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How to Transition your Web Business from Free to Paid

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  • 1. REVENUE MODEL: What is the best way to charge your customers?
    Dave Schappell - @daveschappell
  • 2. Who am I?
    Founder – TeachStreet
    Angel-funded / VC-backed
    Founded in ‘07 – Profitable in ‘11
    ex-Amazon, JibJab
    Former CPA
    NEVER built a profitable business on my own (yet)
  • 3. Transform the Lifelong Learning Marketplace
    49M College Grads / 77M Baby Boomers / 31M Retirees
    >$30B/year spent by 54M in U.S. taking personal interest classes
    $5B/year TAM (Marketing, Transaction Fees, Affiliate Sales)
  • 4. Why Should You Listen to Me?
    You
    I’ve
    • Want to start a (web) business
    • 5. Don’t want to go bankrupt
    • 6. Think customers will pay
    • 7. Aren’t sure how they’ll pay
    • 8. Not sure how to find out/test
    done that
    almost done that
    thought that too (& was wrong)
    wasn’t positive either
  • 9. What Type of Business?
    Direct
    Indirect
    Ads
    Lead-Gen
    Affiliates/CPA
  • 12. 5 Steps to Business Planning
    Plan next 2-3 Years of your Biz
    What HAS to come first?
    - Features, Assets, Office, Employees
    * Make a Good/Great Product!
    * What’s your MVP (Minimum Viable Product)?
    Remove unnecessary items
    Create a timeline
    Add 3-6 months to everything
  • 13.
  • 14. Product / Market Fit
  • 15. 80% on Optimization
  • 16. Revenue When?
  • 17. Don’t Put Ads on your Site!
  • 18. Don’t Worry about Viral
  • 19. 5 Tips to TransitionfromFree to PAID
  • 20. 5 Tips to go Free to PAID
    Give plenty of notice & (real) chance for feedback
    Price it ‘fairly’ (probably still at a deep discount)
    Offer customers a way to get product for free
    Provide Grandfather’d Pricing
    Make transition gradual
    people should only pay if you’re delivering value
  • 21. 5 Tips to go Free to PAID
    Give plenty of notice & (real) chance for feedback
    As expected, many angry (that’s life…)
    Some were HAPPY about fees:
    to reduce clutter/listings from non-serious teachers
    we’d be around over long-term
    we’d have money to pay for advertising (more students)
    Learned we weren’t sharing metrics with them
    Fixed this, with better reporting
    Feature request  enable EARNING ‘free’ listings (#3)
  • 22.
  • 23. 5 Tips to go Free to PAID
    2. Price it ‘fairly’ (probably still at a deep discount)
    $3 = Starbucks Latte!
    Lasts 30 days, or 10 leads ($0.30 per lead)
    $3 still expensive vs. Free (Craigslist, WOM)
    More than just an Ad:
    SEO benefits
    Marketing tools (Craigslist Ads, Flyers)
    Payments
  • 24. 5 Tips to go Free to PAID
    3. Offer customers a way to get product for free
    Virtual Currency – Write Articles / Answer Questions
    Launched with 5=Free Listing
    Reduced f/5 to 3 & Doubled Content Creation (Iterating!)
    Win-Win
    Great Content is Good for SEO (Traffic)
    Content helps to merchandise the Teacher (Leads)
    Lost $3 is minor in the short- to medium-term
  • 25. 5 Tips to go Free to PAID
    4. Provide Grandfather’d Pricing
    Offered 6 month ‘Pro’ pricing for $10 (vs. $30)
    GOOD - SEOMoz locks Annual Fees of $299 vs. $799
    BAD – Airlines changing rules for Miles (20k vs. 40k)
  • 26.
  • 27. 5 Tips to go Free to PAID
    5. Make transition gradual
    people should only pay if you’re delivering value
    CRITICAL DECISION FOR US!
    Only force listing payment if Lead Delivered in last 30 days
    Maintained our Class Listing Inventory (SEO benefits)
    Triggered a Payment Decision only with Value (Conversion)
  • 28. So, How’s TeachStreet?
    Launched ‘All Paid’ in late April 2010
    Pro/Sub Revenue up 56%
    Listing Fee Rev is now 75% of Pro/Sub Rev
    And, it’s 2x’d since May 2010
    Operational Revenue up >100%
    Leads to Teachers up 88%
  • 29. Timeline to Semi-Success
    Jun ‘07 - founded company; raised Angel $
    Apr ’08 - ~25k classes & teachers in Seattle – teachers could add unlimited classes; students could contact teachers. Limited functionality. Let us demonstrate value & learn (100% free)
    Apr ’09 - +7 cities; expanded tools (phone tracking, teacher metrics) (100% free)
    Jul ‘09 - Student-to-Teacher payments. 15 months to launch?!? Believed needed to demonstrate value-add. Students paid small booking fee (to cover costs); Teachers paid commission (still free to add listings)
    Sep ‘09 - Pro teacher $29.99/month; extra promo, marketing tools, free payments. (still 100% free to add listings; revenues are building from services)
     Apr ‘10 - optimize/weblab – addt’l lead-tracking – believed we’d never earn biz if didn’t deliver value (more, new students) to teachers (still free to add listings)
    Apr 7, 2010 - “pre-announce” introduction of fees for all new class listings
    April 27, 2010 - “turned on” listing fees (100% new listings paid; All rev-enabled)
    May 12, 2010 - last day of $10/month “Pro”-motion (100% new listings paid)
    At present - Traffic’s growing, Revenue's ramped sharply, and we’re 100% sure that we’re going to have to keep pivoting. Because that’s what startups do.
  • 30. Rules We Break
    Both Direct & Indirect
    Subscriptions & Listing Fees
    Lead-Gen, Affiliates & Ads
    We have Ads
    Not for long?
    We don’t Weblab/test enough
    Too few resources / too many ideas 
    Still are attracted to shiny objects
  • 31. Resources
    Andrew Chen – www.andrewchenblog.com
    Dave McClure – 500hats.typepad.com
    Alyssa Royse – Seattle 2.0 Post(s)
    My TechCrunch Post on ‘Free to Paid’ http://techcrunch.com/2010/06/13/free-to-paid-tips/
    Hops & Chops Startup Happy Hour (Thursdays)
    www.hopsandchops.com