5 Selling Products. From Code to Product gidgreen.com/course

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1 5 Selling Products From Code to Product gidgreen.com/course

2 Lecture 5 Introduction Payment models Pricing Payment methods Conversion funnels Problems From Code to Product Lecture 5 Selling Products Slide 2 gidgreen.com/course

3 Lecture 5 Introduction Payment models Pricing Payment methods Conversion funnels Problems From Code to Product Lecture 5 Selling Products Slide 3 gidgreen.com/course

4 Desktop software From Code to Product Lecture 5 Selling Products Slide 4 gidgreen.com/course

5 In-app purchases From Code to Product Lecture 5 Selling Products Slide 5 gidgreen.com/course

6 Software as a service From Code to Product Lecture 5 Selling Products Slide 6 gidgreen.com/course

7 App store products From Code to Product Lecture 5 Selling Products Slide 7 gidgreen.com/course

8 SaaS and mobile app growth $30 billion $20 billion Software as a Service Mobile applications $10 billion From Code to Product Lecture 5 Selling Products Slide 8 gidgreen.com/course

9 Lecture 5 Introduction Payment models Pricing Payment methods Conversion funnels Problems From Code to Product Lecture 5 Selling Products Slide 9 gidgreen.com/course

10 Payment models $40 One time Revenue $20 Subscription Pay as you go $ Month From Code to Product Lecture 5 Selling Products Slide 10 gidgreen.com/course

11 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

12 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

13 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

14 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

15 Time limited From Code to Product Lecture 5 Selling Products Slide 15 gidgreen.com/course

16 Capacity limited mailchimp.com From Code to Product Lecture 5 Selling Products Slide 16 gidgreen.com/course

17 Feature limited freshbooks.com From Code to Product Lecture 5 Selling Products Slide 17 gidgreen.com/course

18 Collaboration limited highrisehq.com From Code to Product Lecture 5 Selling Products Slide 18 gidgreen.com/course

19 Ad supported From Code to Product Lecture 5 Selling Products Slide 19 gidgreen.com/course

20 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

21 Lecture 5 Introduction Payment models Pricing Payment methods Conversion funnels Problems From Code to Product Lecture 5 Selling Products Slide 21 gidgreen.com/course

22 Demand curve $20 $15 Price $10 $5 $0 $12 125k = $1.5m $4 500k = $2m 0 200, , , ,000 1,000,000 Sales volume From Code to Product Lecture 5 Selling Products Slide 22 gidgreen.com/course

23 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

24 Optimal price $20 $15 Price $10 $5 $0 $ k = $2.13m 0 200, , , ,000 1,000,000 Sales volume From Code to Product Lecture 5 Selling Products Slide 24 gidgreen.com/course

25 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

26 Multiple price points $20 Price $15 $10 $5 $0 $12 125k = $1.5m $8 125k = $1m $4 250k = $1m Total = $3.5m 0 200, , , ,000 1,000,000 Sales volume From Code to Product Lecture 5 Selling Products Slide 26 gidgreen.com/course

27 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

28 Customer segmentation wufoo.com Some people always want the best Solid midrange product in middle Cheap/crappy option (decoy) From Code to Product Lecture 5 Selling Products Slide 28 gidgreen.com/course

29 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

30 Price vs Process $1 $10 $100 $1,000 $10,000 $100,000 Impulse purchase Personal credit card Claim back from company Use company credit card Approval from dept head Approval from CEO From Code to Product Lecture 5 Selling Products Slide 30 gidgreen.com/course

31 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

32 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

33 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

34 $10/month vs $100/year $200 Total Revenue $150 $100 $50 $0 Monthly Annual Month From Code to Product Lecture 5 Selling Products Slide 34 gidgreen.com/course

35 $10/month vs $90/year $200 Total Revenue $150 $100 $50 $0 Monthly Annual Month From Code to Product Lecture 5 Selling Products Slide 35 gidgreen.com/course

36 $10/month vs $60/year $200 Total Revenue $150 $100 $50 $0 Monthly Annual Month From Code to Product Lecture 5 Selling Products Slide 36 gidgreen.com/course

37 But if sales are funding ads Viral arc Referrer Stranger Hearing Inbound Visitor Onboarding Active User Retention Adverts Money arc Paying Customer From Code to Product Lecture 5 Selling Products Slide 37 gidgreen.com/course

38 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

39 Start with $10k in the bank 10,000 Active subscriptions 8,000 6,000 4,000 2,000 0 $60/year $10/month Month From Code to Product Lecture 5 Selling Products Slide 39 gidgreen.com/course

40 Lecture 5 Introduction Payment models Pricing Payment methods Conversion funnels Problems From Code to Product Lecture 5 Selling Products Slide 40 gidgreen.com/course

41 Credit cards AmEx $540B MasterCard $901B Discover $114B Visa $2,040B US Purchases 2011 nilsonreport.com From Code to Product Lecture 5 Selling Products Slide 41 gidgreen.com/course

42 Credit card payment process Shopping cart Your account Cash charges? Merchant account Product & Price Cash charges Credit card form Card & Amount Payment gateway Card & Amount Payment processor From Code to Product Lecture 5 Selling Products Slide 42 gidgreen.com/course

43 Online payment processors Shopping cart Your account Cash 5 to 10% Merchant account Simplest and easiest Paid weekly or monthly Credit card form Payment gateway Payment processor From Code to Product Lecture 5 Selling Products Slide 43 gidgreen.com/course

44 Your own merchant account Shopping cart Your account Cash Merchant account Merchant account approval Harder for non-us Cash 2 to 5% Credit card form Payment gateway Payment processor From Code to Product Lecture 5 Selling Products Slide 44 gidgreen.com/course

45 Collecting card details Shopping cart Your account Cash Merchant account Control e.g. recurring PCI DSS compliance Cash 2 to 5% Credit card form Payment gateway Payment processor From Code to Product Lecture 5 Selling Products Slide 45 gidgreen.com/course

46 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 mercy From Code to Product Lecture 5 Selling Products Slide 46 gidgreen.com/course

47 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 paid prices $2 $3 but most free From Code to Product Lecture 5 Selling Products Slide 47 gidgreen.com/course

48 Games and games on ios From Code to Product Lecture 5 Selling Products Slide 48 gidgreen.com/course

49 A mix on Android From Code to Product Lecture 5 Selling Products Slide 49 gidgreen.com/course

50 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 payments From Code to Product Lecture 5 Selling Products Slide 50 gidgreen.com/course

51 Lecture 5 Introduction Payment models Pricing Payment methods Conversion funnels Problems From Code to Product Lecture 5 Selling Products Slide 51 gidgreen.com/course

52 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 5 Selling Products Slide 52 gidgreen.com/course

53 Entry to purchase From Code to Product Lecture 5 Selling Products Slide 53 gidgreen.com/course

54 Entry to purchase From Code to Product Lecture 5 Selling Products Slide 54 gidgreen.com/course

55 Choose a version / level From Code to Product Lecture 5 Selling Products Slide 55 gidgreen.com/course

56 Order summary From Code to Product Lecture 5 Selling Products Slide 56 gidgreen.com/course

57 Customer information From Code to Product Lecture 5 Selling Products Slide 57 gidgreen.com/course

58 Payment information From Code to Product Lecture 5 Selling Products Slide 58 gidgreen.com/course

59 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 5 Selling Products Slide 59 gidgreen.com/course

60 Subscription concerns highrisehq.com From Code to Product Lecture 5 Selling Products Slide 60 gidgreen.com/course

61 Lecture 5 Introduction Payment models Pricing Payment methods Conversion funnels Problems From Code to Product Lecture 5 Selling Products Slide 61 gidgreen.com/course

62 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 algorithms From Code to Product Lecture 5 Selling Products Slide 62 gidgreen.com/course

63 Risk assessment If possible, review manually Big orders Purchase from unusual country From Code to Product Lecture 5 Selling Products Slide 63 gidgreen.com/course

64 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 frequent From Code to Product Lecture 5 Selling Products Slide 64 gidgreen.com/course

65 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 processor From Code to Product Lecture 5 Selling Products Slide 65 gidgreen.com/course

66 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 5 Selling Products Slide 66 gidgreen.com/course

67 PCI DSS compliance From Code to Product Lecture 5 Selling Products Slide 67 gidgreen.com/course

68 Customer support Money = obligation Threat of chargebacks Pre-sales enquiries + phone is best Respond within 1 working day Really read / listen Speak their language Never get angry From Code to Product Lecture 5 Selling Products Slide 68 gidgreen.com/course

69 Bitcoin: The solution? From Code to Product Lecture 5 Selling Products Slide 69 gidgreen.com/course

70 Bitcoin: The solution? Pros Extremely low cost Irreversible Pseudonymous Universally available Rapid settlement Decentralized Cons No (easy) subscriptions Exchange rate fluctuations Confirmation delay Government interference? Easy to steal (like cash) Accounting uncertainty From Code to Product Lecture 5 Selling Products Slide 70 gidgreen.com/course

71 Coinbase Offering From Code to Product Lecture 5 Selling Products Slide 71 gidgreen.com/course

72 Books From Code to Product Lecture 5 Selling Products Slide 72 gidgreen.com/course