The following is a guest post by Steli Efti. Efti is the co-founder & CEO of Close.io, an inside sales CRM that allows users to make and receive calls with one click, automatically tracks all your emails, and minimizes manual data entry.
I’ve spoken with thousands of founders, salespeople, and developers over the years and I’ve started to notice a dangerous trend:
Inexperienced startups are afraid to charge their users for access to their product.
Why would so many wait until they have a fully-completed, full-featured product to attach a price tag? Unfortunately, most of those startups are in for a rude awakening.
The truth is, it’s never too soon to ask prospects to pay for your product. In fact, you should be charging for your product before it even exists.
Here’s why getting pre-orders is so important, and what you can do to start generating them today, no matter what stage your product is at.
Why startups should charge users early
When I ask early stage startups why they aren’t charging for their product, most of them say something like, “Well, right now we’re really focused on getting as much initial traction and growth as possible, you know?”
Okay, so you got yourself a few thousand freemium users and generated some initial traction. Congratulations. But here’s what those users are costing you, and let me tell you: It’s not worth it.
The cheaper your product, the more users you’ll have. Good news, right? Not necessarily.
The more users you have, the more feedback you’ll get. The problem is, a lot of that feedback is probably useless.
If you’re developing your product based on the feedback of users who would never pay for your product either way, you’re going to develop a bloated product ripe with feature creep.
You don’t want just any feedback; you want relevant, insightful feedback. That only comes from paying customers.
As we’ve said in the past, most startups struggle with pricing.
So, the more time you have to experiment with pricing, the sooner you can find your pricing sweet spot where:
10% of prospects think your product is cheap,
20% of prospects think your product is overpriced, and
70% of prospects think your product is expensive, but worth the price.
Use the development process as a pricing playground. If you think your product is worth $250, sell it for $500, just to see what happens. You might be surprised.
Positive cash flow
The eventual goal of any company is to have positive cash flow. And the sooner you charge, the sooner that happens.
A handful of paying users can be the difference between completing your product and abandoning it altogether. Likewise, a little revenue can go a long way in creating a strong, more complete product.
Even if your business is venture-backed, your investors are going to want to see that users are willing to pay for your product.
The only way to measure product/market fit is through sales. Until your users have actually started paying you money for your product, you haven’t proven there’s a demand for it. And without paying customers, you don’t have a business.
How to pitch a pre-order
So when is the right time to start charging your users? The answer is today. Even if your product isn’t ready yet.
Need proof? Just look at the massive success of Kickstarter. Millions of people across the world use that platform to invest in products they believe in, with no guarantee whether or not they’ll ever see a final product.
Remember Pebble, the smartwatch that took the internet by storm? Within an hour of posting their campaign on Kickstarter, they’d raised over $1M toward their $500,000 goal. And by the end of the month, users had contributed over $20M.
Pre-orders work, but you need to pitch them right; find a way to offer enough incentives to balance out the inconvenience of an incomplete product. For example, you could offer:
A massive discount (one-time or life-time),
A shortened timeline to product or feature completion, or
A 100% money-back guarantee, should anything go wrong
Here’s how you could combine all of these into a single pitch.
The pre-order sales pitch
After qualifying your prospect, say:
“Alright, I think we can both agree that our product is going to be the perfect solution for your business. As of right now, we’re about <projected timeline> away from completion, and that final product will be about <projected price>.
But that’s why I wanted to reach out to you. If you’d be willing to make a <price> deposit today, I can give you lifetime access for <discounted price>, and we’ll be able to speed the development up by <shortened timeline>.
Furthermore, we’ll be communicating directly with anyone who preorders, so your feedback will help shape the final product.
And just in case anything goes wrong, your deposit is 100% refundable. No risk, high reward. What do you say?”
It’s a proven pitch, but I’m going to be honest with you: The majority of prospects aren’t going to bite. And that’s okay. Generally speaking, you’d be better off with 100 paying customers than 5000 freemium users. But there’s a catch.
If you can’t close at least one out of every ten prospects, something’s wrong. Either your pitch needs improvement, you’re selling to the wrong customers, or there just isn’t a demand for your product.
Take things back to the drawing board and figure out what’s going wrong before you invest months of work and thousands of dollars in developing a product no one wants.
The biggest mistake new founders make
Even if you’re going to have a freemium option for your product, your eventual goal is to make money, right? At some point, you expect at least a portion of your users to pay for your product?
Then start charging today. If you don’t, you risk building a product nobody wants to buy. The biggest mistake new founders make is building, then selling. They’ve got it backwards.
Sell first, then build. It worked for us, and it’ll work for you (skip to 3:44 in the linked video to hear the story of how we charged money for a service that didn’t exist yet).
Here’s my challenge to you: If you’ve got a product in development, or even just an idea for a product, start selling immediately. Pick up the phone. Send an email. Visit a storefront. Whatever it looks like for you, get out there and sell.
Regardless of whether or not anyone buys your product, the insights you’ll gain will be invaluable. Then I want you to come back to the comments and share what you learned.
I look forward to hearing your story. Until then, get back out there and crush it!
Want more by Steli? Sign up for his free startup sales success course.