Would I be able attract customers? Does this make any sense?
Good news: You want to create something for a market that already exists. Good.
Bad news: You assume that cheaper pricing will make you win. Not even close.
There are tons of SAAS clones out there for every successful saas. Do you know how many Trello clones are out there ? Slack ? What matters is your ability to execute and sell. Cheaper pricing is one small factor that may get you a few clients but in order to run it as a successful business, you will need a lot more things. Some checklist:
- What significant advantage are you offering over existing ones that you are cloning ? Please tell me pricing is not the only differentiator. Most clients won't care. Trust me.
- What is the reputation of your company ? Even if you are starting out, you need to show that people can trust you.
- How easy is your UI/UX ? Are you creating a better clone or a worse clone ?
- Can you win on customer support ? Lot of people want to switch from their current provider due to customer support. Pricing does influence that decision but not a whole lot.
If you can niche down on one specific feature for a segment of the market that is not being served, you would have better luck.
It's really hard to convert a user that's already using a competing service just on price because they're probably already used to it, too the time to set it up, etc.
If you give them a little improvement it'd be as hard, but if you give them something they just can't get anywhere else you might have a chance. At that point the lower price isn't necessarily even a consideration but rather just a nice to have for them and probably a growth challenge for you because you'd be undercutting the revenue potential of a feature no one else has.
On a side note - price is what many founders believe potential consumers base their entire decisions on. While that's true for some products, it doesn't mean that it is for you. It's always best to figure out how to reach users first, then experiment with pricing.
All sorts of business and development process tracking software has existed for decades. JIRA, FogBugz, PivotalTracker, MS Project, and so on.
Trello got rid of 90% of their features, and just kept "list of lists of short text snippets". That makes it great for planning small software projects, but also shopping lists, travel plans, or sales pipelines.
Products that start with nothing more than price differentiation will eventually be pushed into a separate niche, which better serve the more price-sensitive customer base. Knowing this, it will be easier to gain clients if you can identify something you can optimize ahead of time. The smaller businesses/clients that will depend on your product will really value this and feel like they're being served well by your product, and not like they're the fodder in a price war or that they're using a bargain-basement, barebones product.
People do not feel proud that to be stuck in the bargain basement, so they're less likely to spread your product through word of mouth if you make it seem like a discount version of a well-known competitor.
As an entrepreneur, you just have to get a sustainable foothold somewhere and you can take everything else from that point. Optimizing a system for a price-sensitive audience is a good way to get started because the bigger guys are trying to leave that audience in the dust and they're usually very appreciative of the tools you're supplying.
You can just look at Google to see that it does not work all the time, Google could have replicated Watsapp, Facebook, Instagram but they failed. They even failed with Google Video and had to buy Youtube.
Not all will move from AWS, but the price saving is significant for small players who doesn't need the full suite of AWS.
Some points, integrated console, root password reset, automatic backups. These are features that make them better than aws for a simple side project.
It'll be interesting to see if they can continue to grow now that Linode have reduced prices to be lower than them. That's one big catch with coming in at a lower price, the incumbent probably has the scale to lower their prices below you, if they consider you a threat.
When initial product you want to clone was made, its makers had to solve a lot of problems and made choices, which are not documented anywhere. You will face some of those problems and may make different choices, even have new ideas to solve them. Ultimately, your product will have its own DNA and strengths, most likely.
There's a say I really like in the world of music composition : don't be afraid to copy your favorite composers, you won't do the same thing anyway.
Copying is an excellent way to get started. You're very unlikely to end up with a copy at the end.
So yeah, pricing is just one very small factor. It is a factor, but only after all other factors have been taken care of :)
Are you providing me the agents or do I have to supply themselves? It looks like you're just the software but once again the wording/copy made things incredibly confusing.
Your messaging should reflect that you provide easy to use call center software. If you're competing mainly on price then the "pay only for the calls you make" should be a tagline somewhere... that's a powerful message but I don't see it anywhere on the site.
I also don't really like the design on your features pages..at first I thought they were lists of blog posts. There's so much spacing with big faded images that don't make it easy to see the product. Not to mention you're peppering me with that free trial button when I really just want to read what each feature does...and then you could throw me the CTA at the end of the page if I liked this feature.
It would definitely be worth it to spend a couple hours with perspective customers usability testing your site.
Hope this helped, and best of luck to you!
- The "Lets make those customers happy!" should be "Let's make those customers happy!"
- There is no space after the comma in "calls,IVR," and "chat,customer"
Don't underestimate the importance of attention to detail. These tiny mistakes would have even been caught by Microsoft Word.
t. Exclusively 13" screens user
I think I understand what you want to communicate, but it reminds me more of something suitable for marketing a used car sale at jaw dropping prices.
If trust is what you want to communicate it should also be visible in the design of your web site. That means focus on details and optimization here and there.
E.g. you should check how many visited your site with a mobile phone today and see if you can spend some time on optimizing the first inoression. Also remember that users who come to your site might have other ideas on what is important. For instance maybe you should try to give your logo a little bit less prominent space and don't scroll it back into the view because it's annoying. Also optimize the page so that the call to action and testimony now beneath is visible and above the fold.
I would also focus on the value you provide to your customers and not only that you are affordable.
One issue I have with Indian companies are that they are not too good with their workers. I have heard a few stories. So maybe something that would assure me you are good with them, if you are, would be nice to see there.
Best of luck!
But how would I present that on the website? Any ideas? Thanks!
- Each comma in a sentence should be followed by a space.
- Each sentence should end with a period.
- U.S. prices always have two-digit decimals. $19.90, not $19.9.
- Use a comma to separate thousands. 30,000, not 30000. (No space after commas used to separate thousands.)
These might seem nitpicky, but they make a big difference in establishing initial trust.
https://en.wikipedia.org/wiki/Decimal_mark
https://www.datacamp.com/community/tutorials/decimal-comma-o...
"Most of the area" would also be a plausible interpretation, but "most countries" isn't.
The first thing displayed was the clown image, it took couple of seconds to load the text later. The first impression I got was this does not look like a serious site.
The checklist should be :-)
1) how are you going to acquire customers?
2) how are you going to acquire customers?
3) how are you going to acquire customers?
4) how are you going to acquire customers?
5) how are you going to be better than competition?
> Good news: You want to create something for a market that already exists. Good.
Is this good news? I was under the assumption that, unless you were creating something didn't already exist, it wasn't worth the time?
But not necessarily for long. If others see that there's money to be made in that market, you'll soon have competitors, some of which may be much bigger companies that have a lot more resources than you have. Being first to market doesn't assure that you'll dominate the market forever.
Windows, Google Search engine, Facebook did not create a new market they built something better than the incumbents.
I once built a screenplay editor in Hebrew for Israeli screenwriters. It had everything on your list. For free. The competition was practically Microsoft Word + macros.
The problem, though, is that the pain of moving away from these carefully crafted macros was too high.
One day we were walking there, complaining about it how cheap it must be to make such substandard fare. Someone suggested that we should get out of computer programming and start a pasta place: we'd serve the same shitty pasta and pasta sauce, but charge 5 euro instead of 10. We'd make a killing!
The boss was walking with us and remarked, boss-ly, "Why would you sell something for 5 euro when people are happily paying 10?"
I kicked myself for not even thinking of that.
This is why starting upmarket and working down (Apple) works better than starting downmarket and trying to work up.
I don't think we can go that far.
Apple didn't start upmarket, first of all. Their original market was technical consumers. Jobs's obsession with design and beauty in combination with the Mac's decline in favor of more "business-oriented" IBM PCs, which were much uglier, eventually made Apple the de-facto brand of artists and designers, which led to it becoming the brand of those who wanted to showcase their creativity.
Apple products became fashion statements that said "I'm creative and unique". That's what really drove Apple into the luxury segment. It seemed to be more accidental than anything else.
Second, going after the big fish always sounds nice, but it's hard to do it successfully. Enterprise sales cycles take a long time, months or sometimes years. The features that big customers want are usually giant PITAs that have to integrate with 6 wildly divergent legacy systems. Enterprises want enterprisey support and they consider questions like "How likely is it that this product is going to be around in 5 years?" as part of the sales cycle (and until your company is at least 5 years old, it's hard to answer that).
For high-end consumers, in most cases, luxury brands have to be aged and respected before they build up the panache needed to drive acquisition. The brand has to be carefully controlled and messaged. Aggressive marketing can sometimes speed up the aging process.
If you're targeting mom-and-pops or normal consumers, there is a much bigger pool of consumers to draw from, and they have much lower barriers to entry. Find a segment to hook, inspire loyalty, serve them well, and then see about moving on to enterprise, hopefully targeting enterprises that your long-term customers work for and can convince to buy MyThing Enterprise Edition.
If you're starting with $5M of cash, going after the big fish in the pond may work fine. If you're trying to bootstrap or trying to find a way to survive after some pittance of seed funding runs out, it's usually a different story.
Q: "Why would you sell something for 5 euro when people are happily paying 10?"
A: "We'd make a killing!"
From what you've written it seems the customers are not happily paying €10. They've simply traded satisfaction for convenience.
So your idea is a pasta place that enters a market where the only choice is "terrible and overpriced" and provides an alternative of just "terrible", attempting to price-out the competition and rake in the dough.
Exactly what OP is considering (replace 'terrible' with 'equivalent').
So I guess what your boss is getting at is that the smarter business strategy would be "less terrible and overpriced" - compete on value not cost.
It also means they have additional capital to
a) Advertise more
b) Improve ingredients and taste
c) Do all sorts of things to improve the customer experience.
In short, there are benefits to charging more from the outset that aren't always obvious until you're playing catchup.
What most businesses don't realise is that if you discount something by just 20%, you will actually have to effectively DOUBLE your sales in order to make the same Net Profit at the end of the day.
If you are looking to undercut the past place by 50%, then you will need to effectively sell 4x the volume that they are doing just to make the same sort of profit. That then brings further problems - in order to server 4x the customers during a lunch rush, you probably need to lease bigger premises with more staff on hand, thus increasing your Expenses - meaning a reduction in your Net Profit. More customers also means more customer problems (missed deliveries, reduced quality of service etc.)
You would eventually end up with a scenario where you have a bustling pasta dive with double the customers, but making LESS money than the original one next door - or worse still, making a loss. Even though you are charging half the price...
Launching with a lower price point allowed me to win over the price comparison shoppers and thus further refine the product. That helped the business grow organically and get in the same conversation as the long time players. It's now making $25k/m and growing a lot faster than I expected.
So to answer your question. Yes you can attract more customers by launching with rock-bottom pricing, but you better make damn sure it's a better overall product. Otherwise you just become the "cheap" option in the customer's minds. It's also important to consider what would happen if one of the competitors reacted by matching your pricing. In my case I tried to estimate their overhead by looking at their office location, number of employees, etc. Then I figured a price that would really put some pressure on their finances should they try to match.
I've done that same calculation myself.
One of my competitors has well over 300 engineers for a relatively simple Saas. I know why they have done this, one of their other products is a blackhole and the other is pandering to VC requirement in staffing.
These types of companies are the best to disrupt.
This would be a huge red flag to me. As a solo-founder I would assume that I'm overlooking something or incorrectly defining "simple". If it is really simple and they are allocating that many engineers to solve the problem, then they'll eventually figure it out and downsize. Then you're competing with a more experienced and focused company. On the flip side, if you're solving a problem they think is hard, then an acquisition may be in your future.
I'll say it again, one of THEIR OTHER PRODUCTS IS A BLACK HOLE.
So what I'm trying to say is, their primary product is a relatively easy SaaS to make. They made a huge mistake in building a secondary product in their offering and thus requires the 300 engineers.
Domain knowledge is something else that I and the other newly competitor has. HN developers who think they can build applications in a weekend completely omit this point.
Domain knowledge is what makes something easy, compared to someone who doesn't have it and then thinks it's hard.
Out of those 300 developers, how many in total have the domain knowledge. Not many I am betting.
> Then you're competing with a more experienced and focused company.
Yahoo was experienced and look how that turned out. Same goes for Bing.
Never discount domain knowledge.
As a company, you throw resources (money) at solving a particular problem.
You are hoping that as a company, you can accrue enough customers to cover that spend.
Should another company come in and then disrupt your efforts, you have two choices. Either hire more engineers and develop more features, thus incurring more costs. Or you lower your pricing and hope your competitor is bleeding faster than you are.
As a company with a black hole, if another competitor isn't bleeding and pushing out more features and gaining your customers. You'll then do something drastic like buy another company.
This is what actually happened in that space. The only problem, is that it shows your competitors you have no ideas left. The company is effectively a zombie. It will collapse, it's a only matter of time.
That said, it's very difficult to grow a bootstrapped business when you're not charging much. At the lower end of the market you usually have less committed customers and depending on the SaaS, you may attract less favourable customers. As such we're slowly moving away from pricing being our only unique selling point and beginning to look at differentiating features.
Copying features at a lower price is a fine way to start out as a one-man band and gives you sufficient focus to get it out ther door, however, to grow the business I think you'll need to look bigger.
In my opinion, one of your biggest problem in acquiring customers is that the gatekeepers out there, the big name bloggers, have a vested interest in continuing to send their readers to Aweber, ConvertKit, MailChimp, etc. The kickbacks they get are huge.
As a specific example, go to smartpassiveincome.com and look at his monthly income numbers, and how much he is getting from ConvertKit (a few years ago it was Aweber). Those affiliate commissions alone are a solid six figure income.
The end result is that he has no incentive to push a basic mailing list management solution that satisfies 99% of his readers' needs. Instead he has a great incentive to push the narrative that his readers need this overkill solution for when they launch their million-dollar course in 3 months. (I actually like Pat, or at least his internet personality, so no offense to him, this is just how human nature works)
Not to mention the strong pull on the customers' parts to feel like pros by using software the pros use, even though they don't need any of the features or support they are paying for.
I never came up with a satisfying solution around this. The best idea I had was to cultivate a brand as a rebel in the space, pushing back against this "evil conspiracy" by passing the cost savings directly to you.
P.S., you guys really need double opt-in. I believe it is legally required in many places.
Think this also shows how important your product pricing is, particularly if growing by these traditional methods. The affiliate model of giving away a 30-40% recurring cut (as Aweber and CK do) is unsustainable unless your prices factor this in and affiliates will also only work with you if your prices are high enough in the first place to make it worthwhile.
You're right about pricing. It's not a $30 / month product where they share the revenue, it's a $20 / month product where the extra $10 was directly added for affiliates. If someone happens to signup directly it's just a bonus.
They have managed to grow not just being one of the most expensive options, but also without any trial period. (They just added one, I think). This is substantially thanks to it being pushed by Pat at SPI.
Kind of how most people who got rich off the gold rush are those who were selling shovels.
I recently found about Tyler Tringas, who has open revenue numbers, is profitable, and specifically focused on making the business as automated as possible to have time. He was going to write and sell a "metabook", but decided against it precisely for reasons of credibility. He's publishing it for free at https://tylertringas.com/micro-saas-ebook/.
Another one is Jason Kester, who wrote about how he did it for free on one simple blog post here: http://www.expatsoftware.com/Articles/guy-on-the-beach-with-...
It's good to see there are some actual cases, and it sounds at least more doable than the crazy startup lottery that is, ironically, more socially acceptable. (Passive stuff is for lazy people.)
A more accurate analogy for 99% of the online passive income people would be that they got rich selling maps for where gold is, except the maps are a complete fabrication.
But it also means if you (GP) don't mind stepping on a few toes, you can turn this in your favor.
Start attracting attention by writing articles about
"What the big brand bloggers don't tell you about email marketing" and start showing some numbers on how much traffic a blog needs before the ConvertKits and the MailChimps start making economic sense.
"How to make $X by selling affiliate products" - with a link to each of these bloggers public income figures. And then you add a little message at the bottom that says "But for the beginner, my service is so much better because..."
If you think that the big name bloggers are genuinely the gatekeepers, you can actually use this to your advantage in your marketing.
Although having said that, you are probably not going to be attracting the best type of customers for a business. The more a customer pays, the more invested they become in their own success and indirectly into the success of whomever they do business with. That just seems to be how human nature works.
A problem is that every budding internet entrepreneur thinks they are going to have a list of 10,000 in 6 months and be selling a $10,000 course to hundreds of people in a year. (That Ramit Sethi makes so much money off his $10k course is testament to this)
Most of them will never get to 1,000, and in the meantime, they're paying Aweber $20 / month.
So it requires getting them to accept more reality than they may be comfortable with to use a cheaper service for now and then switch to a high-cost one with fancy drip campaign features later when they need it.
I think it is far easier to sell big dreams for $20 / month than reality for $5 / month.
Here I made one for you using my startup: http://www.superanimo.com/animos/cartoon/148
But seriously I think starting out simple is the way to go anyway. I can't get anyone to make animations on my site and the site has an 80% bounce rate. I'm starting to think I started with a product that's too complex. Now I'm turning it into an app and trying to simplify it.
This is worth emphasizing. When you offer your service at rock bottom prices compared to your competition, you will wind up with all of the "bad" customers who will expect to be treated as if they're paying for premium level support. They want the same level of service they would get with your expensive competition, but without paying for it.
Regardless of your price points, you must handle support emails, phone calls, social media accounts, etc. - all of which take significant resources. If you neglect supporting these customers by saying "sorry, we cannot offer extensive support for the amount you are paying", some of your customers will drag your brand name through the mud and you may wind up with a negative reputation.
Now it makes a few hundred grands an year to pay for his nomad vacation lifestyle and he has hired help to grow.
I think growing an existing SaaS is one of the safest business to build online. The market is already proven and you will find a niche over time even if it is not pricing. The most important thing - dont die.
Making blanket statements about it being a good or bad idea isn't very helpful. The OP made a very generalized questions with almost no detail. Certainly not enough to provide much of any helpful advice. However, ultimately it is going to be dependent on how interested the developer is in making it work and their timeframe.
Underestimating how much time and resources even the simplest of projects require is common - and that is if your management skills are really good.
Do you use any of them? No, you don't. Because you do not make decisions primarily based on price.
You may think customers, in aggregate, primarily make decisions based on price. You'd be wrong. You're going up against a lot of empirical economics research conducted by, among others, SaaS companies, where they hire someone to tell them to double the prices and that results in 2X the revenue plus or minus 10%.
Preview of coming attractions for running a SaaS company: at virtually every company, churn rates go up as prices go down, because low prices attract tire kickers, pathological customers, and folks who are loyal only to the thrill of finding a deal. You might think that customers paying $10 are worth 10% of customers paying $100, but it's actually closer to 2~3% once you factor in the elevated churn rates.
Do a SaaS! (Though dabbling in SaaS is, perhaps, hard. Maybe dabble in writing a book about the problem your SaaS would solve. If you can't dabble your way to a book dabbling your way to a SaaS app is harder in every way.) Charge more than you think is reasonable for it. Then, double your prices.
Then, one day, they received a phone call from one of the 'Big 4' banks in Oz to pitch their software solution to them with a view to the bank taking it on nationwide. This was the 'big one' they were after.
They made their pitch which went well, and my colleague was asked for their licence price, which they up front said was calculated at $50,000 for each state.
The bank thanked them, and they left the pitch meeting, but they never heard back. Months later, my colleague approached the procurement manager who was at the meeting and asked why they didn't get the contract, as they had discounted their licence costs significantly in order to try and get the business - was it still too expensive?
The manager told him: "Actually, we LOVED your solution, which was perfect, BUT we had budgeted $1Million dollars per state for the final software solution. When you said $50K per state, most of our committee members thought that was too cheap, and they had reservations that you would be around for the long haul to support the software, so we voted against you..."
Read his interview with Ramit Sethi here:
http://www.kalzumeus.com/2012/09/21/ramit-sethi-and-patrick-...
(Look for "How You’re Collecting Pathological Customers And How To Stop")
Having said that, it's an option to attack a market, just be aware of what you're in for. To get reasonable revenue you have to get many more customers. Support loads will be higher. Revenue to support ratio might drive you crazy.
Low-cost leader can certainly be a sustainable competitive advantage. Think GEICO vs. All State.
A lot depends on the service you are looking at, but I think it's important that low-cost be part of your marketing. Advertise the fact that people shouldn't be "paying for features they don't need" or support they don't need. If you are clear up front that you are cheap for these reasons (and are not afraid to fire customers, or at least tell the more difficult ones they should be using the more expensive service), you can sustain that lead.
Be careful, though. You need to think about why your competitor is able to charge more.
An illustrative example is a program called "Final Draft". They make screenwriting software and have been around a long time. Years ago I was curious after hearing the owner discuss how much they sold, how is this company that makes a niche product able to do so much business? How many active screenwriters could there possibly be?
The answer, I realized, is that their business is not made from working screenwriters, it's made from aspiring screenwriters. Every wannabe knows that the pros use Final Draft, so if you wanna pretend to be a pro, you're gonna spend the $100 to get Final Draft so you can feel fancy. This is an awesome advantage for them, and it means I would have a hard time writing a clone and selling it for even $10. The actual software doesn't matter! It's the feelings it gives.
There are tons of products in the Internet Marketing world that have a similar advantage. If your favorite blogger uses it, you feel like a bigshot so you'll pay up for tons of stuff you don't need as s small-timer.
On the other hand, they may just be charging more because they have hired too many people or are being greedy. Up to you to figure this out.
GEICO isn't a startup though. It has been around since 1936.
That makes my point even more dramatically, that being the low-cost leader doesn't have to be a race to the bottom if you have some structural advantage. That it can last. Startup or not is irrelevant.
The structural advantage is that they sell directly. They don't use the intermediate agencies who are collecting commissions. That, combined with specifically going after certain customers (originally govt. employees, as you pointed out), allows them to undercut their competitors like All State.
But not just undercut, undercut in a way that All State cannot match. The last part is key, and what makes it a long-lasting competitive advantage.
To bring it back to OP. If their competitor has built-in high costs, there is an opportunity here. That's why I said at the end they need to figure this out. If the competitor just has fat margins then they can easily cut prices, but if they have some high headcount, or maybe some legacy stuff that costs a lot, then can't match the low price without losing money.
* how will people learn your product exists? how much should you pay for this discovery per potential customer?
* what features must you offer for people to want to pay you? how many of these features can you buy vs build?
* how quickly can you get to market, to reduce costs and risk and start learning about the market asap?
* what kinds of people would want your service? why would they choose your version rather than an incumbents'? if price is your only differentiator, then how many features do you need to be a true alternative? how much support and availability do you need to keep customers loyal?
* how do you create enough trust for potential customers to start to rely on your unknown company/product/service?
* how much should you charge? as others have noted, "rock-bottom" is not a great answer. how much value do you generate for your customer, and how much of that do you intend to capture?
* is SaaS the right revenue model for the type of product/service you're building and the customers you're targeting?
* how will you measure satisfaction and engagement, and generate further value to retain customers?
if you're eager to tackle these kinds of questions, go for it! if not, you probably don't want to start a business, because such questions (rather than the tech) will occupy a large part of your day-to-day.
this is why yc's startup school essentially offers a mini-MBA curriculum, rather than a tech-focused one (these questions are also covered in the core marketing class of an MBA program).
1. You can still afford marketing. Products do not market themselves. For all you know that super expensive SaaS is spending only 10% of their money to run the tech and the other 90% is marketing. (intentionally going to the extreme other end)
2. You have TALKED TO CUSTOMERS and you know that price is a sticking point for them.
- OR -
You have another business and the savings on the monthly bill alone would pay for the R&D and running the product. In which case attracting other customers is just icing on the cake.
Edit:
Also, side recommendation. If all things considered equal the product is the equivalent. Don't sell it for rock bottom. You don't need to. Sell it for 25% (for example) lower than the competition. You don't need to be rock bottom you just need to come out slightly on top when the customer is doing their decision matrix.
Not to mention physiologically if it is too cheap people wonder why and they think there must be something wrong with it. Which can get you less sales not more.
If you can deliver a true clone, why not double, triple, or 10x the price? Most Micro or Small Saas are under-priced anyway. You will not be able to snipe a competitor's customers, unless their service is not working, just by having a lower price.
However, if you can clone the service and attract your own customers you should charge more. Revenue will allow you to build out a more valuable/reliable product.
A potential customer will assume the service is more valuable and reliable than the product you cloned simply because it's higher cost.
One of the more interesting situations that entrepreneurs encounter are competitors who are under pricing them but are doing so at the cost of their own margin. The risk is that you can 'win' (capture the market) only to find the more customers you get the more money you lose to the point where you're forced to raise prices or exit the market. Sometimes that choice is made for you by running out of cash.
So the bottom line is this, talking about pricing before you have the business does not make sense. If you can design a SaaS business and accurately cost it out and take a survivable margin and under price most or all offerings in the market, sure go for it. If on the other hand you just have a vague sense that it shouldn't cost as much as it does for this kind of service and so starting to sign up customers at a low price while you build and deploy the service? That is a recipe for disaster every time.
Worse, and contrary to popular opinion, lower pricing _does not_ necessarily mean lower customer acquisition costs in SaaS!
Are you a marketing/growth expert with a proven track record of doing just that? If no, prepare for years of learning a lot of fundamental basics the hard way. If yes, well, do get in touch with me! ;)
Another aspect to consider is that, assuming you're looking at B2B, lower pricing doesn't mean that your product will be more attractive to B2B buyers. If anything, you'll often find that the opposite is true.
This is true for consumers as well. Most people are familiar with the idea that you get what you pay for.
Exceptions are generally things that everyone needs, but not everyone can afford the fancy models. So, cars, phones, food, stuff like that. Very little SaaS is like that.
That can certainly be true, but don't most successful startups have some kind of viral, or networking, aspect, or get unexpected free press due to being the news itself, or piggybag on goodwill generated in other aspects of their business?
Why do people consider that "customer acquisition costs" are some kind of given, or are easy to estimate?
So when you invest your time into getting the word out -- is it fair to say, "that is a real cost"? It's a time-cost. It's an effort-cost. It impacts your business. But is it a number?
I realize that for some people this number is easy -- how much are we spending on Ad Words? -- but for other businesses the effort that you mention is very hard to dollarize. It's kind of weird that some people assume you can.
You start to think. You started working on this full time 9 weeks ago. You've spent maybe 45 hours per week on the project total. You spent between 15 to 40% of your time managing the press, blogging, replying to email inquiries. Honestly, it's hard to estimate. You have not given your credit card out or made any bank transfers, it's been only just you. You are now closing a round at a valuation of 1.7 million. You have 745 users. Scenario A: your last day job was as a florist, working for someone else and netting $9.50 per hour after taxes. Scenario B: in your day job you make $165k as a senior engineer.
Question: what are your customer acquisition costs? If it's relevant, answer separately under scenario A and B. (A and B may also be red herrings,- a trick, irrelevant information.) if you need additional information to perform the calculation, ask and I'll give it to you.
What is your calculated response? Justify your calculation.
Since then I've starting charging new customers and it's just about making enough to cover hosting costs. Thats all I planned to achieve, so in my eyes it's a success :D I've also sunk a good few hundred hours of work into it, so I'm nowhere near breaking even but heh.
However I now have customers paying me between $1 and $21 per month, and honestly it's not really worth the support headache - it was a lot less work when it was free. I could happily ignore users and forget about it, but it's a whole different level when you start charging people.
So can you make a business doing this? Yes, but figure out what you want to achieve from it first. If you plan to quit your day job and earn $X000/month from this, then it's probably not a good idea. If you just want to get some experience running a business and don't value your time, then go ahead.
I won't say "rock-bottom pricing" is the way to go unless existing solutions are exorbitant but I feel "pricing" is the easiest and safest differentiator. MessageBird doesn't need to create a complex go-to market strategy, they can simply say they are an affordable alternative to Twilio. Amplitude didn't have to pretend that they were better than Mixpanel, only cheaper, especially if you were utilising millions of events.
I also asked this question to a VC who suggested that it can definitely work, notably if it's in commodity markets. If I software is specialised I don't think it makes sense to sell it cheap. But if it's a well-established solution that everyone uses than I don't think there it's bad idea.
The comes along Borland with a compiler that fitted on a single floppy disk for $69, and it could compile code in the order of 100x faster than the nearest competitor. The rest is history.
But I think that the point people miss was that as well as being less than 1/10th of the price of incumbents, Turbo Pascal ALSO promised a hundred fold increase in performance. If they had brought out a bloated C compiler on a 19 disk installation pack that ran in the same time as the Microsoft C compiler that came on 20 disks, I don't think it would have been game on.
Plus, Borland also swamped all the popular magazines with brash, full page ads that were the antithesis of the staid developer tool ads of the day. As others have pointed out - there are many more things than price which are important.
If their product was that much better (it clearly was) there is no logical reason to not also price it 1000$ and it would have still sold almost the same. considering the 100x speed increase it probably have sold at 2000$ almost the same as a premium compiler.
Something else made Borland sell it that cheap, either competition was going to release the same boost or they were reaching a new larger segment entirely , i don't think it was about just being lower cost with extra features
Maybe not. In my case, I was just out of school in the 80's and would never be able to have afforded a $1000+ compiler. When Turbo Pascal came out at that price point, I jumped on it. It was my chance to do some 'real' programming at a budget friendly price. Even IBM's Macro Assembler at that time was several hundred dollars.
I would credit Borland and providing the launchpad for thousands and thousands of students, hobbyists and amateur enthusiasts to start their programming careers, who never would have otherwise. My first program I sold for $$$ was written in Turbo Pascal.
And in thinking about what I wrote above, I seriously believe that if it wasn't for Borland bringing out a $69 compiler all those years ago, I would be in a totally different profession today. It seriously was the catalyst for me becoming a programmer.
Another point I realised from this ad, was that Turbo Pascal was one of the first compilers to actually include the editor portion as well, as part of the total package, including the ability to compile directly from within the editor. A precursor to the modern day IDE, I guess.
In a lot of way, really innovative work from Anders Heljsberg and Borland - they really broke a lot of new ground with Turbo Pascal and like I said above, they really opened up programming for a lot of people who might have otherwise taken a different path due to cost.
[0] - https://community.embarcadero.com/files/2008/11/turbopascalv...
Is there a niche of customers that use the product you could target with a more unique offering? Find a way to provide more value to the niche. Yes, cheaper offers more value for the same product but there is more money in solving a valuable problem and charging more based on that value.
Competing on price alone is a really tough road to take in business. You end up with everyone losing margin and it is a race to bottom. Only really sophisticated operators can drive cost out of their business fast enough to stay ahead. If you don't want to be the next Walmart, don't compete on lower prices.
Price alone won't let you win, but perhaps it might if you are targeting a different market segment.
For my company, our competitors focus on large enterprises. We focus on the small and mid sized companies. Our pricing is lower, our product is simpler too.
Focusing on smaller companies also changes our customer acquisition strategy to be different than our competitors. That was the hardest part to figure out too!
- Lower pricing may sound like an entry point. But what ever will allow you to build a competing product, will allows others to compete with you. While we were building our Analytics product, we believed using Google BigQuery and other managed services, we could offer a cheaper analytics product, we would pass all the savings of a managed service to the customer. But then Google release FireBase analytics and made Data studio free, AWS released Pinpoint. While currently they might not have the traction of others, they will gain and pretty much make other's current business models un-viable
- There is no right answers as to why a company will move from one provider to another. I was always under the impression that "better customer service" will get people to move and more importantly stay. But the real fact is, if you have competition, there are going to be multiple reasons. The tendency of "hackers" to find the single "silver bullet" is harmful, in most cases the whole is more than the sum of its parts.
- Most folks who build a startup, don't event thing of branding. Having a known brand is very important in a world where the users almost always self select into SAAS products. I had written a little about it here: https://medium.com/@Ravivyas/abundance-sales-startups-99b42e...
- In most cases basing your startup on a single assumption or theory is a risky prospect. Just being cheaper is not enough, you need to have feature parity, comparable support and a brand.
- Most important point, you need to make money, for that you need to chase people willing to spend money, who are not looking to cut corners. Such customers won't stay long. As an extension, having 1-2 big clients on a customer page is more comforting for a prospect rather than seeing 10-20 who they can't relate too.
Additionally, I think you'll be amazed at the time it takes to build something, and the cost to run the infrastructure. The first time you lose someone's data, you're sunk. You're not going to put a SaaS app on a $5 droplet, even if you think that's easy.
So still the same narrative: you might succeed if you can pour several thousands of dollars into it before you make any money, you may have a chance. If you think all you need is a laptop, coffee, and hope, I'd say you may be in trouble.
As for competing on price. You'll quickly discover that if price is the only criteria which you win a deal that these tend to be your worst customers. They use the most of your resources, are least considerate when you screw up (and you will screw up) and don't expand sales necessarily well. When they realize that they can do something cheaper, they will be the first people out the door. That doesn't mean that customers aren't and shouldn't be price conscious. But, you really want to be winning sales based on perceived value, quality and strategic alignment. Your customers should place their loyalty in you by which you build new features in which they pay you more for. By doing so you inherently reduce churn, increase add-on sales, and turn your customers into your greatest marketing asset.
Certainly. Do you have the domain knowledge of why it's already been created? Do you know all the problems it's trying to solve? Do you know other problems it may solve?
That last part is important. Even if you clone an existing app, you may see other uses for it. Now develop that other functionality and you are better than your competitor.
As for rock bottom pricing. Well this will only get you so far. Need to hire support? Can the business now support itself? Nope? Oops, need to raise pricing now.
Also marketing, can the business pay for that and sustain it, to keep on getting new customers? Nope? Oops, now need to determine pricing to support marketing.
> Would I be able attract customers?
Anything can attract potential customers, converting them is another story. You may have rock bottom pricing, but that may actually turn a segment off. Will you still be there in 6 months? What's your stance on privacy? What will you do with my data?
A big thing, is why they should use you, compared to similar saas products.
If I may ask, what is the SaaS product you are looking to clone?
If you can offer something for free that "original" requires payment then that approach might work very well - at least as customer acquisition strategy.
That is reason why Trello and Slack are pretty much free. As far as I remember, Gmail did the same: they offered 1GB of free email. That was so much better then my Yahoo which asked me for 9.90 a month for 250MB. So I switched.
But then when you ask users to pay (to upgrade) then 1.99 vs 9.99 vs 19.99 really does not make a lot of difference.
And do not be fooled by "features matters", "support matters", etc. The customer acquisition is the most important part of any (small) business (including SaaS).
Making a SaaS app requires a lot of creative effort in design, scope, pricing, etc. By copying something that exists you can greatly reduce the cost of design by copying layouts and UX decisions, and focus on learning and coding.
In terms of making money, possibly, a little, but I wouldn't count on it for any substantial income and if you made zero dollars I would not be shocked. It is very difficult to say without knowing the product specifically. I am certain some markets are just begging for a rock bottom pricing clone.
On the other hand, if you go too low, you won't attract the same customers. You'll get a more miserly crowd that is comparing it to running something themselves on a cheap VPS. They won't be easy to deal with, and will come and go.
I get that being more specific is hard if you're trying to keep the idea to yourself. But, I suspect the answer is very specific to what SaaS you're considering competing against.
That said, there are some relatively big, fragmented markets for SaaS like email marketing in which there are at least 15+ companies with at least $10 mn /year in revenues, but most of them are not rock-bottom pricing.
#1 - As others have mentioned, competing on price will mean that you attract users for whom price is the most important thing. These users are often more fickle, retain at significantly poorer rates, and in my experience, they (counterintuitively) consume more support resources. They also have a substantially lower NPS, which also shines through when they write reviews. Those are some big negatives.
#2 - Pricing your product substantially lower than the pack means that you'll have a very hard time competing with other players in many paid acquisition channels, if you ever intend to. There are plenty of other ways to find customers, but you'll have to rely on channels & audiences with lower intent (as in, people who aren't directly seeking out and already motivated to find what you are selling.)
There are ways to succeed with low cost and free products, but it's a winding path that is far from as obvious as it may seem.
Doubt it! Not only SAAS in every product there is an open market for alternate product atleast for 'popular products'. Alternate products just clone 'problem statement' and build their own version of the product solution.
In case of popular product, well developed or well defined domain first few steps of solution is going to be same which is unavoidable ex: A car will have four tyres. But, you have all the freedom to change it to be an electric car and make it better. This is how all better products are being made.
Any solution need product market fit, persistence, best engineering, trust among customers, support, experience etc.,
Spend your time in thinking "How this could be done better?". Then you need not clone any product. Almost all forms of idea is been tried in this world. We should try with our own skill set and experience.
All the best!
And this involves a whole lot of thing. Not just pricing, positioning, cloning or copying.
Many of us who have learned the lesson of competing on pricing learn to do it differently the second time around.
Pricing is one of those things that's hard to understand as not to compete on if you're still new to understanding saas business models.
Until you've experienced some sort of success with a low priced saas, it's hard to see why everyone always say to price it more. Sort of like the matrix, nobody can tell you what it is. You have to see and experience it for yourself.
What about building a near clone that is perfectly suited for a use case that isn't particularly well met by the other product?
It's a race to the bottom and unprofitable users often demand the same level of attention and support as ones who pay more.
Also think about hidden costs. The other company might be priced as they are for a reason.
Is it a product where differentiating on price is something that would even matter to the user? The difference in price would be enough to choose you over the competition?
If you think you can knock out a cheap version with a few developers all of your potential customers are going to be thinking the same thing.
If you have other differentiating factors, that changes the equation but all things being equal, lower price isn't enough.
If you can do it at a fraction of the overhead, I'd say go for it as long as you have a way out if it all goes to hell and you have a good idea of the upfront effort level.
Developers in the USA have really high salaries because of the INS moat. If you can crack that equation, then you could do a lot.
BrowserStack vs. Others. Sheer number of people you can task to a single problem.
- The founder is not themselves a developer.
- The founder needs to hire more developers.
- The founder can't afford to live on a shoestring budget while building the product (and doesn't have another income stream).
This is where developer founders have an advantage.
I am US based and I know business and I am a principal level code / architect. I can build and launch a product in a month or less working on it at nights using just sweat equity and besides the time cost, all I need are to pay legal fees ($2000 to register the business, write terms of service, etc), a domain name ($10), and some servers ($100 max if I don't feel like optimizing for cost).
In fact I have... my side projects bring in more income to me than most developers make in a year and they cost me < $2000 to launch. No I won't say what they are on a throw away account because it will reveal who I am.
We look at actual value, trust, brand recognition, integrations, quality, longevity, and more, that go beyond a simple price list.
Funded Saas companies will have patents. Avoid triggering trouble by hiding how your service works and try not to copy the look and feel if possible.
do you pay extra for usb sticks, or do you buy 2 of whatever is cheapest unless something is extremely mission critical?
Yes. Whatever I may potentially lose (even if it's time walking back to my desk and taking time to fish out the 2nd stick) is more than my cost savings.
Is the market big enough to support multiple players? If it has a market size of 1 billion dollars then all you need to do is to get roughly 1% to be successful. If the market size is only 1 million dollars then you might be fighting over a small amount of money, and their isn't enough space for any one to grow into a successful business.
Does that other SaaS have one large client that make it possible to stay a float? I have seen a ton of small companies exist just because they have one giant fish making it worth it. I also seen companies crumble because that giant fish decide to leave. If that is the case you might not be able to copy the success the other SaaS has.
Is the SaaS your trying to copy already running at rock-bottom pricing? You might be surprise how much certain things actually cost. Whatever you think it might actually cost to run a copy cat service it is a safe bet to double that amount. Copying someone else idea might give you short cuts, but you don't know everything they learn along the way to get where they are now.
Could you make a better product then the current SaaS? The only way you are going to attract customers to your product is to do it better. Like some of the other comments say having the lowest price also means having some of the worse customers. Their have been post here before about SaaS companies raising their price till the customers that complain the most finally left. If you are at the rock bottom then be prepare for the bottom feeders.
Pricing is a tricky subject that is less logical and more human nature. A human will typically pay more if he feels like he is getting more value peer penny. A human will over spend if it fulfills some strange idea, as making him look important, makes him feel good about him self, or because it easies his mind knowing it is properly done. Here some links about increasing the cost actually benefited them.
http://kevinhoctor.blogspot.com/2013/03/the-future-of-softwa... http://www.startupproject.org/2011/06/price/ https://theadaptivemarketer.com/2012/01/14/a-pricing-lesson-... http://jacquesmattheij.com/Double+your+price+(and+no+Im+not+...
My advise build a better product or add more functionality, price it higher then the current SaaS, and make sure you listen to people but never let them control your hand.
Best of luck
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or just 14-day-trial and "contact us".
What's your stand on that? What makes more sense to launch a SaaS?