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April 3 - May 28, 2022
Premature scaling, such as firing up the paid engine before you’re sticky, can exacerbate issues with product quality, cash flow, and user satisfaction. It kills you just as you’re getting started.
As we saw in Chapter 5, Sean’s Startup Growth Pyramid illustrates that scaling your business comes only after you’ve found product/market fit and your unfair advantage. In other words: stickiness comes before virality, and virality comes before scale.
Neil Davidson, joint CEO at Red Gate Software Ltd and author of Don’t Just Roll the Dice (Red Gate Books), says, “One of the biggest misconceptions around pricing is that what you charge for your product or service is directly related to how much it costs you to build or run it. That’s not the case. Price is related to what your customers are prepared to pay.”
Price is an important tool for getting your customers to do what you want, and it should always be compared not only to cost of sales, but also to cost of goods sold and marginal cost.
In a study of 133 companies, Patrick Campbell found that most respondents compared themselves to the competition when setting pricing, as shown in Figure 21-2. Some simply guessed, or based their price on the cost plus a profit margin. Only 21% of respondents said they used customer development.
shooting from the hip.
There’s no clear rule on what to charge. But whatever your choice of pricing models, testing is key.
but a good rule of thumb is that your acquisition cost should be less than a third of the total value a customer brings you over her lifetime.
“In my experience, churn has the biggest impact on CLV, and unfortunately, churn is a lagging indicator,” says Zach Nies. He suggests offering only month-to-month subscription plans initially in order to get a better picture of true churn early on.
A sustained viral coefficient of greater than 1 is an extremely strong indicator of growth, and suggests that you should be focusing on stickiness so you can retain those new users as you add them.
In 2012, the Baymard Institute looked at 15 different studies of abandonment and concluded that an abandonment rate of roughly 66% is average, as shown in Figure 22-1.[100]
Shopping cart abandonment
Sixty-five percent of people who start down your purchase funnel will abandon their purchase before paying for it.
Shopping cart abandonment industry baseline.
Don’t just think “mobile first.” Think “search first,” and invest in instrumenting search metrics on your website and within your product to see what users are looking for and what they’re not able to find.
It has found that asking for a credit card during signup means 0.5% to 2% of visitors sign up for a trial, while not asking for a credit card means 5% to 10% of visitors will enroll.
A 2009 Pacific Crest study found that best-in-class SaaS companies manage to get their annual churn rates below 15%.[102]
Totango’s data shows that for most SaaS providers, 20% of visitors are serious evaluators, 20% are casual evaluators, and 60% are simply curious.
Of course, if word gets out that you’re incentivizing disgruntled users to stick around, then many customers may threaten to leave just to receive the discount, and getting the word out is what the Internet is for.
Try to get down to 5% churn a month before looking at other things to optimize. If churn is higher than that, chances are you’re not sticky enough. If you can get churn to around 2%, you’re doing exceptionally well.
Alexandre Pelletier-Normand, co-founder of Execution Labs, a game development accelerator, says, “If you want your app to be easily downloadable by anyone anywhere, it has to be under 50 megabytes, ‘on the portal’.”
He says, “Some developers will work around the limitation by having a small app on the Google or Apple portals, and this app will then download additional content ‘transparently’ from the developer’s servers while you play.”
An app that is greater than 50 MB requires Wifi connection to download from ios app store. Android playstore allows download by showing a warning message for app's above 50 MB.
Keep your initial downloads small, and aim for less than 50 MB to minimize download churn.
Pay around $0.50 for a paid (mercenary) install, and around $2.50 for a legitimate, organic one, but make sure that your overall acquisition cost is less than $0.75 per user (and, of course, less than the lifetime value of a user).
Mobile app
DeNA[114] and A Thinking Ape[115] have both claimed that for most mobile games, expected ARPDAU is less than $0.10. However, YuChiang Cheng [CEO] of WGT said at Login Conference 2012 that an ARPDAU of less than $0.05 is a sign of poor performance, and that a good benchmark for ARPDAU is $0.12–015. Cheng also said that ARPDAUs on tablets are 15–25% higher than on smartphones.
A good metric here is highly dependent on the type of game, but aim for an ARPDAU above $0.05 as a minimum.
Nicholas Lovell of GAMESBrief.com splits paying users into three categories: minnows, dolphins, and whales: Real whales can spend an enormous amount of money. Social Gold reckons the highest group of spenders has a lifetime value of over $1,000, with some spending over $20,000 on a single game.[116] Flurry, meanwhile, says that on iOS and Android in the US, the average transaction value for an in-app purchase is $14, and 51% of revenue is generated from in-app purchase transactions of over $20.[117]
Expect less than 1.5% review rate for paid apps, and significantly less than 1% for free apps.
Global search marketing agency Covario reported in 2010 that the average click-through rate for paid search, worldwide, was 2% (see Table 25-2
Amazon and other general-purpose retailers also reward affiliate partners more handsomely than some more narrowly focused companies, because an affiliate referrer gets a percentage of the entire shopping cart. So if an author sends a visitor to Amazon to buy a book, and that buyer also purchases groceries, the author gets a percentage of the buyer’s grocery purchase as well. This encourages affiliate advertisers to give Amazon’s ads more prominence, since they’re more lucrative.
Recall that blank ads showed a click-through rate of 0.08% in the Advertising Research Foundation’s tests, so if you’re seeing a click-through rate below that, you’re definitely doing something wrong.
Media sites should aim for 90 seconds or more of engaged time on their content pages. Don’t expect (or aim for) a high engaged time on landing pages, though; you want people to find the content they want quickly and dig in further.
Bottom Line You’ll have a very good indicator of stickiness when site visitors are spending 17 minutes a day on your site.
Social networks and UGC websites
This is a great example of what Marc Andreesen says: “In a great market — a market with lots of real potential customers — the market pulls product out of the startup.”[
The phrase ‘actions speak louder than words’ applies just as much to business as anything else. Your users’ actions should drive your business.”
Leading web usability consultant Jakob Nielsen once observed that in an online population, 90% of people lurk, 9% contribute intermittently, and 1% are heavy contributors.[
By our estimates, expect 25% of your visitors to lurk, 60–70% of your visitors to do things that are easy and central to the purpose of your product or service, and 5–15% of your users to engage and create content for you. Among those engaged users, expect 80% of your content to come from a small, hyperactive group of users, and expect 2.5% of users to interact casually with content and less than 1% to put some effort into interaction.
Remember the business model flipbook: just because you’re a UGC business doesn’t mean your revenue must come from ads. Wikipedia and reddit both generate revenue from their community, and it helps them stay true to their culture and retain their users.
whimsical
egg issues that two-sided markets face through serendipity. “Initially our buyers and sellers were the same people. We made this explicit in the beginning by encouraging the sale of both crafts and craft supplies,” says Kellan. “Etsy was deeply embedded in a community of makers who supported each other, and initially we were helping them find one another.”
Unlike a traditional e-commerce company, you don’t have a lot of control over inventory and listings. But what you do have is insight into what is selling well, so you can go and get more like it. If you find that a particular product category, geographic region, house size, or color is selling well, you can encourage those sellers — and find more like them.
Marketplace
asymptote.
In other words, the rate at which your efforts are producing diminishing results can suggest a baseline, and tell you it’s time to move to a different metric that matters.
He who rejects change is the architect of decay. The only human institution which rejects progress is the cemetery. — Harold Wilson
Organizations are averse to change, and love the status quo. If you’re trying to sell to them, and your product is still in the early stages of the technology adoption cycle, you’re penalized simply for being new. Consumers love novelty; businesses just call it risk.
a universal lesson that I keep sharing with all entrepreneurs building for the enterprise is the Zero Overhead Principle: no feature may add training costs to the user.[
In the B2C world, startups worry less about “Can I build it?” and more about “Will anyone care?” In the enterprise market, the risk is more, “Will it integrate?” Integration with existing tools, processes, and environments is the most likely source of problems, and you’ll wind up customizing for clients — which undermines the standardization you fought so hard to achieve earlier.
Zach estimates that it can be as long as 5 to 10 years before a company selling into the enterprise has established and validated channels, and mastered its sales processes.
monogamous
As World War II exploded across Europe, the United States realized it needed a way to counteract German advances in aviation — specifically, jet aircraft. The US military asked Lockheed Martin (then the Lockheed Aircraft Corporation) to build a jet fighter. Desperate times called for desperate measures: in a month, the engineering team had a proposal. Less than six months later, working in a closely guarded circus tent, they built the first plane.[151] This group became known as the Skunk Works,
kryptonite.
