Dharmesh Shah is CTO and founder of HubSpot, as well as a long standing Business of Software supporter.
The purpose of your business is to create delighted customers
A good way of measuring how delighted customers are is the Customer Happines Index (CHI). It measures how successful customers are at using your software and can predict the churn. It is important to measure the success of using your software as only then customers are extracting value from your product and are more likely to come back.
Types of churn:
1. Customer – number of money paying customers canceling
2. Revenue – the swing in revenue as a result of canceling customers
3. Discretionary – customers who cancel who have the option to cancel (as opposed to those who are locked in for fixed periods of time)
4. Involuntary – customers canceling as a result of something that neither the customer nor your business has control over
Pricing and “cheapium”
Pricing is hard. It’s very, very hard. And more importantly, the price always looks greener in your neighbours company.
One way to reduce churn from freemium subscribers is to adopt a ‘cheapium’ model. After all, it costs money to support a freemium customer with no promise that they will actually pay in the future. With cheapium you can price at the marginal cost of adding a new user to the user base. They are already better customers as they are prepared to pay a nominal fee to use your product.
Don’t screw your existing customers during the upsell or in the pursuit of new customers. Be transparent with your pricing and communicate the value of your product. Customers will appreciate your honesty and are more likely to stay. Assume your customers are connected and united.
If your sales channel is based online, you may need to involve humans in the sales process when
– the product you’re selling is complex and may need some explaining
– the market is new
– the price is somewhat high and needs further justifying
Strategy and MBAs
Strategy is just code for ‘we don’t have the data, but it sort of seems like a good idea’. But the devil is in the detail…
When valuing companies we generally add $250,000 for every great engineer or technician and then subtract $250,000 for every MBA on the team. However, MBAs aren’t intrinsically toxic to your business – they bring value as ‘business geeks’. Or you can look at it as a charity case – every MBA you employ you save from a life in investment banking.