A transaction makes a customer Jason 08 Sep 2006

27 comments Latest by soxiam

How does someone become your customer? They buy something from you. Until there’s a transaction they’re just a user. The transaction transforms them into your customer.

This is an important distinction.

Dale Carnegie’s famous How to Win Friends and Influence People has a similar take on making a friend. Carnegie suggests that if you want to make someone your friend, then you should ask them to do something for you. It sounds counter-intuitive, but the fog is lifted when you think about it: When someone does something for you they are vested in your success. They want to see you succeed because they have a chip in the game.

Since we all have limited chips, we all can play limited games. The games you invest chips in are the ones you really pay attention to.

It’s similar with turning a user into a customer. When someone pays for your product, they’re investing in your product. They have a chip in the game. They want to see you win so they can feel good about their investment. When you win, they win. Your goals are aligned. You now have a shot at their loyalty. They want you to stay in business so they can use they product they love. Now your relationship can involve mutual, long-term, sustainable benefits.

People who use your product for free aren’t vested in quite they same way. Yes, they’ve invested their time using your product but people invest time in lots of things. Putting your money down is a step up. Until they invest money, they’re just someone who may care about you. They’re a potential, not an actual.

Now, this doesn’t mean you need to treat users of your free products as second class citizens. We would never recommend that. I’d say nearly 80% of our business comes from people who start on free plans and then upgrade to paying plans. The bigger your free userbase, the more likely you are to get people to throw their chips in.

It may not be a significant investment from each customer but when you have thousands of customers making tiny investments they add up. All the sudden you have a big diverse team rooting for you. You’ve got home field advantage. And that really is an advantage.

There are lots of web companies flailing right now. They’re giving everything away today in hopes that tomorrow they won’t have to. When does tomorrow come? Often too late. You’re better off starting to convert users into customers today. It’s a fun, satisfying, and rewarding challenge. Plus, it makes it a lot more likely you’ll still be around next year.

Bottom line: Don’t be afraid to charge for your product. People are excited to pay for things they find valuable — just go down to the mall and look at all the shopping bags. Those are people paying for things they like. That’s what drives the economy. Plus, people value things they buy more than things they get for free. So, let people become your customers by selling them something. It’s the start of a great relationship.

27 comments so far (Jump to latest)

Michael Chui 08 Sep 06

That sounds like something that could be turned into a content pyramid.

Non-users at the bottom. Free users next. Then, Paying users. Then, evangelists. Then, depending on the scheme, contributors and developers, though I’m not sure they belong on the same pyramid.

Alex Mingoia 08 Sep 06

Try and tell Microsoft that!

Mike McDerment 08 Sep 06

Word.

As you mentioned, it all starts with adding value. IF you don’t do enough of that, you don’t get to that next “paying” step…or at least not often enough.

Paul 08 Sep 06

Things like this sound a little strange to cheap guys like me. The only non-free software on my system is TextMate. I don’t use any non-free web apps, and if there’s a web app out there that I want to use and have to pay for, I’ll write my own rather than pay.

Of course, I’d never call myself ‘the norm.’

Anonymous Coward 08 Sep 06

if thereís a web app out there that I want to use and have to pay for, Iíll write my own rather than pay.

Your time must be worth nothing to you.

Paul 08 Sep 06

Your time must be worth nothing to you.

My time’s worth a lot, but the experience I get in writing an app is worth more, so I profit.

pwb 08 Sep 06

“if thereís a web app out there that I want to use and have to pay for, Iíll write my own rather than pay”

Not a very good proxy for the average consumer.

Textworker 08 Sep 06

ďif thereís a web app out there that I want to use and have to pay for, Iíll write my own rather than payĒ

Similar situation here!

TextWorker is not the only paid-for software on my computer - but it is the only software I do not regret paying for.

BTW: My situation was: There was not a single writing and text-editing software on the web that satisfied my needs. (I am talking about complex, multi-dimensional texts here.) So, thanks to RoR, I wrote my own. I am writing papers for university on it, and I never before was so thrilled by something that I have done!

(My only problem right now: Students at University who see my software want to use it. BUT: It is webbased and I don’t have quite the skills/time to make it so secure that I would dare to “put it out in the wild”.)

Paul 08 Sep 06

So, thanks to RoR, I wrote my own.

I wouldn’t even attempt writing my own apps on the spur of the moment like that if it weren’t for RoR.

Clark Wilkins 08 Sep 06

Jason, I think you’re right on track. It’s seems to me that too many SAAS companies are taking the approach of tiered service with the first tier being free. I can see offering a trial period or a demo to show what your application will do, but if you don’t value it, why should the user?

The approach we’re going to take is: we’ll set you up for free simplly because we want to remove the drudgery work involved in the set up. We’ll help you get up and running. But then, after you’re running and hopefully see the value in what our code does, we plan to be paid for it. We think it’s worth it and hope you do too.

It seems 37signals has the idea your work is worth something too. I applaud you for this.

David Maister 08 Sep 06

Jason’s analysis (and Dale Carnegie’s) is right on.

Another great book that gives guidance to all this is Robert Cialdini’s “Influence” (it’s one of the few business books that’s a fun read.) It points out that much of human affairs are built on the principle of ‘reciprocity, ’ and how you go about slowly building a pattern of (and the sense of) small reciprocal obligations.

I tried to make my own contribution to this insight with an article called “Develop the Habits of Friendship” ( davidmaister.com/articles)

The problem is, like the shoemaker’s child I haven’t been applying my own advice, and everything on my site is now free. Should I start charging a fee? What does evreybody think about starting to charge for what was previously available freely. Is that OK?

Jason 09 Sep 06

It gets better. In the case of proving beta software via the web companies are providing a free product to the customer base AND getting them to test it as well. People who test the software and like it have a high propencity to purchase it.

Jason 09 Sep 06

It gets better. In the case of providing beta software via the web companies are providing a free product to the customer base AND getting them to test it as well. People who test the software and like it have a high propencity to purchase it.

Eoghan McCabe 09 Sep 06

Does Dale Carnegie say that? I thought his bottom line when it comes to making someone like you is to be genuinely interested in them. I don’t remember reading anywhere you need to “ask them to do something for you”. But maybe I missed it.

Hone Watson 10 Sep 06

I think if you’re building a proper relationship with someone you need to have more than one sale for them to be a real customer.

Nick Francis 10 Sep 06

Fantastic thoughts, big fan of “How to Win Friends … ” a must-read for any Entrepreneur. Thanks!

Alex Bunardzic 10 Sep 06

Jason,

If you thought even for a minute that charging for Ruby on Rails would make me value it more than I value it now, let me tell you — you’re dead wrong!

It’s a height of bullshit to claim that people don’t know how to value free stuff.

JF 10 Sep 06

Itís a height of bullshit to claim that people donít know how to value free stuff.

I didn’t claim that.

Alex Bunardzic 12 Sep 06

JF wrote:

>I didnít claim that.

I’ve probably misunderstood you, or read too much between the lines, or took things out of context. In any event, here is what you wrote in the original post:

“Plus, people value things they buy more than things they get for free.”

I think that’s bullshit. As an example (one among many, many examples that I can think of, but the one that’s close to your home), I’ve got Rails for free and yet I value it much more than I value Microsoft CRM, which I’ve got for umpteen thousand dollars.

Alex

JF 13 Sep 06

Plus, people value things they buy more than things they get for free. “I think thatís bullshit.”

I think it’s spot on *most of the time with most things*. There are exceptions to every rule, of course.

I guess we’ll disagree, but I’m not calling your opinion “the height of bullshit” or “dead wrong” so lighten up, man. We’re just having a discussion here. Why are you picking a fight?

Bill Tait 14 Sep 06

Converting users (free) to customers (paying) is a fantastic event for any company. Tthe master plan is working when this happens!

A free level of service can help to fuel these conversions, and has other benefits.

It creates goodwill.

It gives users the chance to interact with and benefit from our services at no charge.

It gives us the right to communicate with these users about other complimentary services.

It also provides us with lots of user feedback!


Alex Bunardzic 17 Sep 06

JF wrote:

Why are you picking a fight?

If I am curt, then I apologize.

I’m sorry if it came across as me trying to pick a fight. Just that I see plenty of confused people right now, who are trying to learn from you, and if you start telling them contradictory stuff, they’re gonna get even more confused.

soxiam 21 Sep 06

A very nice write-up. When paid membership is only treated as a customer retention/lock-in device, often the exact opposite will happen. Paid membership mean responsibilities and duties to listen and to respond. The only trouble with paid service subscription model as you pointed out is getting the ball rolling. Here, the concept of first-to-market, snowballing, and treshold still applies. People will only shop around only when they start to perceive that they can do better elsewhere.

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