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How to Transition your Web Business from Free to Paid

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How to Transition your Web Business from Free to Paid

  1. 1. REVENUE MODEL: What is the best way to charge your customers?<br />Dave Schappell - @daveschappell<br />
  2. 2. Who am I?<br />Founder – TeachStreet<br />Angel-funded / VC-backed<br />Founded in ‘07 – Profitable in ‘11<br />ex-Amazon, JibJab<br />Former CPA<br />NEVER built a profitable business on my own (yet)<br />
  3. 3. Transform the Lifelong Learning Marketplace<br />49M College Grads / 77M Baby Boomers / 31M Retirees<br />>$30B/year spent by 54M in U.S. taking personal interest classes<br />$5B/year TAM (Marketing, Transaction Fees, Affiliate Sales)<br />
  4. 4. Why Should You Listen to Me?<br />You<br />I’ve<br /><ul><li>Want to start a (web) business
  5. 5. Don’t want to go bankrupt
  6. 6. Think customers will pay
  7. 7. Aren’t sure how they’ll pay
  8. 8. Not sure how to find out/test</li></ul>done that<br />almost done that<br />thought that too (& was wrong)<br />wasn’t positive either<br />
  9. 9. What Type of Business?<br />Direct<br />Indirect<br /><ul><li>E-commerce
  10. 10. Subscriptions
  11. 11. Virtual Goods</li></ul>Ads<br />Lead-Gen<br />Affiliates/CPA<br />
  12. 12. 5 Steps to Business Planning<br />Plan next 2-3 Years of your Biz<br />What HAS to come first?<br /> - Features, Assets, Office, Employees<br />* Make a Good/Great Product!<br /> * What’s your MVP (Minimum Viable Product)?<br />Remove unnecessary items<br />Create a timeline<br />Add 3-6 months to everything<br />
  13. 13.
  14. 14. Product / Market Fit<br />
  15. 15. 80% on Optimization<br />
  16. 16. Revenue When?<br />
  17. 17. Don’t Put Ads on your Site!<br />
  18. 18. Don’t Worry about Viral<br />
  19. 19. 5 Tips to TransitionfromFree to PAID<br />
  20. 20. 5 Tips to go Free to PAID<br />Give plenty of notice & (real) chance for feedback<br />Price it ‘fairly’ (probably still at a deep discount)<br />Offer customers a way to get product for free<br />Provide Grandfather’d Pricing<br />Make transition gradual<br />people should only pay if you’re delivering value<br />
  21. 21. 5 Tips to go Free to PAID<br />Give plenty of notice & (real) chance for feedback<br />As expected, many angry (that’s life…)<br />Some were HAPPY about fees:<br />to reduce clutter/listings from non-serious teachers<br />we’d be around over long-term<br />we’d have money to pay for advertising (more students)<br />Learned we weren’t sharing metrics with them<br />Fixed this, with better reporting<br />Feature request  enable EARNING ‘free’ listings (#3)<br />
  22. 22.
  23. 23. 5 Tips to go Free to PAID<br />2. Price it ‘fairly’ (probably still at a deep discount)<br />$3 = Starbucks Latte!<br />Lasts 30 days, or 10 leads ($0.30 per lead)<br />$3 still expensive vs. Free (Craigslist, WOM)<br />More than just an Ad:<br />SEO benefits<br />Marketing tools (Craigslist Ads, Flyers)<br />Payments<br />
  24. 24. 5 Tips to go Free to PAID<br />3. Offer customers a way to get product for free<br />Virtual Currency – Write Articles / Answer Questions<br />Launched with 5=Free Listing<br />Reduced f/5 to 3 & Doubled Content Creation (Iterating!)<br />Win-Win<br />Great Content is Good for SEO (Traffic)<br />Content helps to merchandise the Teacher (Leads)<br />Lost $3 is minor in the short- to medium-term<br />
  25. 25. 5 Tips to go Free to PAID<br />4. Provide Grandfather’d Pricing<br />Offered 6 month ‘Pro’ pricing for $10 (vs. $30)<br />GOOD - SEOMoz locks Annual Fees of $299 vs. $799<br />BAD – Airlines changing rules for Miles (20k vs. 40k)<br />
  26. 26.
  27. 27. 5 Tips to go Free to PAID<br />5. Make transition gradual<br />people should only pay if you’re delivering value<br />CRITICAL DECISION FOR US!<br />Only force listing payment if Lead Delivered in last 30 days<br />Maintained our Class Listing Inventory (SEO benefits)<br />Triggered a Payment Decision only with Value (Conversion)<br />
  28. 28. So, How’s TeachStreet?<br />Launched ‘All Paid’ in late April 2010<br />Pro/Sub Revenue up 56%<br />Listing Fee Rev is now 75% of Pro/Sub Rev<br />And, it’s 2x’d since May 2010<br />Operational Revenue up >100%<br />Leads to Teachers up 88%<br />
  29. 29. Timeline to Semi-Success<br />Jun ‘07 - founded company; raised Angel $<br />Apr ’08 - ~25k classes & teachers in Seattle – teachers could add unlimited classes; students could contact teachers. Limited functionality. Let us demonstrate value & learn (100% free)<br />Apr ’09 - +7 cities; expanded tools (phone tracking, teacher metrics) (100% free)<br />Jul ‘09 - Student-to-Teacher payments. 15 months to launch?!? Believed needed to demonstrate value-add. Students paid small booking fee (to cover costs); Teachers paid commission (still free to add listings)<br />Sep ‘09 - Pro teacher $29.99/month; extra promo, marketing tools, free payments. (still 100% free to add listings; revenues are building from services)<br /> Apr ‘10 - optimize/weblab – addt’l lead-tracking – believed we’d never earn biz if didn’t deliver value (more, new students) to teachers (still free to add listings)<br />Apr 7, 2010 - “pre-announce” introduction of fees for all new class listings<br />April 27, 2010 - “turned on” listing fees (100% new listings paid; All rev-enabled)<br />May 12, 2010 - last day of $10/month “Pro”-motion (100% new listings paid)<br />At present - Traffic’s growing, Revenue's ramped sharply, and we’re 100% sure that we’re going to have to keep pivoting. Because that’s what startups do.<br />
  30. 30. Rules We Break<br />Both Direct & Indirect<br />Subscriptions & Listing Fees<br />Lead-Gen, Affiliates & Ads<br />We have Ads<br />Not for long?<br />We don’t Weblab/test enough<br />Too few resources / too many ideas <br />Still are attracted to shiny objects<br />
  31. 31. Resources<br />Andrew Chen – www.andrewchenblog.com<br />Dave McClure – 500hats.typepad.com<br />Alyssa Royse – Seattle 2.0 Post(s)<br />My TechCrunch Post on ‘Free to Paid’ http://techcrunch.com/2010/06/13/free-to-paid-tips/<br />Hops & Chops Startup Happy Hour (Thursdays)<br />www.hopsandchops.com<br />

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