Selling Products and Services

7 — BM — Selling Products From Code to Product gidgreen.com/course

Lecture 7•  Introduction•  Payment models•  Pricing•  Payment methods•  Conversion funnels•  ProblemsFrom Code to Product Lecture 7 — BM — Selling — Slide 2 gidgreen.com/course

Desktop softwareFrom Code to Product Lecture 7 — BM — Selling — Slide 3 gidgreen.com/course

In-app purchasesFrom Code to Product Lecture 7 — BM — Selling — Slide 4 gidgreen.com/course

Software as a serviceFrom Code to Product Lecture 7 — BM — Selling — Slide 5 gidgreen.com/course

App store productsFrom Code to Product Lecture 7 — BM — Selling — Slide 6 gidgreen.com/course

SaaS and mobile app growth$20 billion$15 billion Software as a Service Mobile applications$10 billion $5 billion 0 2006 2007 2008 2009 2010 2011From Code to Product Lecture 7 — BM — Selling — Slide 7 gidgreen.com/course

Payment models $40 One time Subscription Pay as you goRevenue $20 $0 0 6 12 18 24 30 36 MonthFrom Code to Product Lecture 7 — BM — Selling — Slide 9 gidgreen.com/course

One-time purchases•  Payment = ownership•  Low transaction costs•  Unstable cash flow –  Publicity bursts –  Upgrades•  Problem of ongoing costs –  Technical support –  Online elementsFrom Code to Product Lecture 7 — BM — Selling — Slide 10 gidgreen.com/course

Subscriptions•  Payment = membership•  Periodicity –  Monthly, quarterly, annual –  Discounts for longer•  Stable cash flow –  Forgotten subscriptions•  Problem of churn –  Active or passiveFrom Code to Product Lecture 7 — BM — Selling — Slide 11 gidgreen.com/course

Pay as you go•  Payment = usage –  No easy money!•  Credits or after-billing –  Credit expiry?•  Volume discounts•  Semi-stable cash flow•  Problem of tiny customers –  Minimum credit purchaseFrom Code to Product Lecture 7 — BM — Selling — Slide 12 gidgreen.com/course

The free version•  Cournot theorem –  Price ⟶ marginal cost –  Marginal cost ≈ zero•  Engine of publicity –  Everyone loves free•  Get people ‘hooked’ –  No barrier to usage –  Upsell later onFrom Code to Product Lecture 7 — BM — Selling — Slide 13 gidgreen.com/course

Time limitedFrom Code to Product Lecture 7 — BM — Selling — Slide 14 gidgreen.com/course

Capacity limited mailchimp.comFrom Code to Product Lecture 7 — BM — Selling — Slide 15 gidgreen.com/course

Feature limited freshbooks.comFrom Code to Product Lecture 7 — BM — Selling — Slide 16 gidgreen.com/course

Collaboration limited highrisehq.comFrom Code to Product Lecture 7 — BM — Selling — Slide 17 gidgreen.com/course

Ad supportedFrom Code to Product Lecture 7 — BM — Selling — Slide 18 gidgreen.com/course

Making freemium work•  Problem: moving off free –  Fixed value notion –  Search for alternatives –  Especially time limits•  Possible solutions –  Data lock-in –  Increased usage over time –  Collaborative momentumFrom Code to Product Lecture 7 — BM — Selling — Slide 19 gidgreen.com/course

Demand curve $20 $15Price $10 $12 × 125k = $1.5m $5 $4 × 500k = $2m $0 0 200,000 400,000 600,000 800,000 1,000,000 Sales volumeFrom Code to Product Lecture 7 — BM — Selling — Slide 21 gidgreen.com/course

Optimal price $2.5m $2.0m $1.5mRevenue $1.0m $0.5m $0.0m $0 $5 $10 $15 $20 PriceFrom Code to Product Lecture 7 — BM — Selling — Slide 22 gidgreen.com/course

Optimal price $20 $15Price $10 $5 $5.77 × 370k = $2.13m $0 0 200,000 400,000 600,000 800,000 1,000,000 Sales volumeFrom Code to Product Lecture 7 — BM — Selling — Slide 23 gidgreen.com/course

Demand curve reality•  Low prices look bad –  Charge more, sell more?•  Curve not so smooth –  $x.99 effect –  Competing products•  Curve unknown –  Testing possible, sometimesFrom Code to Product Lecture 7 — BM — Selling — Slide 24 gidgreen.com/course

Multiple price points $20 $15 Total = $3.5mPrice $10 $12 × 125k $8 × $5 = 125k $1.5m = $4 × 250k = $1m $1m $0 0 200,000 400,000 600,000 800,000 1,000,000 Sales volumeFrom Code to Product Lecture 7 — BM — Selling — Slide 25 gidgreen.com/course

Customer segmentation•  People know what they want to pay –  Give them a reason to pay it!•  Multiple levels –  Capacity increases –  Extra features –  Type of user –  “VIP support”•  Clear comparisonsFrom Code to Product Lecture 7 — BM — Selling — Slide 26 gidgreen.com/course

Customer segmentation wufoo.com Some people Solid mid- Cheap/crappy always want range product option the best in middle (decoy)From Code to Product Lecture 7 — BM — Selling — Slide 27 gidgreen.com/course

Choosing prices•  Perceived value –  Marketing –  Support•  Competing products –  How do you compare? –  Sense of fairness•  Keep it simple•  Don’t lose money per sale!From Code to Product Lecture 7 — BM — Selling — Slide 28 gidgreen.com/course

Price vs Process $1 Impulse purchase $10 Personal credit card $100 Claim back from company $1,000 Use company credit card $10,000 Approval from dept head$100,000 Approval from CEOFrom Code to Product Lecture 7 — BM — Selling — Slide 29 gidgreen.com/course

Justifying high prices•  Lack of competition –  Or become the standard•  More features•  Differentiate –  Have a personality –  Create a tribe –  Great support•  Competing on price is dangerous!From Code to Product Lecture 7 — BM — Selling — Slide 30 gidgreen.com/course

Other price games•  Razors and blades•  Fives and nines•  Supermarket signposts•  Bundling•  Volume discounts?•  Upgrades/sidegrades•  Time-limited salesFrom Code to Product Lecture 7 — BM — Selling — Slide 31 gidgreen.com/course

Credit cards Discover AmEx $114B $540B Visa MasterCard $2,040B $901B US Purchases 2011 nilsonreport.comFrom Code to Product Lecture 7 — BM — Selling — Slide 33 gidgreen.com/course

Credit card payment process Shopping Your Merchant cart account Cash − account charges? Product Cash − & Price charges Card & Card & Credit Amount Payment Amount Paymentcard form gateway processorFrom Code to Product Lecture 7 — BM — Selling — Slide 34 gidgreen.com/course

Online payment processors Shopping Your Merchant cart account Cash − account 5 to 10% •  Simplest and easiest •  Paid weekly or monthly Credit Payment Paymentcard form gateway processorFrom Code to Product Lecture 7 — BM — Selling — Slide 35 gidgreen.com/course

Your own merchant account Shopping Your Merchant cart account Cash account •  Merchant account approval Cash − •  Harder for non-US 2 to 5% Credit Payment Paymentcard form gateway processorFrom Code to Product Lecture 7 — BM — Selling — Slide 36 gidgreen.com/course

Collecting card details Shopping Your Merchant cart account Cash account •  Control e.g. recurring Cash − •  PCI DSS compliance 2 to 5% Credit Payment Paymentcard form gateway processorFrom Code to Product Lecture 7 — BM — Selling — Slide 37 gidgreen.com/course

Selling via PayPal•  Pay with PayPal balance –  Popular with non-Western customers –  You can also use it•  Credit cards also accepted•  Low fees (2.5% to 5%)•  Problem: account freezes –  Receive but no withdrawal –  You are at their mercyFrom Code to Product Lecture 7 — BM — Selling — Slide 38 gidgreen.com/course

iOS/Android app stores•  Controlled software marketplaces•  Hit-driven, e.g. Top 25 paid –  Advertise on other apps, not in-store –  Promote via free version•  Apple/Google take 30% –  No credit card / distribution fees –  Same for in-app purchases•  Avg prices – iOS: $1.47, Android: $3.74From Code to Product Lecture 7 — BM — Selling — Slide 39 gidgreen.com/course

Games and games on iOSFrom Code to Product Lecture 7 — BM — Selling — Slide 40 gidgreen.com/course

A mix on AndroidFrom Code to Product Lecture 7 — BM — Selling — Slide 41 gidgreen.com/course

Invoicing•  (Semi-)manual process –  Only worthwhile for bigger customers•  Paid by check or bank transfer –  No %-based processing fees!•  Delivery or payment first? –  Customer may expect delivery –  Payments need to be chased•  Also: receipts for prior paymentsFrom Code to Product Lecture 7 — BM — Selling — Slide 42 gidgreen.com/course

Customer concerns•  Am I buying the right thing?•  Is the price what I was promised?•  Are there additional costs, e.g. tax?•  How long is this going to take?•  Who are these guys, anyway?•  Is it safe to enter my credit card?•  Will I be able to get technical help?•  Can I cancel or be refunded?From Code to Product Lecture 7 — BM — Selling — Slide 44 gidgreen.com/course

Entry to purchaseFrom Code to Product Lecture 7 — BM — Selling — Slide 45 gidgreen.com/course

Entry to purchaseFrom Code to Product Lecture 7 — BM — Selling — Slide 46 gidgreen.com/course

Choose a version / levelFrom Code to Product Lecture 7 — BM — Selling — Slide 47 gidgreen.com/course

Order summaryFrom Code to Product Lecture 7 — BM — Selling — Slide 48 gidgreen.com/course

Customer informationFrom Code to Product Lecture 7 — BM — Selling — Slide 49 gidgreen.com/course

Payment informationFrom Code to Product Lecture 7 — BM — Selling — Slide 50 gidgreen.com/course

Subscription concerns•  Will I be able to cancel? –  Will it be a fight? –  Can I get a payment refunded?•  Can I upgrade/downgrade? –  Is there a penalty for that?•  Will the price go up?•  Will I be informed of each payment?From Code to Product Lecture 7 — BM — Selling — Slide 51 gidgreen.com/course

Subscription concerns highrisehq.comFrom Code to Product Lecture 7 — BM — Selling — Slide 52 gidgreen.com/course

Credit card fraud•  X uses Y’s credit card without permission•  Why do you care? –  Y comes after you –  You get a chargeback•  Payment processor solutions –  Card security code (not on stripe) –  Address confirmation –  Verified by Visa / MasterCard SecureCode –  Fraud detection algorithmsFrom Code to Product Lecture 7 — BM — Selling — Slide 54 gidgreen.com/course

Risk assessment•  If possible, review manually –  Big orders –  Purchase from “unusual” countryFrom Code to Product Lecture 7 — BM — Selling — Slide 55 gidgreen.com/course

Chargebacks•  Customer asks bank for money back –  Card was stolen –  Product absent/deficient –  Friendly fraud•  Full price taken back from you –  No recourse without customer signature•  You pay fine, $15—30 –  Much higher if too frequentFrom Code to Product Lecture 7 — BM — Selling — Slide 56 gidgreen.com/course

Refunds•  Customer asks you for money back•  You can argue, but… –  It’s (probably) not worth your time –  It harms your reputation –  They have chargebacks•  You pay back full price –  But no additional fees•  Easy interface at payment processorFrom Code to Product Lecture 7 — BM — Selling — Slide 57 gidgreen.com/course

Subscription retention•  Active churn –  Try to intercept –  Ask why afterwards•  Passive churn –  Card failed / expired –  Notify and request renewal –  Special offers•  Expect average 1—3 years•  Acquisition > Retention cost (generally)From Code to Product Lecture 7 — BM — Selling — Slide 58 gidgreen.com/course

PCI DSS complianceFrom Code to Product Lecture 7 — BM — Selling — Slide 59 gidgreen.com/course

Customer support•  Money = obligation –  Threat of chargebacks•  Pre-sales enquiries•  Email + phone is best•  Respond within 1 working day•  Really read / listen –  Speak their language•  Never get angryFrom Code to Product Lecture 7 — BM — Selling — Slide 60 gidgreen.com/course

BooksFrom Code to Product Lecture 7 — BM — Selling — Slide 61 gidgreen.com/course

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Selling Products and Services

by gidgreen on Jun 18, 2012

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