In the third webinar of our collaborative webinar series with Lighter Capital, we examined the ways you can build SaaS products that scale. Once you’ve brought your product to market and begin to understand your audience, how do you make money? Dustin Bruzenak, Chip Pedersen, and Jim Moar share their expertise.
Borrow Strategies from the Gaming Industry
From freemium to subscription, the gaming industry has long been a pioneer of monetization. By observing trends in gaming apps, you can learn important lessons about creating sticky apps that actually generate profit.
Chip Pedersen, who spent decades in the game industry, tells us: “We’ve borrowed the terminology of minnows, dolphins, and whales. You need an ecosystem of all types of users. Whales are brand loyal, tell people all about you, and give you more money, but you can make plenty of money from minnows and dolphins playing for free and watching advertisements. Create multiple tiers for participation that would allow people to self-select as minnows, dolphins, or whales.”
Give Them the Game They Prefer to Play
Analytics will help you identify the way customers really interact with your product, even if it isn’t what you expected. Chip shares, “We’ve had experiences where we thought one game would be ad-based, and the other would be coin-based. Analytics told us exactly the opposite. We just rolled with it. Give the people what they want! If someone wants to play a certain way, change the strategy. We pivoted with both games and gave the customer what they wanted. That was a matter of understanding what you go in with, reading the analytics, and adjusting to the analytics. That only took a week, and we started making money immediately.”
Don’t Leave Money on the Table
Chip tells us, “In my experience, we had people spending 1,000 dollars a month on a bowling game! On a tank game, some people spent 10,000 a month. Don’t create an artificial ceiling for how much they can spend.”
This principle applies outside of games, too.
Dustin advises: “Don’t leave money on the table. We once had a subscription based SaaS service that was B2B. It cost a set dollar fee of 20-50 dollars a month. Then we figured, if Disney and NewsCorp are our clients, why do they pay the same amount as the two-person shop down the road? We charged literally 20x more for their version, and increased our revenue nearly 20 times in four hours. Sometimes it’s a matter of charging the people who can pay you more for the value they’re receiving. Don’t be shy in asking and understanding the value people get from your product and ask to be compensated accordingly.”
Jim adds, “Being in a market where you’re a need-to-have, rather than a want-to-have, gives you price flexibility. While entrepreneurs are sometimes hesitant to do this, testing price is actually a smart thing to do. It’s easier to make more money from an existing customer than to try to get more money from a new customer.”
Bet Your Chips on Marketing, Not Features
If your existing customer isn’t paying, how do you get profit out of that equation?
Dustin shares, “I often see people adding more features to their product to justify asking the customer to pay more, without asking whether the customer just would pay more. Features don’t necessarily create business value. It’s so common, because product-oriented people sit around and think about how to improve the product rather than how to improve the business.
Often, it’s sales and marketing that really will improve your business. Building more features is the single most expensive way to try and increase revenue, and it often fails. Keep your product focused and only build big ticket features if they remove roadblocks to purchasing, allow you to enter a new market, or bring your existing customer’s value that they will pay more for. In the early stages, be judicious about where you’re putting your poker chips, and invest the savings in sales and marketing.”
Kill Your Darlings – The King of Bucks Story
Chip shared a painful story to drive home the idea that marketing truly is key to making money.
He says. “We worked on King of Bucks, a deer hunting simulation game. We made it for a year, and it worked beautifully on a phone and tablet. We had millions of users! We had so many initial hits on our website that we were picking out our Ferrari colors. We were sure we’d done it.
“Our next strategy was to create more content, like creating new landscapes shifting with the seasons, or new animals to hunt like elk. We went back to our client, and they said they wouldn’t do another marketing campaign for the new content. So, we just dug a hole deeper and deeper, and the strategy didn’t work at all. We spent half a million dollars on two content packs that never regained the money! Sometimes you have to ‘kill your darlings’, hard as it may be.”
Know When to Fold ‘Em
Chip’s story shows the pitfalls of not knowing when to admit defeat. Sometimes, that’s the best strategy.
Dustin says, “You might think your stakeholders will be let down or disappointed by bad news. I’d say worry less about that, and more about driving everyone off the edge of a cliff. There’s a well known startup founder here in town whose first startup was an abject failure. He took tens of millions of dollars in funding, and it failed. After he returned the remaining money, he was surprised when they invested again. Investors expected loss in their portfolio, and respected the fact that he decided to give the money back instead of spending it until the lights went off. By being forthcoming about his failure, he strengthened those relationships, allowing him to succeed in his next endeavor.
“Bring your board and investors into the conversation, but know that people are more lenient about failure than you expect. Failure isn’t failure, it’s a step on the road to success.”
Stay tuned for the final part of our panel recap!