5 — Selling Products From Code to Product gidgreen.com/course
Lecture 5 • Introduction • Payment models • Pricing • Payment methods • Conversion funnels • Problems From Code to Product Lecture 5 — Selling Products — Slide 2 gidgreen.com/course
Lecture 5 • Introduction • Payment models • Pricing • Payment methods • Conversion funnels • Problems From Code to Product Lecture 5 — Selling Products — Slide 3 gidgreen.com/course
Desktop software From Code to Product Lecture 5 — Selling Products — Slide 4 gidgreen.com/course
In-app purchases From Code to Product Lecture 5 — Selling Products — Slide 5 gidgreen.com/course
Software as a service From Code to Product Lecture 5 — Selling Products — Slide 6 gidgreen.com/course
App store products From Code to Product Lecture 5 — Selling Products — Slide 7 gidgreen.com/course
SaaS and mobile app growth $30 billion Software as a Service Mobile applications $20 billion $10 billion 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 From Code to Product Lecture 5 — Selling Products — Slide 8 gidgreen.com/course
Lecture 5 • Introduction • Payment models • Pricing • Payment methods • Conversion funnels • Problems From Code to Product Lecture 5 — Selling Products — Slide 9 gidgreen.com/course
Payment models $40 One time Subscription Pay as you go Revenue $20 $0 0 6 12 18 24 30 36 Month From Code to Product Lecture 5 — Selling Products — Slide 10 gidgreen.com/course
One-time purchases • Payment = ownership • Low transaction costs • Unstable cash flow – Publicity bursts – Upgrades • Problem of ongoing costs – Technical support – Online elements From Code to Product Lecture 5 — Selling Products — Slide 11 gidgreen.com/course
Subscriptions • Payment = membership • Periodicity – Monthly, quarterly, annual – Discounts for longer • Stable cash flow – Forgotten subscriptions • Problem of churn – Active or passive From Code to Product Lecture 5 — Selling Products — Slide 12 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 purchase From Code to Product Lecture 5 — Selling Products — Slide 13 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 on From Code to Product Lecture 5 — Selling Products — Slide 14 gidgreen.com/course
Time limited From Code to Product Lecture 5 — Selling Products — Slide 15 gidgreen.com/course
Capacity limited mailchimp.com From Code to Product Lecture 5 — Selling Products — Slide 16 gidgreen.com/course
Feature limited freshbooks.com From Code to Product Lecture 5 — Selling Products — Slide 17 gidgreen.com/course
Collaboration limited highrisehq.com From Code to Product Lecture 5 — Selling Products — Slide 18 gidgreen.com/course
Ad supported From Code to Product Lecture 5 — Selling Products — Slide 19 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 momentum From Code to Product Lecture 5 — Selling Products — Slide 20 gidgreen.com/course
Lecture 5 • Introduction • Payment models • Pricing • Payment methods • Conversion funnels • Problems From Code to Product Lecture 5 — Selling Products — Slide 21 gidgreen.com/course
Demand curve $20 $15 Price $12 × $10 125k = $1.5m $5 $4 × 500k = $2m $0 0 200,000 400,000 600,000 800,000 1,000,000 Sales volume From Code to Product Lecture 5 — Selling Products — Slide 22 gidgreen.com/course
Optimal price $2.5m $2.0m Revenue $1.5m $1.0m $0.5m $0.0m $0 $5 $10 $15 $20 Price From Code to Product Lecture 5 — Selling Products — Slide 23 gidgreen.com/course
Optimal price $20 $15 Price $10 $5 $5.77 × 370k = $2.13m $0 0 200,000 400,000 600,000 800,000 1,000,000 Sales volume From Code to Product Lecture 5 — Selling Products — Slide 24 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, sometimes From Code to Product Lecture 5 — Selling Products — Slide 25 gidgreen.com/course
Multiple price points $20 $15 Total = Price $3.5m $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 volume From Code to Product Lecture 5 — Selling Products — Slide 26 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 comparisons From Code to Product Lecture 5 — Selling Products — Slide 27 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 5 — Selling Products — Slide 28 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 5 — Selling Products — Slide 29 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 CEO From Code to Product Lecture 5 — Selling Products — Slide 30 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 5 — Selling Products — Slide 31 gidgreen.com/course
Other price games • Razors and blades • Fives and nines • Supermarket signposts • Bundling • Volume discounts? • Upgrades/sidegrades • Time-limited sales From Code to Product Lecture 5 — Selling Products — Slide 32 gidgreen.com/course
Lifetime value example • Constant monthly churn rate – 5.6% per month – Compounds to 50% per year • Charge $10/month – Assume no costs • Or $100 per year upfront – “2 months free” • Which has higher lifetime value? From Code to Product Lecture 5 — Selling Products — Slide 33 gidgreen.com/course
$10/month vs $100/year $200 $150 Total Revenue $100 $50 Monthly Annual $0 0 6 12 18 24 30 36 42 48 54 60 Month From Code to Product Lecture 5 — Selling Products — Slide 34 gidgreen.com/course
$10/month vs $90/year $200 $150 Total Revenue $100 $50 Monthly Annual $0 0 6 12 18 24 30 36 42 48 54 60 Month From Code to Product Lecture 5 — Selling Products — Slide 35 gidgreen.com/course
$10/month vs $60/year $200 $150 Total Revenue $100 $50 Monthly Annual $0 0 6 12 18 24 30 36 42 48 54 60 Month From Code to Product Lecture 5 — Selling Products — Slide 36 gidgreen.com/course
But if sales are funding ads… Viral arc Referrer Retention Hearing Active Stranger Visitor Inbound Onboarding User Adverts Paying Money arc Customer From Code to Product Lecture 5 — Selling Products — Slide 37 gidgreen.com/course
Customer acquisition cost • How much to “purchase” a subscriber? – At scale, marginal cost of ads • If LTV ≤ CAC, go home • Assume CAC is $50 • Charge $10/month? – Lifetime value = $180 • Or $60/year? – Lifetime value = $120 From Code to Product Lecture 5 — Selling Products — Slide 38 gidgreen.com/course
Start with $10k in the bank… 10,000 Active subscriptions 8,000 $60/year $10/month 6,000 4,000 2,000 0 0 3 6 9 12 Month From Code to Product Lecture 5 — Selling Products — Slide 39 gidgreen.com/course
Lecture 5 • Introduction • Payment models • Pricing • Payment methods • Conversion funnels • Problems From Code to Product Lecture 5 — Selling Products — Slide 40 gidgreen.com/course
Credit cards Discover AmEx $114B $540B Visa MasterCard $2,040B $901B US Purchases 2011 nilsonreport.com From Code to Product Lecture 5 — Selling Products — Slide 41 gidgreen.com/course
Credit card payment process Shopping Your Merchant Cash − cart account account charges? Product Cash − & Price charges Card & Card & Credit Payment Payment Amount Amount card form gateway processor From Code to Product Lecture 5 — Selling Products — Slide 42 gidgreen.com/course
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