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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
From Code to Product Lecture 5 — Selling Products — Slide 8 gidgreen.com/course
0
$10 billion
$20 billion
$30 billion
2006 2007 2008 2009 2010 2011 2012 2013 2014
Software as a Service
Mobile applications
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
From Code to Product Lecture 5 — Selling Products — Slide 10 gidgreen.com/course
$0
$20
$40
0 6 12 18 24 30 36
Revenue
Month
One time
Subscription
Pay as you go
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
From Code to Product Lecture 5 — Selling Products — Slide 16 gidgreen.com/course
mailchimp.com
Feature limited
From Code to Product Lecture 5 — Selling Products — Slide 17 gidgreen.com/course
fres
hboo
ks.c
om
Collaboration limited
From Code to Product Lecture 5 — Selling Products — Slide 18 gidgreen.com/course
high
rise
hq.c
om
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
$0
$5
$10
$15
$20
0 200,000 400,000 600,000 800,000 1,000,000
Pric
e
Sales volume
Demand curve
From Code to Product Lecture 5 — Selling Products — Slide 22 gidgreen.com/course
$4 × 500k = $2m
$12 × 125k
= $1.5m
$0.0m
$0.5m
$1.0m
$1.5m
$2.0m
$2.5m
$0 $5 $10 $15 $20
Revenue
Price
Optimal price
From Code to Product Lecture 5 — Selling Products — Slide 23 gidgreen.com/course
Optimal price
$0
$5
$10
$15
$20
0 200,000 400,000 600,000 800,000 1,000,000
Pric
e
Sales volume
From Code to Product Lecture 5 — Selling Products — Slide 24 gidgreen.com/course
$5.77 × 370k = $2.13m
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
$0
$5
$10
$15
$20
0 200,000 400,000 600,000 800,000 1,000,000
Pric
e
Sales volume
Multiple price points
From Code to Product Lecture 5 — Selling Products — Slide 26 gidgreen.com/course
$4 × 250k = $1m
$8 × 125k
= $1m
$12 × 125k
= $1.5m
Total = $3.5m
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
From Code to Product Lecture 5 — Selling Products — Slide 28 gidgreen.com/course
wufoo.com
Solid mid-range product
in middle
Cheap/crappy option (decoy)
Some people always want
the best
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
From Code to Product Lecture 5 — Selling Products — Slide 30 gidgreen.com/course
$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
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
From Code to Product Lecture 5 — Selling Products — Slide 34 gidgreen.com/course
$0
$50
$100
$150
$200
0 6 12 18 24 30 36 42 48 54 60
Total R
evenue
Month
Monthly Annual
$10/month vs $90/year
From Code to Product Lecture 5 — Selling Products — Slide 35 gidgreen.com/course
$0
$50
$100
$150
$200
0 6 12 18 24 30 36 42 48 54 60
Total R
evenue
Month
Monthly Annual
$10/month vs $60/year
From Code to Product Lecture 5 — Selling Products — Slide 36 gidgreen.com/course
$0
$50
$100
$150
$200
0 6 12 18 24 30 36 42 48 54 60
Total R
evenue
Month
Monthly Annual
Referrer
Inbound Onboarding
Retention Hearing
Viral arc
But if sales are funding ads…
From Code to Product Lecture 5 — Selling Products — Slide 37 gidgreen.com/course
Stranger Visitor Active User
Paying Customer
Adverts
Money arc
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…
From Code to Product Lecture 5 — Selling Products — Slide 39 gidgreen.com/course
0
2,000
4,000
6,000
8,000
10,000
0 3 6 9 12
Activ
e s
ubscrip
tio
ns
Month
$60/year $10/month
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
Visa $2,040B MasterCard
$901B
AmEx $540B
Discover $114B
US Purchases 2011 nilsonreport.com
From Code to Product Lecture 5 — Selling Products — Slide 41 gidgreen.com/course
Credit card payment process
From Code to Product Lecture 5 — Selling Products — Slide 42 gidgreen.com/course
Shopping cart
Credit card form
Product & Price
Payment gateway
Card & Amount Payment
processor
Card & Amount
Merchant account
Cash − charges
Your account Cash −
charges?
Online payment processors
From Code to Product Lecture 5 — Selling Products — Slide 43 gidgreen.com/course
Shopping cart
Credit card form
Payment gateway
Payment processor
Merchant account
Your account Cash −
5 to 10%
• Simplest and easiest • Paid weekly or monthly
Your own merchant account
From Code to Product Lecture 5 — Selling Products — Slide 44 gidgreen.com/course
Shopping cart
Credit card form
Payment gateway
Payment processor
Merchant account
Your account Cash
Cash − 2 to 5%
• Merchant account approval • Harder for non-US
Collecting card details
From Code to Product Lecture 5 — Selling Products — Slide 45 gidgreen.com/course
Shopping cart
Credit card form
Payment gateway
Payment processor
Merchant account
Your account Cash
Cash − 2 to 5%
• Control e.g. recurring • PCI DSS compliance
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
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
Games and games on iOS
From Code to Product Lecture 5 — Selling Products — Slide 48 gidgreen.com/course
A mix on Android
From Code to Product Lecture 5 — Selling Products — Slide 49 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 payments
From Code to Product Lecture 5 — Selling Products — Slide 50 gidgreen.com/course
Lecture 5
• Introduction • Payment models • Pricing • Payment methods • Conversion funnels • Problems
From Code to Product Lecture 5 — Selling Products — Slide 51 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 5 — Selling Products — Slide 52 gidgreen.com/course
Entry to purchase
From Code to Product Lecture 5 — Selling Products — Slide 53 gidgreen.com/course
Entry to purchase
From Code to Product Lecture 5 — Selling Products — Slide 54 gidgreen.com/course
Choose a version / level
From Code to Product Lecture 5 — Selling Products — Slide 55 gidgreen.com/course
Order summary
From Code to Product Lecture 5 — Selling Products — Slide 56 gidgreen.com/course
Customer information
From Code to Product Lecture 5 — Selling Products — Slide 57 gidgreen.com/course
Payment information
From Code to Product Lecture 5 — Selling Products — Slide 58 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 5 — Selling Products — Slide 59 gidgreen.com/course
Subscription concerns
From Code to Product Lecture 5 — Selling Products — Slide 60 gidgreen.com/course
high
rise
hq.c
om
Lecture 5
• Introduction • Payment models • Pricing • Payment methods • Conversion funnels • Problems
From Code to Product Lecture 5 — Selling Products — Slide 61 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 algorithms
From Code to Product Lecture 5 — Selling Products — Slide 62 gidgreen.com/course
Risk assessment
From Code to Product Lecture 5 — Selling Products — Slide 63 gidgreen.com/course
• If possible, review manually – Big orders – Purchase from “unusual” country
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
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
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
PCI DSS compliance
From Code to Product Lecture 5 — Selling Products — Slide 67 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 angry From Code to Product Lecture 5 — Selling Products — Slide 68 gidgreen.com/course
Bitcoin: The solution?
From Code to Product Lecture 5 — Selling Products — Slide 69 gidgreen.com/course
Bitcoin: The solution?
From Code to Product Lecture 5 — Selling Products — Slide 70 gidgreen.com/course
Pros Cons
Extremely low cost No (easy) subscriptions
Irreversible Exchange rate fluctuations
Pseudonymous Confirmation delay
Universally available Government interference?
Rapid settlement Easy to steal (like cash)
Decentralized Accounting uncertainty
Coinbase Offering
From Code to Product Lecture 5 — Selling Products — Slide 71 gidgreen.com/course
Books
From Code to Product Lecture 5 — Selling Products — Slide 72 gidgreen.com/course
