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Why We Built Our Own Internal CRM System Instead Of Buying One

On April 7, 2010, in Start ups, Stuff we've learned, by Caelen King

We provide the health clinics who are our customers with an enquiry management system in order to help them get the best from their patient enquiries, i.e. their customers. We are no different in that we also need a system to manage our customers.

Like a lot of new small companies we were familiar with different CRM solutions, but not enough to know which one would suit us best. We tried an expensive one, a cheap one, and in the end we built our own. Here’s our story.

What Did We Need From A CRM System?

The core functionality that we required included:

  • Keeping track of tasks
  • Keeping track of leads
  • Making notes
  • Managing a pipeline

Salesforce

We decided to implement Salesforce pretty early in the company’s life. Of all of the mainstream CRM systems out at the time it was the obvious, albeit expensive choice.

One of the common aspects of a traditional CRM system is that it attempts to model a typical sales process, i.e. Contacts, Leads & Opportunities. From a young company’s perspective this can seem very attractive as it gives your sales process some shape where perhaps there was none before, as was the case with our own. This idea of structuring your sales process is seductive and it gives the illusion of control.

The problem is that the structure acts as a natural restraint to change. As you move your company forward, you often need to make rapid fire decisions and changes to your initial assumptions. However the structured sales process resists these changes. This is not a good thing. In my opinion traditional CRM systems are best suited to mature companies that have very specific requirements which are very unlikely to change.

The downsides of Salesforce in our experience were:

  • It is very expensive
  • Its feature set is strongly geared towards licensing
  • It can be very slow
  • It is extremely complex. It can take days to become competent with certain aspects of the software.

Integration Issues

For us one of the major problems we had with Salesforce was the nature of our own business. RevaHealth.com is a directory of health clinics and our live database contains all of the relevant information about each of our customers. Salesforce became a new database that had to replicate a lot of the same information.

We worked very hard to push all the changes made in the Revahealth.com database out to Salesforce as they happened in an attempt to keep the two synchronised. Needless to say this resulted in numerous problems including:

  • Changes made to Salesforce were not pushed to Revahealth.com. This was not an immediate problem but over time the problem grew.
  • Salesforce couldn’t hope to deal with the scope and flux of the specific information that Revahealth.com handled and this lead to account managers being forced to work with two systems – Salesforce & RevaHealth.com.
  • As with all interconnected systems, service failures happen and the effort required to monitor and to fix these failures was greater than expected.
  • Once every couple of months we would decide to push the entire RevaHealth.com database into Salesforce to refresh it and every time we ran into licensing issues.

Eventually the SalesForce database and the RevaHealth.com database diverged to such an extent that the sales team no longer trusted it. And that was the end of it. After a year of effort and about 6 man months of integration, maintenance and support we reverted to pens, notepads and Excel.

This wasn’t as bad as it sounds. Even though we had tens of thousands of free accounts to work with we only had around 200 paying customers. In retrospect it is easy for us to say that there is no way we should have even been looking at a full scale CRM system with that number of paying customers.

Highrise

Towards the middle of 2009 one of our sales staff, Owen Cooney, started looking at other systems and experimented with Highrise from 37 Signals. This made a lot of sense to us as we were already using their Basecamp product for our project management. After a month of evaluation we officially adopted it and were very happy that it answered a lot of the shortcomings of SalesForce:

  • It was quick.
  • It was simple, although excessively so.
  • It did not have the licensing issues of Salesforce.

Having learnt from our previous mistakes about database synchronisation we decided that the Highrise system would only be used for new customers and not for account management. This meant that we avoided any integration issues. It worked for a while and was especially effective at task management. However its inability to deal with existing customers and any form of pipeline management meant that our sales team consistently had to use three different web applications:

  • Highrise for new customers
  • The RevaHealth.com account administration tool for existing customers
  • A home-grown pipeline management tool

Of these the single biggest issue for us was pipeline management. As the number of deals that we were creating increased we found that an inordinate amount of management time had to be spent at the end of every month reconciling the sales recorded in Highrise, those in the pipeline tool and the actual invoices generated by the RevaHealth.com administration tool. Invariably there would be substantial discrepancies. This meant that we couldn’t trust either Highrise or the pipeline tool for management purposes.

So What Did We Do?

In the end there was only one answer that made any sense. We built our own CRM system. From the mistakes of the past we now had a very clear set of requirements, and we avoided any sort of replication, duplication, integration and reconciliation issues by building it on top of our existing database.

It took us about 3 man weeks using one of our developers to get it up and running. We’re not the best designers (graphically speaking) in the world but it didn’t need to be pretty as it was only going to be used by our own sales staff. Much more important was that it had to be fast, which thankfully it is.

Seeing as it looks directly at the source data the pipeline report looks at actual invoices not at our sales team’s interpretation of the invoices. It also has a nice and simple task management tool built in to it, and there is no need for two systems for new customers and existing customers.

Building Your Own CRM System Might Not Be Right For You

It’s now more than two years since we first started down the road of using CRM systems. If we had tried to build one ourselves at the very beginning we’d probably just have another horror story to add to our experiences with Salesforce and Highrise, but now was the right time for us to build our own. We had a clear set of requirements and had all the information we needed in one source, our own database.

For you things might be different. Hopefully by reading about some of the mistakes we made you might identify some issues you could run into. Feel free to ask us about our experiences in the comments below, and share your own CRM success or horror stories too.

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Increase Your Sales By 400% With The Same Leads

On March 25, 2010, in Start ups, Stuff we've learned, by Caelen King

Leads are the lifeblood of sales. Nothing arouses quite as much passion amongst sales staff as the quality of their leads. The following Al Pacino clip gives a good, if slightly dramatized version of this passion.

Warning: Lots of Swearing!

How Good Are Your Sales Leads?

Sales leads are a strange beast, and the value that is placed on them depends  both on the company and the sales person in question. Give a sales person that normally generates their own leads a list of purchased leads and somehow they’ll manage to call the guy on the list that died last week. All of a sudden the list of leads is worthless in the sales person’s head.

What Determines The Value Of A Sales Lead?

  1. Age. In general the younger the lead the better. Older leads might have already decided against the purchase, or even purchased from your competitor.
  2. Rarity. The more people who have the lead the less chance that you are going to sell to them. After all, the customer is probably only going to buy from one source.
  3. Relevance. How relevant is the lead to the product or service that you sell? The more relevant the better! In other words if you are selling compact cars you are better off with a lead for small cars than with a general enquiry for cars.
  4. Stage in the Buying Cycle. Depending on what you are selling it can be better to be at the beginning or the end of the buying cycle. For example, if you are selling TVs then its probably best to be at the end of the buying cycle. The customer has probably made up their mind to purchase and is shopping around for the best price. In the case of an enterprise class software solution though it is best to be around at the beginning of the cycle when you can still shape the requirements.
  5. Effort. The sales person’s effort is by far and away the most important factor when determining the value of a lead. If they don’t value a lead (and therefore don’t put the required effort into closing it) then it becomes a self-fulling prophecy.

Obviously the quality of sales leads vary and there are good sales leads and bad sales lead but the quality of the lead is not the only factor in driving sales. You can give top quality leads to an organization and if they don’t value them then they are going to be worthless. Give the same leads to a company that works them tirelessly and they are gold dust.

The effective value of a sales lead is a combination of the original quality of the lead and the value that is placed on it.

Your sales staff will always value the leads they generate themselves the most, because they cost them they most, i.e. their own time. Next will be the leads that cost the organization the most. Right at the bottom of the pile will be the so called ‘free’ leads, i.e. the leads they never asked for but landed on  their desk from some over eager youngster in marketing.

How Do We Know This?

Not only do we depend on sales leads to drive our own business but we also generate large number of leads for health clinics around the world. What we have found in RevaHealth.com is that the clinics that pay for their online enquiries tend to value them the most too. When we survey potential patients two days after they contact a clinic the higher paying clinics routinely get higher levels of consumer satisfaction.  Unsurprisingly they also get a higher conversion rate.

Customer Satisfaction with Conversion Rate

Satisfaction With Initial Communication & Resulting Conversion Rate

* Note conversion rates are extrapolated from the number of reviews generated as result of patient enquiries through RevaHealth.com

It is interesting to note that there is a 50% increase in the number of potential patients who are happy with the customer service they receive from our free clinics compared to our paying clinics. However, there is a 400% difference in their respective conversion rates.

The implication here is that even though 50% of people who contact a free clinic say they are happy with the communications they receive, ultimately only a small proportion go on to convert because their expectations are just about being met. On the other hand, the paying clinics value their leads far more and put in more effort meeting or exceeding the patients’ expectations leading to a far higher conversion rate.

How Do The Top Clinics Convert More Patients?

The top clinics on RevaHealth.com pay the most per patient enquiry and therefore they value them the most.

  • They contact every patient  regardless of the perceived quality of the original enquiry.
  • They make a phone call as well as emailing the customer.
  • They are prompt.
  • They are well prepared for each communication.
  • They are consistently ranked by the consumer as having above average customer service.

Conclusion
Unsurprisingly spending time taking care of your potential customers through professional and personal communications results in higher sales. Our statistics shows that there is a potential 400% improvement in conversion rate that can be achieved by improving the level of attention that a company pays to its potential customers. There is also a clear link between how much effort a company puts into its communications and how much they spend to create the sales opportunities in the first place.

Do you prioritise leads from different sources? How do you make sure your sales team put enough effort into all the opportunities they receive? We’d love to hear your thoughts in the comments below.

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Free Trials. What’s The Worst That Could Happen?

On March 23, 2010, in Start ups, Stuff we've learned, by Caelen King

Trials are a very useful way of demonstrating to reluctant customers that you have something that they will value. A trial allows them to see for themselves what your product or service can deliver without committing to the full purchase price. Used correctly trials can be a tremendously effective way of boosting sales, particularly of products or services that do not yet have a reputation.

For a lot of companies, consumer software companies for example, running a trial is effectively without cost. You simply put your trial software up on a website for download and let whoever wants to trial it do so. However, for other companies, including us in RevaHealth.com, trials have a tremendous cost.

Running a trial here with a potential customer means we have to spend time setting them up and teaching them how to use the system. It also means that the trialling company may receive value that would otherwise flow to one of our existing paying customers. The trialling company is also monitored by an account executive on an ongoing basis. All of this means that running a trial from our perspective is an expensive proposition.

The whole purpose of a trial is for the potential customer to determine if the product or service can deliver value. This means the trial isn’t without cost to them either. They have to devote time and effort to evaluating the offering. If they take the trial and don’t spend any time working with it then the trial was obviously pointless in the first place.

So how can you ensure that the customer is going to give the trial the attention it deserves? You can’t really, but a good starting point is to charge for the trial, and here’s why.

What’s The Worst That Could Happen?

A decade ago I was working for Baltimore Technologies selling Public Key Infrastructure into tier-one banks all over the world. Our software was expensive and complex, costing millions of dollars. In the beginning we thought that simply trialling our software for free with one of the world’s leading financial institutions represented a great success. Later on we found that all our product was doing was sitting gathering dust without anyone actively evaluating it. Obviously the entire trial was pointless.

So we started to charge for trials, and as a result we did much fewer, but the trials that we did were always a success. (A successful trial doesn’t necessarily mean that you make the sale – a successful trial simply uncovers and clearly demonstrates the value your product offers to the customer.) Not only did this mean more sales in the long run but it also resulted in significantly reduced costs.

How Did Paid Trials Reduce Our Costs?

Charging for a trial is a nearly foolproof method of evaluating a customer. It tests their interest in the product, their ability to purchase at all, and demonstrates a commitment in a way that is close to impossible through any other means.

  1. It forces your own sales staff to correctly evaluate the customer.
  2. Even if a customer isn’t interested, sometimes the path of least resistance is to agree to a free trial. After all, it doesn’t cost them anything. Charging for the trial uncovers this.
  3. Charging for the trial uncovers if the customer has any money to spend.
  4. It also reveals whether or not the person you are talking to has the authority to sign off on a deal, and so helps to identify the key decision maker.
  5. Finally, it helps to ensure that the customer will spend some time and effort making sure that the trial gets the attention it needs. After all, they probably have to justify paying for it in the first place.

At RevaHealth.com we never give free trials of our paid accounts. If someone wants to trial a particular account we will normally accommodate them, but they will always pay, normally for a quarter of a year at a pro rata cost. Ultimately, charging for trials reduces the amount of time we need to spend on customers who would never buy in the end.

Charging for trials isn’t going to work for everyone in every sector, but it does work for us. What are your experiences of offering your products or services on a trial basis?

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Things That You Think Are Important But Aren’t

On March 18, 2010, in Start ups, Stuff we've learned, by Caelen King

I was reading this article by Barney Austen on Bloggertone and got to thinking about all the things people waste money on when starting their own businesses. There are tons of things that you think are really important to have or do. Many of them really are not.

Here at RevaHealth.com we were no different to any other start up. We invested time and money into areas that should have been left to much later in our development cycle. Here is a list of areas that on reflection we either should have ignored or that we managed to get away without.

A Logo
We still don’t have a logo and don’t have any plans to get a logo. We just typed out RevaHealth.com in a font that we liked and left it at that.

Stationary
We still don’t have any. It was a bit of a pain getting some things set up without any, like a business account with Vodafone, but we managed without and we are still managing without.

Business Cards
We did without business cards for a year and even after getting them printed I keep forgetting them. If your business isn’t based around meeting people face to face then business cards aren’t one of the first things that you need.

A CRM System
We spent a huge amount of effort in the early days evaluating CRM systems. This was at a time when we could list all our customers on the back of a napkin. Eventually we deployed Salesforce at huge cost. After a year we abandoned it and went to Highrise. This still didn’t do the job (more about this in a later post) and most of the company reverted to spreadsheets and notebooks.

We now have our own home-grown CRM system which works like a dream, but we couldn’t have created it in the beginning as we didn’t know the way our business would be shaped in the future. Fundamentally we would have been significantly better off if we hadn’t looked at any form of CRM until we had hundreds of customers and a well defined business. I think many start-ups would be in the same boat and that CRM systems are not something that you should be looking at during the early stages of a business.

A Sales Process
Unless you have already done business in exactly the same business environment and your business model is established and well understood then you can’t have a sales process. Inventing one prior to this is pointless and akin to throwing darts drunk, blindfolded and standing on one leg.

An Intranet
Most of us have worked in companies where a corporate intranet was badly implemented and used.  When I started RevaHealth.com I was determined that ours would be implemented and used correctly. The truth of the matter is that it simply wasn’t required. For small companies the natural organic methods of sharing information are much more efficient. We do use our intranet effectively but it has a much smaller role than we envisioned.

A Server
I spent a good man week deploying and poorly configuring an internal server. It now sits in the corner gathering dust. We don’t have any active servers in our office anymore – everything is in the cloud: Mail server, development servers, intranet, source control … everything.

A Brand Name
This is probably important, however we gotten away with a fairly bland and meaningless one so far. I’m not entirely convinced that if we changed our one overnight that anyone would notice.

A Finished Product
Luckily this isn’t a mistake that we made. We deployed product as quickly as possible and iterated every week from that point on. However, this is a mistake that I see start-up companies making every day. They think that they have to get the technology correct before they start doing business. Whereas they need to start doing business before they can figure out what the correct technology is.

Legally Binding Terms & Conditions
Legally binding to what? A typically start-up changes its business so often that any agreements are outdated as soon as the paper dries. It’s probably best to start with standardised creative commons terms & conditions until your business firms up.

So, when you started up your own business what did you spend time or money on that you needn’t have?

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Viral Doesn’t Always Mean Cheap

On March 16, 2010, in Start ups, by Philip Boyle

We all know about viral marketing campaigns. They work because the people who experience them want to share that experience with others. When they do work, they are usually very cost effective because the public and then the media spread the idea for you for free. What people sometimes forget is that sometimes the idea itself isn’t cheap.

To me, the myth of viral marketing is that all you need is a good imagination, some free time, a cheap laptop or digital camera, and YouTube. For this to be true your good imagination really needs to be great, and your execution needs to be good enough to get your idea across clearly enough quickly enough. No mean feat if you ask me.

The truth is that it’s the experience itself that matters. The public will share when they experience something remarkable. Did they laugh out loud when they saw that video online? Were they amazed by the street performance they witnessed? Was that gig in the best venue they’d ever been in?

How Does This Apply To You And Your Business?

Well the first thing to say is that just because something looks cheap doesn’t mean it is cheap. Two contrasting viral hits are the John West Salmon video, which clearly was cheap, and the Microsoft Germany Megawoosh video, which clearly wasn’t. (You can see two “making of” videos for the Microsoft stunt here.)

The second thing to mention is that even if you have the best product in the world, your viral idea might be awful. Whether you’re making one yourself, or entrusting it to a marketing company, run the idea past a few people, and not just people who are going to agree with you! Otherwise you can end up spending more mopping up the mess when it goes wrong, as with the movie 2012′s viral campaign, or Sony’s aborted PSP campaign.

When You Get It Right…

All that said, when it goes right the payoff can be amazing. Take a look at this case study of a Heineken consumer activation from Italy. It will definitely resonate with any of the football fans in the audience.

(Thanks to Dan Leach and Hayes Thompson for the heads up on the video.)

For a start-up company like us, we don’t have the massive marketing budget or the know how ourselves to create brilliant experience like the Heineken one above. Come to the think of it, we probably don’t have the imagination or production talents to create a brilliant cheap video on our own either. Basically, viral is not for us, for now at least.

Just because a particular marketing method or channel is all the buzz right now, doesn’t mean it is right for your business. That goes for viral marketing, Twittering, blogging, vlogging and all the rest. Make sure that when you decide to spend you or your companies time and/or money on any of these activities that you understand what you have to invest to do it right, and understand that if you can’t afford to do it right, it’s probably not worth doing until you can.

Have you tried your hand at creating any viral marketing campaigns? What were the results like for you?

About the author

Philip Boyle

Philip is the marketing manager at WhatClinic.com.

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Welcome To Weedle

On March 4, 2010, in Start ups, by Caelen King

I was at the Weedle offices last night and spent an enjoyable evening drinking their wine and learning about what their future plans are. For those of you who haven’t yet heard of Weedle, they are an Irish Start up lead by Iain MacDonald who successfully sold his previous company Perlico to Vodafone in 2007.

What Do Weedle Plan On Doing?
Weedle see a fundamental and universal inefficiency in how people find other people with particular skills. Regardless of if you are looking for drummer to join your band or you need a patent attorney the process that people go through today is lengthy, difficult and regularly produces poor results. Weedle is looking to solve this problem by creating a searchable social network focused on the skills that people have.

Weedle Homepage

Weedle Homepage

The social aspect to what they do is critical. They believe that a person’s proximity to your social network is as important as they skills they possess. In fact they will only show reviews of people if the reviewer is someone you already trust. To some degree I buy into this, at least for common skill sets that are likely to be in my extended social circle.

How are they going to do it?

  • Users create a profile focusing upon their own skills.
  • Users expand their network by inviting people they know. They are incentivised to do so becuase the larger their network on Weedle the more likely that someone who is looking for their skills will find them.
  • Weedle create a search engine where anyone can look for a particular skill in a specific location. Although anyone will be able to use the search, engine additional value is provided if you are logged in.

The Business Model
Weedle have grand plans and they are passionate about building a scalable platform that genuinely provides value. Some of the fundamental tenents of what they do is that they will never charge for position and they will never charge for anything that doesn’t add value to the platform as a whole. While I think this is admirable I question whether there is a valid business model that can underpin the platform.

I have previously spoken out about Irish tech startups that don’t have revenue models that hold water. In my view companies in Ireland that think they can grow a user base without thinking seriously about revenue need to check their atlas and see just how far away Ireland is from Silicon Valley. Simply put, Irish companies do not have access to the resources necessary for this strategy and by resources I mean captial, expertise, management team, etc. Even though Weedle has some serious financial firepower behind it, I would still hold the same reservations.

Their only disclosed business model so far is pay per click business advertising and I thought it would be fun to dissect it.

The potential revenue from PPC advertising on a site depends on 3 factors:

  1. How much advertisers are willing to pay per click.
    This is a function of the content of the page and how far down the buying cycle the typical visitor is. So an advertiser will pay more for the keyword ‘buy lcd television’ than they will for ‘compare plasma & lcd television’ because the second keyword indicates that the user is still relatively early in the buying cylce.
  2. The percentage of visitors that will click on the advert.
    This is largely dependent on how relevant the adverts are to the visitors frame of mind. An example of this is that Google can get pretty good click through rates as their visitors are actively seeking information on the subject matter, whereas Facebook gets poorer click through rates as their visitors are being interrupted from their social networking activities.
  3. The number of visitors and the volume of pages that they view.

Price per Click
This is all going to depend on how users use the service. If the platform ends up being used primarily for high end skills (legal, marketing, etc.) then Weedle should be able to get a lot per click; a ballpark figure of €1 would certainly be possible. However, if its primary use turns out to be for low skills or worse yet non-economically centered skills then their potential price per click could be as low as 10 cent.

Click Through Rates & Relevance
It is pretty easy to see how you can get the adverts to be relevant on a subject matter basis. For example, legal firms would advertise against legal skills and landscaping companies against landscaping skills. However, it would seem to be difficult to get them to match on social relevance. What I mean here is that visitors have come to Weedle specifically because they are looking to find people with the skills that they have that they are connected to. This makes advertising companies who are not part of the social network irrelevant and as a consequence click through rates will decrease.

Another concern would be that the better Weedle becomes at providing useful socially connected search results then the worse the non-socially connected advertising model will perform. This creates negative incentive for the company which is not a good thing.

So what sort of click through can Weedle expect on their search results? Very optimistically 5% and pessimistically 0.5%.

Volume of Visitors
How often do you need to find someone with a new skill? Pretty frequently for sure, but not on a daily basis. I would think on average about 6 times a year for the typical person. So if Weedle get a user base of a million people who use it 50% of the time, with average page views of 4 it would give them one million page views per month.

Potential Revenue
Based on a million page views a month with click through rates between 0.5% and 5%, and the cost per click being between €0.1 and €1, the potential advertising revenue is between €50,000 per month at the top end and as little as €500 at the bottom. Clearly this is a model that needs massive scale in order to be successful.

To put this into perspective, if Weedle is as successful as Facebook and expand to 400 million users then I would project the maximum PPC revenue at €20 million per month, which compares to Facebook’s €50 million. So why would Weedle earn less than FaceBook with the same number of users? After all, FaceBook adverts can’t be more relevant? The reason is that FaceBook users view a huge number of pages each and log on nearly everyday. Their average user spends 55 minutes a day on their site.

Conclusions
The guys at Weedle are a smart group that have built a tremendous amount of technology prior to launch and they clearly have to be looking at other revenue opportunities. Areas that I think would be worth exploring are:

  1. Providing company search results side by side with near equal emphasis to the people search function. Use a pay per lead or pay per position model.
  2. Close the loop by processing payment and providing escrow services for certain appropriate skill sets. (The Elance model.)
  3. License their search results to the major search engine. (The Twitter model.)

It’s great to see another Irish company setting out with properly grand ambitions, and we can’t wait to see how things turn out for them.

Update -15th of March 2010?

Weedle have just announce $4million in investment for US expansion. This is exactly the level that they need to be playing at in order to succeed. This is a huge milestone and massive success for a pre-launch company.

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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The Auction Model

On February 25, 2010, in Start ups, Stuff we've learned, by Caelen King

When we first set up RevaHealth.com our business model was very similar to Google AdWords. Clinics would effectively bid for position in our featured listings section according the treatments that they delivered and the market in which they operated. The model was very elegant for a number of reasons.

Firstly and most importantly it eliminated the need for us to price, and pricing is difficult. In fact pricing is incredibly difficult. This is because in order for the price you set to maximise your revenue it needs to reflect the value that the customer places on the product or service, and value is subjective. That means that the right price for one person is the wrong price for the next. (Take a read of Eoghan McCabe’s related post on the Contrast blog, You Are What You Charge.)

In our case we do business across 90 countries and about 1,000 treatments. Pricing across these 90,000 combinations would be impossible. So the second reason we liked the auction model was that in a liquid market auctions discover the value for you. They don’t discover the value to the highest bidder but they do uncover the value to the second highest bidder (unfairly referred to as the loser).  Pricing never uncovers this.

Thirdly, the auction model eliminated the risk of over pricing and excluding potential customers. This is always the worry of normal pricing, however with auctions it is the customer that sets the price, making over-pricing impossible. The customer can still feel that the price they’re paying is expensive, but they come up with the price and they choose to pay it.

So Why Didn’t Auctions Work For Us?

OK, so in a way the auction model kind of worked for us, but as hard as we tried we simply couldn’t get it to scale. There were four problems:

  1. Auctions require a liquid market. Put simply an auction with one bidder achieves nothing. When we started RevaHealth.com we were effectively dealing in a number of niche markets in the medical tourism field, and there wasn’t the required demand or liquidity in each market to ignite its own auction.
  2. Auctions require the bidders to be actively involved in the auction. Our customers simply didn’t want to be that heavily involved, they would rather have paid a fixed fee without the complexity of bidding. In fact, the only time our customers did change their bids was when we picked up the phone and told them they should.
  3. Auctions required educated bidders. Our customers at the time weren’t sophisticated marketers. They didn’t keep accurate and diligent marketing records and work out their ROIs. They spent their nights poring over medical records not marketing data. As a result they weren’t really sure what the value of our product was and therefore were uncertain about what they should bid.
  4. Finally the most important factor for why the auction model wasn’t the runaway success that we had envisioned was that our customers weren’t used to doing business that way.

What We Changed

We needed to find a way to sell to the people who didn’t “get” the auction model for one reason or another, i.e. the majority of our potential customers! We introduced featured listings with fixed annual pricing at four different price points. This was an immediate success and required a substantially shorter sales cycle as the product is already well understood by the customer base.

There were a lot of disadvantages to doing this, particularly for our customers. In an auction model, the risk they took on was linked directly to the value they received, i.e. they received leads or enquiries at a cost that they determined themselves. By paying a fixed annual fee irrespective of the number of enquiries generated, the link between the risk and the value was broken. However, the fact that the annual fee product was easy to understand and sell outweighed all of the disadvantages, for us at least. We still maintain the auction model as a premium feature on top of our featured listings for the customers that can see the value in it.

Could the auction model be applicable to your market? Have you tried it already? Let us know what the key determining factors in setting your prices are in the comments below.

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Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Why Would You Pay 5,000 Times The Price?

On February 24, 2010, in Start ups, by Caelen King

If you want some good examples of how to optimise your company’s revenue, you only have to look as far as mobile phone operators and low cost airlines. I recently had the pleasure of experiencing both during a brief business trip to the UK.

Having booked my Ryanair flight at the last minute I ended up paying roughly three or four times what I would have normally paid if I’d just booked a few weeks in advance. The problem was, I didn’t know a few weeks in advance that I needed to travel. Even at this inflated price though, Ryanair were cheaper than the competition and won my business on price based on when I wanted to travel.

Then, when I arrived in the UK, I got the following text from O2 Ireland:

Data abroad costs €4.98 per MB. Each day you are charged for what you use up to 4MB and then usage to 50MB is free

I stared at the message in amazement. At home I buy my mobile data for €10 per GB but for the privilege of using data a mere 350 miles away they were going to charge me roughly 5,000 times the price. What I did next is even more amazing. I promptly switched over to my email application and blithely checked my email.

Why Pay More?

In this instance it wasn’t the price that mattered to me. Sure, the price matters to O2 – it’s their revenue after all – but what matters to me is the value. As long as the value exceeds price and there aren’t any easily available alternatives then I’m likely going to pay it. In this case being able to check my email with no other access to the internet was worth paying 5,000 times what it costs at home.

It was only later that I took the time to analyse the care and attention to detail that O2 had taken when coming up with this pricing plan, which no doubt maximises revenue but doesn’t exactly achieve price transparency.

O2 Ireland Data Roaming Pricing

Let’s take a look at how O2 arrange their pricing for data roaming. Even though the data is priced per KB, this pricing model encourages you to keep using it once you’ve started; otherwise you never get to the “free” data between 4MB and 50MB. Go over this magical 50MB limit, and you’re back to €4.98 per MB all the way up!

So why have O2 decided that the price / value dynamics tap out at €19.92? I reckon there are two reasons for this:

  1. Reducing Sticker Shock. When customers come home and get a €59.76 charge for three days of roaming data they get what is called sticker shock. This typically results in an angry customer ringing the support desk and shouting at an innocent operator. This ends in two ways. Either the operator has to swallow the cost or the customer is further enraged and switches provider at the first available opportunity. Either way it is in O2 Ireland’s interest to minimise the occurrence of sticker shock. By setting their normal daily ceiling at €19.92 they think they have achieved this.
  2. Front Loading Charges. The rather obvious reason that O2 engage in front loading is to get as much of the money as possible as quickly as possible. In this case O2 reckons €19.92 a day is most of the money. The think that most people will only use a small amount of data, so they make the first chunk as expensive as they think the market can bear. Then they “reward” heavier users who have already incurred a €19.92 charge with some “free” data. Finally, they really milk the heavy business users who go over the 50MB daily limit.

There are things to learn from both Ryanair’s constantly increasing prices as the day of departure arrives, and from O2 Ireland’s data roaming pricing structure depending on how they apply to your business. If you know that people are going to have to use your product at some point, making it cheap to buy in advance but expensive to buy on the day makes a lot of sense. If you have a large user base that only pay small amounts each, front loading can be an effective way of maximising revenue from this group, and there are usually a small number of heavy users at the other extreme who will pay a lot more than the average each.

Have you ever been caught out by last minute ticket prices? Have you ever paid €4.98 per MB for data abroad? Most importantly, what pricing models did you learn from when you set your prices?

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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How Quickly Can You Grow Your Business?

On February 15, 2010, in Start ups, by Caelen King

In business there are plenty of levers you can pull which will affect your company’s bottom line. Often the trouble is figuring out which ones to focus your efforts on. For established companies in mature markets the answer is nearly always to focus on the margin between your cost per acquisition and your revenue per customer. This is because the number of new customers you can hope to acquire is relatively fixed.

However, for young companies in new markets looking to grow quickly it can be far more worthwhile to look at the length of your sales process and payment cycle. The reason these levers are so important is that the faster you can recoup your initial marketing spend, the faster you can reinvest it in marketing again. (This applies equally to companies competing in a brand new market as to companies looking to massively disrupt an existing market.)

How Fast Can You Recycle Your Marketing Budget?

Recycling Your Marketing Spend Twice As Fast

Which company would you rather own?

In a market with a lot of potential customers the question of how quickly you can scale your business is largely dependent on how fast you can turn your marketing spend into revenue. Essentially, if you can use your marketing budget to acquire customers and convert those customers into cash, you can then reinvest this cash back into more marketing.

A company that has an initial marketing budget of €10k and can turn it into €15k in sales in one month is obviously going to grow much faster than one that takes two months to do the same, but how much of a difference could it make?

To answer this you need to look at these four factors.

  • How much does it cost you to make a sale?
  • How long is your sales cycle?
  • What is your average revenue?
  • How long is your payment cycle?

Worked Example

This example is massively simplified in order to solely examine the effect of speeding up your ability to recycle your marketing expenditure. In the example both companies have exactly the same business metrics with the exception that company B can recycle its marketing spend twice as fast as company A.

Company A:

  • Cost of customer acquisition: €10
  • Length of sales cycle: 1 month
  • Average revenue per customer: €15
  • Length of payment cycle: 1 month

With an initial investment into marketing of €10k this company can generate cash of €15k after two months. If it reinvests the whole €15k back into marketing it will have cash of €22.5k at the end of month four. After a year it will have just under €114k in cash.

Company B:

  • Cost of customer acquisition: €10
  • Length of sales cycle: 2 weeks
  • Average revenue per customer: €15
  • Length of payment cycle: 2 weeks

With an initial investment into marketing of €10k this company can generate cash of €15k after the first month. If it reinvests the whole €15k back into marketing it will have cash of €22.5k at the end of month two. After a year it will have nearly €1.3m in cash.

Conclusions

Halving the amount of time it takes to turn your marketing spend into cash can more than 10x your revenue over the course of one year. Another way to look at this is that the quicker you can recycle your marketing spend, the less capital you need.

In the example above, for company A to end the year with a similar amount of revenue as company B it would have to start with more than ten times the amount of capital.

By comparison, if company A looked to pull the pricing lever, it would need to be selling the same product as company B at nearly €25 instead of €15, i.e. triple the margin.

So, what can you do in your company that will help you speed up how quickly you can recycle your marketing spend?

  1. Tweak your business to get cash upfront for product instead of giving payment terms.
  2. Get payment terms on any marketing activities that you take

If you have any tips about how to speed up your sales or payment cycles, please let us know in the comments below.

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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SaaS Is Not Your Friend

On December 17, 2009, in Start ups, Web/Tech, by Caelen King

I meet with a lot of start-ups that are determined on disrupting industries with Software as a Service (SaaS) solutions.  The business plans I see increasingly focus on niche markets, everything from food production through to legal and architectural, and not on businesses that already depend on the internet to survive.

To these entrepreneurs SaaS seems to be the obvious solution to entering and disrupting the market and in many ways I agree. However, these same entrepreneurs are generally so caught up over the advantages of SaaS that they fail to see that in their chosen target market dependence on the internet is a competitive disadvantage rather than an advantage.

This isn’t a problem in itself, but it is vital that the entrepreneurs recognise it and aren’t blinded to the problems their customers are going to face. These problems are rooted in three areas: infrastructure, culture and commitment.

The benefits of SaaS are well documented and include:

  1. No installation
  2. Low levels of investment required by the customer
  3. Universal availability
  4. Improved support because everyone is on the same version of the software
  5. No distribution costs
  6. Utility based pricing
  7. Recurring revenue for the vendor

These all seem like compelling business advantages, making SaaS solutions intrinsically sellable in any market. However, the very premise of SaaS is that it is built on the infrastructure of the internet, and if the internet isn’t reliably and effectively in place in a business already then a SaaS sale has some severe obstacles to overcome.

Infrastructure

SaaS depends on the internet. That’s why the first successful SaaS companies have focused on providing business solutions to businesses that already depend on having good internet connectivity.

Problems arise when entrepreneurs make the mistaken assumption that just because universal, fast and reliable internet connectivity is a priority for their own business that it is automatically a business priority of companies in their target niche.

The issue here is that when your SaaS solution fails for your customer it doesn’t matter why it failed – it’s your fault. If it is because their ISP got flooded and “the internet went down” then it is still your fault, just like if you pay a courier to deliver a parcel and they don’t because a bridge fell down, it’s still the courier’s fault.

The problem boils down to this – if you are selling to a business that doesn’t already have internet connectivity as a business priority then when something goes wrong (and it will) they won’t know how to get back online. Their regular staff members probably don’t know who provides their internet service, so they call you. You don’t know either so you call the business owner. They call their provider who says it isn’t their issue, and before you know it days pass before they are back online.

Unless you are building an application for the minority business where internet connectivity is already a business priority then you are going to be swimming upstream with your SaaS solution.

Culture

If you go to your mechanic to get your car fixed and they are busy and you have to wait a few hours, or even a day or two, then it’s usually no big deal. The chances are that the mechanic will retain you as a customer, but it’s a different story when something really has to be done and you are forced to find an alternative solution.

Say for instance you are leaving on a family driving holiday tomorrow and your normal mechanic can’t see you, forcing you to find an alternative solution. The chances are that you will never revert back to the original mechanic but stick with the new reliable solution.

The same thing applies when an employee uses your system and it fails for any reason. If what the employee is doing is critical and time sensitive, such as taking a payment, then the employee is going to revert back to the old solution. From this point on it is going to be very difficult to convince that employee to ever use your “unreliable” solution again.

Large companies realize this and put huge emphasis on change management. This is because when a large company implements a solution it typically represents a massive business commitment. Smaller companies often haven’t learned this yet but it applies just as much.

Commitment

The pricing model for SaaS solutions is typically a monthly subscription, which is great because it gives the customer a really low entry cost and provides the vendor with nice recurring revenue.  In a lot of ways this seems like the perfect business model for software. However it has a serious problem – commitment or “buy in”.

When a business purchases a traditional software solution there are a lot of costs. The license may cost a couple of thousand, the server will be another grand and then there is the training which forms the backbone of a lot of software companies’ revenues.  All in all it represents a serious commitment by the company.

What this means is that when the customer has a problem with the traditional software model then they are strongly incentivised to protect the investment the company has already made, and to persevere and overcome the issue. In the SaaS pricing model the upfront commitment is reduced and therefore the inclination is to give up and revert to the next best solution, even if it is pen and paper!

What to do

SaaS has so many compelling advantages that the last thing I would advocate is to abandon the approach. What needs to be done is to recognise the business challenges that a SaaS solution presents to a business and be prepared to face those challenges head on.

  • Have a documented change management process that includes provisions for internet failure
  • Explore the use of thin clients such as Google Gears or Adobe Air
  • Make sure that you don’t just sign up customers, make sure they are committed customers.
  • Provide for staff training (this should be a profit centre)
About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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