just because I’m attached to it, it embodies a different way of thinking about startups. Everywhere you look, even as much as I love the Gimlet Media show Startup, it’s just the same stuff. It’s all about the Y Combinators and about these big companies. It’s really well told and I enjoy the story, but it gets old. I feel like on this show, the ‘for the rest of us’ part is really saying this is for people who want to build a real business instead of building slide decks.
I think that’s my initial thoughts. What are you thinking, Mike?
Mike: I think I agree with you for similar reasons. I think that I would stick with the name Startups For The Rest Of Us, I still really like the name. The downside of it is of course that it’s really long. If you have to spell it out or come up with an acronym, it doesn’t suit it very well. I think that the name itself, it resonates really, really well with most people. Here’s why, and I don’t think that we really considered this back when we named the podcast this.
I picked up startupsfortherestofus.com back when I read a PolyGram article about them with Y Combinator and really targeting people who were fresh out of college and didn’t have any expenses and they can send $6,000 to them and basically invest in some of these startups. The expectation was you’ll move to this location for three months and that $6,000 per person is going to get you through. I’ve read it and I was like well, what about me? What about the rest of us who can’t do that because we’ve got a car and a mortgage and family, and we can’t just up and leave for three months.
Honestly, it really irks me at the time. I look back at that and I realized that the gorilla in the startup space is really the funded startups. Those are the ones you hear about all the time, they’re the ones that get all the media attention and love. They’re the ones that get the massive news articles and press coverage that we would like to have but we just don’t.
Really, what that does is it puts people like us and listeners of this podcast into this bucket of people that we’re the misfits, we’re the crazy ones, we’re the rebels, we’re the trouble makers that are going out and building stuff that are not playing by the rules, we’re not doing things by the book. I think that’s why the Startups For The Rest Of Us really resonates so well with a lot of people in the audience, because they can affiliate themselves with that. They’re like I’m not following the script that the Silicon Valley people are putting out there and I’m still being successful at it.
Rob: Yeah. I also think there’s a turner phrase. ‘For the rest of us’ obviously existed in the English language, which is why it came to your mind. It means for those of us who are not privileged or who are not going after what the crowd is doing and what everybody is talking about. Now, there are a bunch of podcasts with similar names, which shows you that that concept resonates with people. There’s Money For The Rest Of Us, Minimalism For The Rest Of Us, Theology For The Rest Of Us, Quitting For The Rest Of Us, Music Appreciation For The Rest Of Us, Success For The Rest Of Us, on and on and on.
I think, to be honest, we may have gotten a little lucky with it. I remember when you…
Mike: Oh, we totally got lucky.
Rob: We didn’t actually know what we were doing. I remember you presenting it and being like, “I have this domain name.” I was like, “Oh, that’s a great idea. This totally fits what we’re doing.” It’s just one of those times when it fits.
I think to address Ov’s broader question, as he says how do you pick your niche and even your name so you’re sure you don’t outgrow it yourself. The niche you pick, you can always outgrow. You can always go from one vertical to a neighboring vertical. You can go from freelance designers to freelance developers. That is not that hard, I’ll say. Or going from a single vertical to going horizontal. We’ve seen people do it. BidSketch went from proposal software for designers to more generalized proposal software for agencies. There’s a number of examples of land and expand, of coming in and serving a single market and then going out.
The niche part is not the hard part, it really is the name. If Ruben had named BidSketch Design Sketch or Design Proposals or something like that, you limit yourself. You have to strike this balance between having a name that’s tight and having one that is so broad that it has no meaning to people, and you’re then inventing your own term and having to educate on that.
With that said, if you look at a lot of the names of big startups, they really aren’t specific at all. They did that by design. amazon.com, this is a very smart guy. I have a sinking feeling that he named it Amazon for a reason. He knew that he wasn’t just going to do books forever, he didn’t name it book website or cheap books or any of those other things. He named it Amazon because he knew he’s probably going to sell some DVDs and some furniture one day. Maybe he didn’t know about Amazon EC2 but EC2 fits under the hat umbrella as well and it’s a completely different thing.
Look at Uber. What does Uber mean? Super, is that right? In German?
Mike: Yeah, something like that.
Rob: Yeah, it’s like above or beyond or super. That fits a lot of stuff. I think the founders of Uber probably knew that they weren’t just going to be a taxi service, although early on they were called UberTaxi and they removed the taxi because they were being regulated as a taxi, and so they changed the name. Now, they could do self driving cars, they can do food delivery. There’s UberEats, you just add the little thing to the end of it.
A lot of startups, when they actually name their startup, they are using these dictionary words or even just nonsense words that have a nice ring to it. There’s a reason for that, they don’t want to get pigeon holed. If you’re naming a company, you may want to lean towards that. Again, that Tropical MBA episode that I mentioned, 401 I think it was, she talks all about this stuff and she has an ebook that is phenomenal if you want to hear more about naming companies. I highly recommend it.
If you are talking about naming a podcast or a blog or you can’t use a nonsense name, I would have some serious brainstorms and then I would try to strike that balance between being so wide and so narrow.
Mike: Of course there’s a danger here, there’s actually a couple dangers. One is if you’re so broad, then you have to spend a lot of time and effort educating people about what the name is. I think the other major danger is that you spend so much time figuring out a name that you don’t actually do anything. Those are other gotchas to be aware of.
Something else that comes to mind is you can always run into a time down the road where you suddenly decide that you don’t like the name. It doesn’t matter that it’s doing well or the customers are resonated with it, you may just decide one day that you don’t like the name. There’s almost nothing you can do about it.
One that comes to mind is FogBugz, from Fog Creek Software. The last I knew that they did not like the name and they felt like hey, if we can change the name to something that made more sense, we would. But at this point, it’s too late. There’s tons of people using it, they’ve got thousands of customers, they’re just not going to change at this point because it doesn’t make business sense. Even though they don’t personally like the name anymore, it doesn’t matter. The reality is the product is still making money, it’s making really good money. They’re just going to stick with it.
You may be stuck with a name you don’t like. If it’s working and then does it really make that much of a difference? The answer is probably not.
Rob: You know, Ramit Sethi with iwillteachyoutoberich.com, that’s the name, he says it’s too long, he says it sounds like he’s a pyramid scheme or whatever. He wishes it was less grandiose. I’ve heard Tim Ferriss talk about how 4-Hour Work Week was really a blessing and a curse. It sold a lot of books but now he has this reputation and he wished he didn’t. There are interesting connotations to it.
And then we can look to Tropical MBA that used to be a lifestyle business podcast. They’ve, again, changed once already and they’re talking about changing their name again. It’s not impossible to change. It’s harder to change a product or a company name, it can be easier to change a podcast where you still have the same subscriber base and RSS feed. You’re not going to lose people. You need to rebuild the brand over time, but it’s totally doable.
That was a good question. Thanks for sending it in.
Out last question for today is from Eric, thanks for sending this in, Eric. It’s about small business banking. He says, “What options would you recommend for small business banking? I’m looking around for a local bank like Wells Fargo, Bank of America, etc. to start with a basic checking account. Would love to hear your thoughts.”
I don’t think of those as local banks, I guess they have local branches but those are large, national banks. What are your thoughts, Mike, besides the sentence that ‘small business banking sucks’? Is that what you’re going to lead with?
Mike: I was, but national banks suck too. Pretty much all of banking sucks.
Rob: It does. You have a ton of experience with it. Do you have any key takeaways of advice, or is it really just go with where your personal stuff is just so it’s easy to transfer money between the two?
Mike: That’s probably the best advice in most cases. Most of the business offerings are going to be pretty similar from one provider to the next. It really matters more along the lines of what services you really need from the bank. Do you actually need to write checks? Do you need to visit a branch? There’s a lot of things that you can do completely online.
Obviously, if you open up an account, at most places, this applies specifically in the United States which I believe he’s writing to us from, you’re going to have to fill out a lot of paperwork that essentially validates who you are because of all of the security laws and SCC things that came along after 9/11. What you’ll need to do though is you’ll need to provide proof of who you are before they’ll let you open a bank account. You can do that online for certain types of banks.
Silicon Valley Bank for example is one where you can do that completely online. Their backend interface kind of sucks, it’s not the greatest in the world, but they have two branches. One of them is on the West Coast, one is on the East Coast, and that’s it. They’ll give you a debit card, you can use it at most places, and that’s really most of what you need. As long as you have online banking and you can take a picture of a check and just deposit it, it probably doesn’t matter. Any bank in the world, you can just order checks from a random checking service where they print out your checks and send them to you. They’re all basically the same thing.
It really comes down to what are you paying for in fees and those types of things. Across the broad spectrum of your business, probably don’t matter much because you’re going to be spending less than $25 or $50 a month on your banking needs, especially if you get over $10,000 or $20,000 from your bank account. At that point, it doesn’t cost you anything. They say you’re a valued customer, you’ve got a minimum amount of money in our account, so we’re not going to charge you for having this account.
At that point, what difference does it make which bank you have? I would say that it absolutely does not. It’s just which national bank do you hate the least?
Rob: Yup, I think those are good thoughts. If I were to do it all over again, I would probably do this mostly the same way I’ve done it which is personal banking is at a particular national bank. I’ve started up a couple business accounts at that same bank. There’s Bank of America and there’s US Bank and there’s Wells Fargo and any of these are going to be so similar. Unless I was extremely cash strapped, m that’s what I would do. You can get a business checking account at any of those banks for $10 or $15 a month if you’re not doing anything fancy. Often, it comes with a savings account for free attached to it.
That’s what I would do, keep it simple. $10, $15, $20 a month, don’t spend so much time doing stuff. The one mistake I’ve made in this banking stuff—well I probably made more—but the one that really comes to mind is I was being super cheap one time trying to set up this account, I didn’t want to pay anything for it, and I set it up with a purely online bank of the internet or something like that. It was just a fiasco, it took forever to get stuff through. Once I had the account, it was fine. But as you said with Silicon Valley Bank, the interface for the one I was using was just awful, it was very limited. Yes, I saved myself $12 a month and I regretted it every time I had to do anything with that bank. I wished I just paid, even if it was $20 a month, to anybody where I could go to a branch or call. It just all fit my other workflow. I would encourage you to not try to save a few bucks.
Maybe there’s a local credit union, I’m not saying don’t use a local bank, because that could be great too. If you can go in and get personalized service, local bank, local credit union, no issues with that. I always try to get the clever solution, I’m gonna hack this and do a really good job. Thus far, it’s backfired on me with banking.
One thing that we will link to in the show notes is a nerdwallet article. This is finding a free business checking account by state, because they’re regulated by state. You could look at this for your state and look through it and see if these places look legit that are in your state, there’s only a handful per state that are listed here. I don’t think there’s any silver bullet here.
Mike: A lot of banks will give you a business account for free for 12 months just for signing up with them. Then after that, they’ll charge you, $10, $15, $25 a month if you don’t have that minimum balance. That’s something else to keep in mind if you want to be able to save some money in the short term until your business gets up and running and you’re able to get cash saved away in there.
I think that about wraps us up for today. 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 firstname.lastname@example.org. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 271 | Lessons Learned Analyzing 250 SaaS Pricing Pages
In this episode of Startups For The Rest Of Us, Rob and Mike talk about lessons learned analyzing 250 SaaS pricing pages. They give their opinions and takeaways on the article and how it may apply to smaller size SaaS businesses/products.
Items mentioned this episode:
Rob: [00:00]: In this episode of Startups for the Rest of Us, Mike and I discuss lessons learned from an analysis of 250 SaaS pricing pages. This is Startups for the Rest of Us, Episode 271.
Welcome to Startups for The Rest of Us, the podcast that helps developers, designers and entrepreneurs to be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:28]: And I’m Mike.
Rob [00:28]: 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 [00:33]: Well, after a couple of months of effort on this, we’re finally pulling trigger on migrating Founder Café into Discourse. I ran through a dry run of the migration earlier today. Everything seemed to go pretty well. I think we ran into one minor issue but it was because a table was not able to accept the amount of data that we’re throwing into it. We fixed that and everything else seems to be going well.
Rob [00:53]: Very nice. For those who aren’t familiar, Founder Café is our membership community for self-funded startup founders and folks who get a lot of value out of the podcast and want to engage more with the community. We’ve been running it for several years. We’re moving it from an old platform that wasn’t working as well and moving it into Discourse which, so far, has been pretty cool. It has a lot of neat features. I like what Jeff Atwood and his team over at Discourse are doing with it.
Mike [01:19]: The user experience in general is going to be a lot better for us. The primary reason for moving is just partly for that community aspects but also the price considerations because the current platform we’re on is fairly expensive. There’s a huge number of features that we just simply haven’t used. We thought when we moved over to it that we were going to start using a lot of those features and it turned out that we just didn’t and they didn’t turn out to be as important as things that were much more focused on the forms and community interactions. Because of that, it fell short on a couple of different areas. If you go to a product that does a lot of different things, what you find is inevitably it will fall short on some of the things that you might find to be important. For us, that community aspect of it was really important. The other thing is that it wasn’t really designed to be like a paid membership site. It really wasn’t designed to be a membership site, it was really aimed at internal internets for large companies. Because of that, there were a bunch of workarounds that we had to do. At the end of the day it just didn’t work out for us. How about you? What’s going on with you?
Rob [02:20]: We ran an interesting experiment at Drip over the holidays. In essence, your trial to pay conversation rates often plummets over the week of Christmas and the week after Christmas, before New Year’s. What we did is we pushed everyone’s trial out, in terms of their expiration day. We pushed it out by a couple of weeks, anyone who’s going to expire during that time. We e-mailed them and let them know that we were doing that, kind of said, “Hey, happy holidays. Here’s our gift to you at the end of the year,” like restarting the trial in essence, checking in with people who aren’t set up. It gives everybody a little longer trial but it’s a really good reason to do it and to avoid the dip in conversion rate during that time.
With that said, it is very much an experiment, I’ve never done it before, and we have no idea what the results are going to be. We’re just now starting to see the trial to paid conversions from that earliest set of that and so far, so good. We’re a day into it. It’s not anything that has real results yet, but it has been a trip. Basically, there were no trials converting for two weeks and that is absolutely nervewracking as a SaaS founder and as someone who tracks my metrics as closely as I do. I, everyday and frankly every night after billing runs, I’m in there looking at the revenue and what the trial count is and all that stuff. Those are just haywire right now because we kind of decimated the last two weeks of our metrics. The idea is that it will pay off in spades here in January but it will be interesting to see.
Mike [03:47]: On the bright side, you can run most of your yearend analysis stuff two weeks in advance.
Rob [03:51]: Yeah, I know. We didn’t have final revenue and all that but it certainly didn’t change very much in the last week and a half of December after we moved these folks out.
Mike [04:00]: The only other thing I’m working on is migrating a lot of my e-mail campaigns over from Infusionsoft into Trip.
Rob [04:09]: Coming back, huh?
Mike [04:11]: Well, there were a bunch of things that I was looking at inside of Infusionsoft that were fairly attractive. At the end of the day, I got into it and was using it. They introduced a bug back in June or July or something like that, for something that I was using within the Twitter Lead Cards. They just refused to fix it. I ended up having to build this report inside their UI, which showed me all the things that were going wrong and then I would have to go in and manually fix them. It was like every day or every a couple of days I would have to go in and fix a bunch of data errors because the Twitter Lead Cards simply did not work. I kept asking them and saying, “Hey, are you going to fix this?” And they’ll, “Oh, we’ll get to it,” or “It’s not really important,” or “People aren’t really requesting it.”
I was like, “Look, if you don’t fix this, then I’m just not going to be a customer anymore.” They’re like, “Oh, we’ll have somebody get back to you soon,” and I guess they were going to have somebody in their engineering department get back to me. It’s been, I don’t know, several weeks and I’m still waiting, so I’m done with it at this point.
Rob [05:05]: That’s tough. They are a major competitor of ours and so I don’t want to speak poorly of them but I have heard similar stories from folks running into bugs that haven’t been fixed and stuff along those lines. It’s a bummer.
Mike [05:16]: I heard similar stories from other people and for a while, it worked great, did everything I needed it to and it was kind of chugging along. If you’re not running into those bugs, then you’re fine, but as soon as you do and it’s not high on their priority list, then it become a problem. It’s a problem for you but not necessarily a problem for them. It’s higher on my priority list than it is theirs.
Rob [05:38]: Sure, sure. There’s a reason we get a lot Infusion software FUGS and you’re adding to that total. Today we are talking about lessons learned from an analysis of 250 SaaS pricing pages and we get the information from an article on The Next Web and we’ll certainly link that up in the show notes. The article is titled ‘I analyzed 250 SaaS Pricing Pages – Here’s What I Found.’ It’s written by Benjamin Brandall and he says, “We recently had a major overhaul of our pricing and landing page and wanted to get a good idea of what a high-converting pricing page looked like.” He went to the SaaS 250. It’s a list compiled by Montclare and the list is supposed to indicate the most successful SaaS products in the world.
You and I had a debate before on whether or not – or not even a debate, just a discussion of each of these metrics you should probably hold them loosely because these companies, some of them are public, some of them are not. They’re looking at just private data and whatever they can scrape together. As we know, that tends to be less than accurate. Anyways, he looked at 250 of let’s just say they were all successful SaaS companies. A lot of them are big enterprise companies like Salesforce or LinkedIn. They do have Basecamp on the list and companies like New Relic. They have Google on the list and I’m assuming that’s for one of their paid offerings because it’s certainly not google.com. They named Dropbox and stuff like that; a lot of folks that we’ve heard about.
He analyzed their pages and then he tries to pull takeaways and he pulls several takeaways like X% of these companies highlight a package, it’s the best option and that kind of stuff. What we wanted to do today is first talk a little bit about this kind of article and the methodology of it, and our opinions on that and then dive into the takeaways and talk about when we think those actually apply and when we think they don’t apply to folks who are probably listening to this podcast. Because if you’re listening to this, you’re probably not starting the next Salesforce. You’re not starting at $10 billion or $1 billion or maybe even $100 billion company. You’re probably aiming to start a SaaS company with a price point between 10 and 99 bucks a month. That’s the lens that we want to lend to this is when our opinions and our experience, and the testing and the data that we have, based on our experience, when we would use these approaches and why we think maybe that data lines up or doesn’t line up with this article.
Mike [07:54]: Yeah, and I think that’s probably the most important takeaway because I think that throughout the course of this podcast, we’re probably going to pick at this list of commonalities or suggestions from this article. It may very well come across like we’re either not necessarily argumentative, it’s probably not the right word, but very anti against some of the conclusions that are drawn in this. You have to remember that this is from the SaaS 250 and those 250 companies are a list of some of the most successful SaaS companies according to Montclare. Because of that, those companies are in an entirely different category than the types of people who are probably listening to this podcast. Bear that in mind as you’re listening to this podcast. Where do you want to start?
Rob [08:35]: The interesting thing, the first note that he talks about is he says, “Why did 80% of companies not have pricing pages?” He says of the 250 companies, only 48 of them had pricing pages and the rest had pricing available on request by contacting sales people. He talks about how Jason Lemkin – Jason Lemkin was the CEO and co-founder of EchoSign. He sold that company plus a previous company and he is a SaaS genius. He blogs over at saastr.com. If you listen to no one else about SaaS, listen to Jason Lemkin. He tends to talk about the $100 million and billion dollar SaaS companies. There’s stuff that he says that doesn’t necessarily line up with our audience or our approach to it, but as a rule, the stuff he says is not inaccurate if you do want to build a large company.
He has a bunch of reasons; we won’t go through them all, why these companies don’t have pricing pages and he talks about how deals, as you get into the larger deals, they’re going to get more complex as you grow. Discounting becomes difficult if you have a pricing page. If you’re selling into the enterprise, then actually having a low price can really devalue your products. Being a $99 price point is not something that a company like a Fortune 500 company wants to use. They really want to talk to someone, to have the demo, to do the assessment of needs. They really want to go through the long sales process, as much as that sounds insane to us, who want to do it self-serve. But if you really are selling to the enterprise and you really are trying to grow that $100 million company, you need to sell into the enterprise, then having a pricing page is actually a bad approach. That’s one of those things you have to keep in mind. It’s like just because 80% of these don’t have pricing pages, doesn’t mean that you shouldn’t. It’s only if you’re going to be selling into the enterprise that you should consider only having a call only for pricing.
Mike [10:20]: I think that ties back to what type of business that you want to run and what type of customers you want to have. Because if you want to go the self-serve route, then you clearly want to have a pricing page and it’s going to very clearly list out everything that you’re offering and what the prices for it are. But if you want to push up into those $100,000 or a million dollar deals, then you really shouldn’t. I don’t disagree with the conclusions here but it boils down to what type of business that you want to run and how much effort you want to spend on each individual customer to bring them on board. Obviously, with an enterprise-level customer, you spend a heck of a long time, wooing them as a customer but it’s also financially very lucrative if you can plan them. That said, sometimes the other direction is much more appealing to you, depending on what type of person you are and how you want to run your business. It really just depends on what you want.
Rob [11:13]: Right. The final caveat I’ll say to this is he looked at 250 SaaS pricing pages and then pulled out some data from them. I think it’s interesting, it’s novel. It’s kind of like a Myers Briggs Test where it’s like, “Oh, that’s something. That’s an indication of something.” This is certainly not rigorous, scientific study of all SaaS companies. It definitely steers towards or leans towards these big, large enterprise companies that tend – since they are big, they tend to also be selling to other large enterprise companies. It’s something to keep in mind as you’re reading through this. The first point, there’s 11 points that he covers. I don’t know if we’ll have time to get through all of them. Let’s kick off the first one. The first one is that the average number of packages offered on pricing pages is three and a half. What do you think about that?
Mike [11:55]: I’ve never seen a half a package before, but I guess it’s like the 2.3 kids in the United States.
Rob [12:00]: It’s an average, he says the average number. I could imagine if it had three and then half? That’s not an optimal use case, people. Don’t put three and a half. What do you think about the idea? Obviously he’s saying a lot of them have three, a lot of them have four, some have two, some five. The idea that having about three or four pricing tiers is what they did, is what these folks see as optimal.
Mike [12:21]: That’s seems like your classic case of price anchoring. You’ve got your low tier price and then you’ve got a high tier price. The middle one obviously helps you in many ways to anchor it, especially if you’re using that as your most profitable plan, assuming that is your most profitable plan, because sometimes it’s not. Having those three options and then a ‘call us’ option; it seems to me very, very common. I wouldn’t necessarily say that this is a surprise or a shock in any way, shape, or form. That said, I do think you need to be careful about which of the tiers that you decide to use as your price anchor, whether you want to try and anchor people to the top one and get them to subscribe to a lower tier or maybe go for the middle one and there’s going to be people who go above that. It depends on how in demand your products is and where it fits in the market.
Rob [13:09]: Yeah, I think my rule of thumb is when in doubt, have three pricing tiers, like you said, so that you do have the price anchoring. Having three plus an enterprise with either a ‘call here’ button or some type of calculator as you see on the Drip pricing page. It has a calculator there because people can have 50, 000 subscribers or 100,000. We could do a call for that, call us or click here for demo, but we’ve chosen to do a calculator. That’s what I do by default until you have time to test otherwise. I think that having about three pricing tiers and maybe four is about the right way to go. I think that if you can simplify it down to a single tier where is built on or priced based on the number of users or a single metric where you can just say, “All right, it’s 10 bucks per user, per month.”
That’s how Helpdesk Software, CRM software does it. Or, if you can go like a lot of e-mail marketing softwares, it’s purely based on the number of subscribers. It gets difficult if you’re going to have tiers because then you at least need some type of tiering on your homepage. If can boil it down to where it’s a simple pricing, I actually think that that can work as well. It’s looking around and seeing what your competition is doing and if you try to do it too different than the rest of the market, you will cause some confusion and we ran into that, earlier on, with the way that the Drip pricing was done. I think that if you don’t have a competition, that figuring out what to pivot this on, is always going to be a challenge. If you do have competition, there’s probably a standard in the space and not veering away from that is probably a decent rule of thumb as well.
Mike [14:36]: One thought that comes to mind about the three and a half or whether it’s three or four pricing tiers is that I wonder how much of this decision is actually driven by the design of the pages and how much space you have available. If you look at most pricing pages, if they have three or four, they’re typically using almost all the space across the page. If you try to add another one, it would be difficult that things would start to get smooshed or you’ll have to drop the text size and if you try to drop below that to, let’s say two, it makes the space look a little but barren. The UI just looks a little but lost because there’s too much white space. I wonder how much of this decision is actually based on white space design on the pricing page as opposed to what would really make the most sense for people.
Rob [15:21]: I think responsive designs have also changed this because to go responsive means that as you squeeze it inward and go to a cell phone size screen, the, really tier should either go on top of each other, it will have to move around. It starts looking weird and the old model of having all the features listed on the left and then check boxes throughout your tiers, it breaks down when the tiers flop on top of each other instead of next to each other. I bet responsive design has also had an impact on how many of these tiers or at least how they’re structured and how they’re displayed. The next takeaway is that only 50% of the companies highlighted a package as the best option. What are your thoughts on that?
Mike [15:59]: I like that Benjamin calls out some of the different reasons why you might highlight some of the different pricing tiers on your websites. For example, if you have a specific plan that is the most profitable for you, then calling that out to help draw people’s attention to it can be helpful and that it will essentially generate more revenue for you. What I question is how much A/B Testing has been done on this to identify whether or not that’s pushing people towards a specific plan or away from it. Because I think there’s a natural tendency for us to say, “Oh, let me draw people’s attention to this,” and think that it is going to anchor people’s minds to that plan and they’re going to be more likely to select it. In fact, they might do the opposite, where if you highlight the most expensive plan for example, somebody might look at that and say, “Oh, well, I’m not that big. I don’t need that level of service so I’m going to go for the one below it.” I wonder how much testing has been done around whether or not it drives people to a plan or away from it. I think that that’s something to definitely consider when you’re implementing that. You should go in and measure that because you could very well be shooting yourself in the foot as opposed to helping yourself.
Rob [17:05]: I’ve always been a fan of highlighting a plan and I tested this with HitTail and it worked out. It had a positive ROI by keeping a plan highlighted and my average revenue per user, per month went up when I highlighted the second from the bottom instead of not having highlighted or in highlighting the bottom. It drove more people to use that. It was the recommended plan and people who were in a hurry or who wanted to take the take the recommendation, wound up doing it. That doesn’t mean that it’s always a good thing to do or that you should always use the second from the bottom or anything like that. I just know the one time that I have actually tested it, that it really did work out and raised revenue. I think that trying to highlight the top plan is one of the suggestions here and I think that always seems odd when that’s done. You have to use your head here. Highlighting in the middle is my rule of thumb to allow people to get an idea of where you think they should start.
The third takeaway was that just 69%of companies sell the benefits. I have strong feelings about this one. He says it’s only 69% of companies, like he expected more people to do that. The thing, though, is by the time you get to a pricing page, you should already be sold on the benefits. Your homepage has a ton of benefits, and I think you should get into some features towards the bottom of your homepage. Your features page should have benefits and features.
By the time I’m coming to look at a pricing page, I’m at least entertaining the idea that I might use this software and price is now coming into play. I think that listing a bunch of benefits of like, “Hey, it will save time and make you money and save you money,” is just lame. I actually get irritated when stuff is that high level on a pricing page because I want it to be digging in more at that point to actual differences just between the pricing plans. That’s all I want to know at this point. If I want to go hear about your benefits, I’ll go to your homepage or your benefits or wherever else. On the pricing page, I’m trying to figure out how much do you cost and what are the differences between the plans? The more benefits that are listed, the more confusing it is because they are too high level. I want to know the exact features that are included in each tier.
Mike [19:08]: I think it’s just the way that this is phrased and some of the underlying assumptions that you pointed out, because the whole article is based on the analysis of pricing pages. You’re not going to use those benefits on the pricing page. You might want to put it at the top and a headline or something like but you’re certainly not going to sell each individual plan with all of the different benefits. You need to know the details about what it is exactly that you’re paying for. That’s why all these features are going to be listed so that you can, as a buyer, can do a feature comparison between those different things. I almost disagree with the way that this is phrased just because it seems to me like on that particular page, you would want to sell based on the features, not necessarily on the benefits.
That’s because it’s specifically talking about the pricing page. If you’re talking about the homepage or various other pages, then you probably want to sell based on the benefits. I think that you really need to very clearly spell out all of the different features on that page so the person who’s buying it knows exactly what it is that they’re buying in relation to some of the other things. The other side of this is that when he says just 69% of the companies sell the benefits, how much of the benefits are you including in that 69%? Is one sentence enough to get you over the hurdle of saying that you’re selling on benefits or what? It’s not clear to me what that actually means.
Rob [20:25]: It is an interesting takeaway nonetheless. I like that he took a look at it. Number four is that 81% of companies organized their prices low to high. When I read this, I thought, “Of course.” Whenever I come to a pricing page, I like to see it low to high. It just makes sense. It actually throws me off when I come and the high price is all the way on the left. However, he has a quote from Lincoln Murphy at SixteenVentures and Lincoln Murphy said, “The left to right, high to low approach seems to provide a statistically significant lift every time.” I like the way that Lincoln Murphy phrased that, in terms of “seems to provide a statistically significant lift every time,” like in his experiments, he’s [couching?] it, in a good way, to not say, “This always works so this is what you should do.” He’s just stating his experience. That’s interesting, counter-intuitive to me. It’s not something I’ve ever done because it irritates me so much. It’s like when you go to a site that has a bunch of annoying pop-ups or it has an exit antenna. It’s not stuff that I like to experience. Even if it can get you 1% lift or 2% lift, I haven’t done it myself but I am curious if folks out there are doing it and having success.
Mike [21:27]: I’m in your boat on this one. It throws me off when the highest price is on the left. It is a little irritating and I don’t know why. Maybe it’s the OCD in me. It seems odd when the highest price is on the left rather than on the right.
Rob [21:40]: The next take away is that 38% of companies list their most expensive package as ‘contact us’. What do you think?
Mike [21:47]: I think that if you’re trying to land some of those larger customers, that totally makes sense. You could very well me leaving a heck of a lot of money on the table if you have a higher tier plan there that would work for, let’s say, 90% of your customers. But there is this 10% of the people out there that still need something above and beyond that. You’re almost positioning yourself at that point to say, “Hey, we can’t serve you,” or “We can’t help you.” You’re almost writing off that 10% immediately. A lot of times if those types of companies come and they see that you only support 200 users for example, and they have 700 or 1,000, they’re going to immediately assume that you are not going to be able to handle the load that they’re going to place on your servers and they’re going to go find something else.
You need to be a little bit cautious here, but you also have to be in tune with what the general size of your audience is. You might also want to draw some delineation between your company and some of your competitors to say, “Hey, we serve people under 500 employees really, really well. But if you’re above that, go to these other people. They’ll handle it.” You can position yourself that way because you are really cutting into the lower tier of the market for that competitor. I think that there’s nothing wrong with going in that direction, you just have to be consciously aware that that is exactly what you’re doing when you choose to put a maximum on those plans rather than a ‘contact us’.
Rob [23:08]: Yup, it’s a good rule of thumb to always have that enterprise or that high-end plan, have a ‘contact us’. The next takeaway is that the most common call to action is ‘buy now’.
Mike [23:20]: This is a pricing page. Isn’t that supposed to be the call to action?
Rob [23:23]: He compares like ‘buy now’ is 27% and ‘sign up’ is 23%. ‘Start your free trial’ is 8%, ‘try’ is 6%, ‘contact us’ is 4%. I don’t know what necessarily he’s calling out. I guess the conclusion here is that people are saying that you click this to buy now. It does feel weird with a SaaS app. I don’t think of buying a SaaS app as much as I think of either signing up for a free trial or signing up. Beyond that, if you think about it, you probably want to provide a benefit here instead of buy because buy makes it think, “All right, I’m going to take a bunch of money out of my pocket and give it to you.” [?] want to provide a benefit like grow my list faster or get started building my list, something to where the person is they know they’re signing up for SaaS and they know they’re signing up to get a benefit. If you have a benefit there, it’s probably going to convert better anyways.
Mike [24:09]: Looking through what he’s got listed out here; it seems to me he’s comparing the texts there as opposed to what they’re trying to get you to do because the other category has 32% listed in it. Things like more info or fill out the form and things like that. All these are designed in some way, shape or form to move you to a paying customer. I think his point here is ‘buy now’ is the most common. I don’t know if it really makes a difference. At least to me as a buyer, when I go to those pages, I don’t consciously differentiate between them. I don’t necessarily care. It comes down to what the statistics and the numbers tell you for your page, whether or not it works. I don’t notice myself making decisions based on whether this is ‘buy now’ or ‘free trial.’ I don’t necessarily statistically analyze every decision I’ve ever made on those pricing pages either.
Rob [24:56]: My guess would be a lot of these pages I would guess have never been split test. I know that seems kind of shocking. I guess they just haven’t run the numbers or haven’t thought to split test ‘buy now’ versus an actual benefit someone would get. My guess is that they would get a lift now. Would that lift make a difference to the business? I don’t know. Maybe that’s why they haven’t split tested. My guess is they haven’t had the time because they’re busy working on other stuff. That’s the thing we’re looking at. 250 pricing pages from successful SaaS companies doesn’t imply that these are the most optimized with the best SaaS pricing pages.
Mike [25:24]: The other thing to consider there is that you have to have a significant enough volume to come in through those pages to begin with, in order to do effective split testing on those. If you just look at the numbers alone and let’s say that you’re getting 100 people a day clicking on something and if you can get a 10% lift on that page, then you’re getting an extra 10 people a day clicking on it, extrapolate that a little bit, that’s an extra 300 people a month. Let’s say 10% of them convert, you’re talking an extra 30 paying customers a month. But, if there are easier ways for you to get 30 customers a month, you’re probably going to spend the time and effort doing those things rather than testing over the course of three to six months to try and figure out what the best copy is on some of those buttons. It depends a lot on your volume as well.
Rob [26:13]: That’s true if you’re smaller. Of these 250 companies, I bet every one of them has the volume to run a test in a couple of days. We were talking Autodesk and UpWork. I’m even way down in the line. I’m at 134, I’m at EMC and Dell and other companies I haven’t heard of, CollabNet.
Mike [26:31]: I was couching that for our listeners.
Rob [26:33]: Got it. Not for these guys.
Mike [26:34]: Yes.
Rob [26:36]: Another one is that 63% of these companies offer a free trial. This comes back to these being large enterprise companies. I know that in the self-serve market that a free trial is how people get in and get going. Often times, if you’re selling something that is $30,000 a year as a SaaS because a lot of these do annual SaaS contracts. It’s 30 grand a year, 50 grand a year. It’s a huge decision you’re making, but it’s probably a pretty complex piece of software. As a software company, you don’t want someone clicking a button and just getting dumped into an account because without the proper demo, and the proper guidance, and the proper help, they’re going to be confused and they’re going to say, “Oh, this app is confusing. I don’t know what to do here.”
Actually, a free trial could be a detriment. I don’t always think it’s a good approach. However, if you’re a listener to this podcast, then you’re probably starting a SaaS with a smaller price point. In that case, I do think that free trials tend to be a boon if you’re doing self-serve. There’s some different options here. You could either go freemium, which I would not recommend unless you know what you’re doing. You could do a free trial if you have really good on-boarding and you have really good on-boarding follow-up. You could go with no free trial and make people pay as soon as they start using the app. The latter two are the ways to go. I’ve always liked free trial. There’s probably a whole episode on why I like free trials and why I’ve always done that. That’s my default rule of thumb because especially when you’re getting started, it’s hard to get people to pay upfront, but moving to the point where people are paying upfront, I think, is also a good approach.
Mike [28:03]: The other thing to point out here is when you’re offering that free trial, you’re giving somebody an opportunity to say, “Hey, I know you’re signing up here, maybe you take a credit card maybe you don’t.” That’s not specifically called out here as one of the things that’s done. When you’re giving them that free trial, then you’re giving them an opportunity to say, “Hey, you don’t need to do all the work to get the value out of this immediately.” You can push it down the road either a week, two or three weeks, whatever. You can do the work then. You can at least get them in, get some initial things set up and then do the work later versus if you don’t offer that free trial, then they’ve paid the $50 or $100 per month and they’ve paid it right then.
Because they don’t have that free trial period, they’re going to feel compelled to start using it right away, which would essentially decrease your conversion rates because people are going to look at that and say, “Well, there’s no free trial. I’m not ready to do this just yet so I’m not going to do it. I’m going to come back at some other time.” Unless they’re on an e-mail list or they’re really on track to buy your software down the road, then they may very well just never come back. I think that making sure that there is a free trial of some kind on your site is almost a necessity. Even if you look at a lot of the enterprise vendors, there’s typically a free trial of some kind that you can get at. Whether you have to give them your information in order to get it, that’s a different story, but almost all of them still offer a free trial of some kind. I think it’s very rare to buy a piece of software sight unseen and have to purchase it without being able to use it first.
Rob [29:33]: The next one is that 81% of pricing packages are named. I feel like this is a lesser known one. I was surprised it was as high as it is. The idea here is that if you’re going to name your packages, you want it to be linked to a buying persona. You don’t tend to want to offer Lite, Pro and Pro+ Plans because those aren’t that helpful. The better way to do it is they give you an example from Huddle. They offer three plans; they have Workgroup, Enterprise, and Government and Public sector. Those are their three plans. That’s where you really start talking. If you have a Freelancer, Consultant, and Agency as your three plans, people can segment. They can come in and say, “Oh, I am a freelancer. That’s the one I need.” At least it helps guide them. If you are at all able to put some names to it that actually have meaning and aren’t these generic headers at the top of the pricing tier, that’s pretty helpful. I was surprised to hear that 81% of packages are named. I’m wondering how many of these were named things like Lite, Pro, and Pro+
Mike [30:32]: Interesting data point. I heard the CEO of FreshBooks talk at Business of Software several years ago. He talked about some split testing that they did on their pricing page. If you look at their pricing page, they’ve got these weird names for some of their different pricing plans. Their top tier is Mighty Oak and then they’ve got Evergreen, and then Seedling and Sprout, which if you look at that, it doesn’t mean a whole heck of a lot. But when they took those things away and they replaced them with much more generic versions of it, like … I forget what exactly what it was they used, so I won’t try to remember or make something up, but they were very, very generic names or they did that or they didn’t even put a name on it. They noticed this significant conversion rate drop because they didn’t have something there that would help guide people. That’s an interesting data point to take away from that, not just having something like Workgroup, Enterprise, Government and Public Sector or Startup, Growing Business, et cetera. You can have off names, I’ll call them, like Mighty Oak or Evergreen that relate to your business that people are going to relate to or resonate with a little bit more. Those can help your conversion rates.
Rob [31:34]: The last one we’ll cover today is that only 6% of these pricing pages show a money-back guarantee on the page. He talks about there been two sides to this argument. One is that offering this guarantee derisks the sign-up for your customer. If they’re making an impulse purchase or they are signing up for a trial or even paying right away, then of course money-back guarantee is something that is going to lend them confidence in your product and it could encourage them to sign up. The other side of it is that the SaaS 250, they often have these annual contracts. They lock you in for a year or two-year contracts even. Why would they offer it? They don’t need to or want to offer a money-back guarantee. They don’t need to. They’re such a brand name that they can get folks to sign up without it. If you’re doing self-serve, having that money-back guarantee especially to start, especially when you’re not a brand name, is helpful. Even once you are a brand name; I think it’s a good policy to have in general, so why not have that on the pricing page? I do think that it has an impact on certain people, if you’re an unknown to them, of what confidence they have in signing up for your service.
Mike [32:39]: I wonder if part of this might also be related to how much of the onus that you want to push onto the user for using your software versus guaranteeing that your software works and does what it promises to the user, because I think that those are two different scenarios. If the user signs on and they have signed up for your product, they start using it, they use it here and there but they don’t fully commit to it, 60 days later they come back and they say, “Hey, I’d like a refund.” Maybe they even forget completely that they have the account and six months down the road, they come back and say, “Hey, I’d like a refund for the past three months or six months.”
You and I have seen that before, where somebody forgets that they bought something and signed up for a subscription. Then they come back six months later and say, “Hey, can I get a refund on all of this?” Maybe even longer. I’ve seen people go for a year or two and forget that they have a subscription and try and get all of that. It’s almost unfair to you, as a business, to have to offer that. Out of policy, we do that as a matter of course just because we don’t like the idea of taking somebody’s money for not delivering value to them. At the same time, whose fault is it that they didn’t use it? Whose fault is it that they weren’t getting the value out of it? The fact of the matter is you have to put in the work in order to get something out of it. There is some of those things that factor into this as well. Whether you put it on the pricing page or not, I’d say that as a matter for debate. As to whether or not you would adhere to that as a matter of policy, I think that’s a completely separate issue.
Rob [34:06]: Well said.
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