School Notes

CSC454 Lecture 5

Pricing Your Products

Depending on the channel you're pursuing, your pricing model will vary.

  1. If there are products like yours, how much do customers spend for them today?

  2. If users need a product like yours, how much do they pay in aggregate to do the same tasks today?

You need to be careful not to tell partners the truth about your numbers, or they will screw you over by stealing your pricing model. You also need to be careful not to say "I have better value, and I can sell it cheaper". Can really screw you over -- you should aim to adjust your price based on the amount of additional value you're adding.

Managing Channels

  1. You need to figure out the sales model before telling it to your partners. Make the first few sales directly yourself to figure out the market.

  2. Channel sales take a long time to get off the ground, due to differing priorities between you and your partner. Have to stay on top of them.

  3. You need to create demand for your product, not your resellers.

  4. The more time you invest in educating them, the better they'll be able to resell your product.

  5. Ensure that there is a channel that sells similar products to a similar buyer as yours. Creating your own channel is a huge pain and drain of resources.

Customer Lifetime Value

A prediction of the entire value a business will derive from their entire relationship with a customer. Need to make sure that the cost of the company is less than this value by a significant margin, or you're sunk.

You have to watch out for Customer Acquisition Costs as well, where you need to spend money just to bring customers in. You can reduce CACs through your product design, improving your conversion rate, and managing the amount of money spend marketing.

For a SAAS, aim for about 3 x CAC for the LTV. Public companies have multiples that are more similar to 5 x CAC. Need to recover the CAC in < 12 months for a subscription-based service.

Improving LTV

  1. Use email to answer common questions, create new innovation, upsell, and provide customer education

  2. View every customer interaction as opportunity to improve customer loyalty

  3. Find ways to build habits around your product.

  4. Make customer service easy. Say yes more than no.

  5. Incorporate customer feedback to improve everything from user experience to product features and design.

Legal Considerations With Startups

When incorporating, you have to weigh several advantages against several disadvantages.