Can preorders work for software-as-a-service companies?
When working on a new product, the most important thing you need is validation. Not to stroke your ego, but instead so that you don’t waste valuable time building a product that no one needs. After all, for you to run a successful business your customers need to pay you.
To start validating the idea for ConvertKit, my new email marketing application, I called a bunch of friends who are knowledgeable in the space. After talking the idea over I would always ask, “Is this something you would buy?” Eight out of 10 said yes. The last two said no and maybe, but for very specific reasons that shouldn’t affect my decision to move forward.
Taking it further, I asked some people if they would preorder ConvertKit. Again, the overall answer was yes. A few sounded very eager to preorder.
Sweet! That meant I had an idea with real validation! I excitedly posted the following message on Twitter:
A few smart people (including Dan Shipper above) reminded me that’s not real validation. People will say one thing, but then never follow through.
It was always the plan to capture payments as quickly as possible. I just didn’t have it set up when I was talking to these people on the phone.
A few weeks later, with the help of Amy Hoy, I wrote and launched a sales page for ConvertKit, complete with options to preorder at the bottom. Once the page was ready I published it, posted about it on Twitter, and sent an email to all my subscribers. Then I waited. And… nothing.
Will it work?
Preorders are often done for books and other products, but I’ve never seen them done for software-as-a-service subscriptions. I’m sure someone’s done it, I just haven’t heard of it.
So… would it work? A few of my friends were skeptical. So was I.
With a SaaS application there are all kinds of issues with preorders. When does their subscription start? Should they preorder multiple months at a time? What benefits do they get for preordering?
I put together three different price tiers to choose from. Each one was discounted by 25% for life and included one month free, all as an incentive to preorder. Since I needed extra money for the development budget, I had people preorder the first three months up front (which caused some confusion on the purchase page).
The packages ended up looking like this (after the 25% discount):
- Beginner $112 (3 months at $37/month)
- Intermediate $281 (3 months at $93/month)
- Expert $562 (3 months at $167/month)
* Note: because I rounded to full dollar amounts the math isn’t quite exact.
The first preorders
Later that day a few preorders did come in, enough so that I knew the page worked. Surprisingly, none were from the people I’d talked to earlier who said they would preorder. So I followed up by email. They had a few reasons why not to preorder now. Some were working with another tool; others had questions about specific features.
But ultimately Dan and a few other skeptics were right: It doesn’t count as validation until they have paid you money.
Verbal commitments, sometimes even contracts, mean nothing until money has transferred hands.
Despite that minor setback, preorders kept coming in. They mainly came from people on my email list, but a few were Hacker News readers and Twitter followers. Each time I received a new preorder notification I calculated my estimate monthly revenue from all of them.
First it was $121 a month. Then in the low $200s.
I wrote a few more blog posts and mentioned the preorder at the end of each one.
Now I am thrilled to say that I have received 19 preorders for $972/month in revenue. Since each payment was for three months together, I’ve added a total of $2,916 to my development and marketing budget. Since my budget was only $5,000 to start with, a 50% increase is pretty significant!
When I started the Web App Challenge at the beginning of this year my goal was to reach $5,000 a month of recurring revenue by July 1st, 2013 (six months later). I am now proud to say that I am at almost 20% of that goal, and I haven’t even launched yet.
Though none of this would be possible without the 19 wonderful people who believe in me and ConvertKit. If you preordered, thank you so much! I look forward to helping you radically increase your conversion rates.
To answer the question…
The question in the title is if preorders can work for a SaaS application. The answer is a definite yes.
It’s a great feeling to know you are building a product that people want so much they are willing to pay you for it even before they’ve seen it.
One last question
I wouldn’t be a very good startup founder if I didn’t also ask you an important question. Would you like to preorder ConvertKit?
In addition to getting to be one of the first people to use ConvertKit, you get these other awesome benefits for preordering:
- A 25% discount for life.
- One month free.
- And the next 7 people will get invited to a private online conference on email marketing and increasing conversion rates. Only the first 25 preorders are invited and there are 7 invitations left.