How to charge a customer for my product...

Xadion said:

Didn't we have almost the exact thread a few years ago? It all is seeming very deja vu to me... like everything- SaaS product, scale pricing - asking how to do things, competitor does thing in a complex old billing method etc.

Soo...soo strange

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I probably wrote about it in Lyrica's business thread. At the time we were doing a lot of R&D. We finally got two customers last year and ramped up sales in March/April of this year.

I also posted about the first couple of years on r/startups.

Soygen said:

With our largest manufacturer we do a tiered rebate(we are the customer in this situation). We do around 20 million a year with them. If we hit that 20 million mark, we get a 2% rebate. If we do 22 million, we get 3% and if we hit 24 million, it's 4%. This is basically incentive to keep/grow our business with a nice check at the end of the year, while not giving us a straight discount on the product/service itself. We'll likely hit the 3% this year.

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Interesting.

So, I guess in our case, we could offer a 2% rebate to anyone doing 500,000+ tons annually, then 3% on 1m, 4% on 1.5m, 5% on 2m, etc.

Fun update...

My dad and I ended up having a pretty aggressive heart-to-heart on the way down to negotiate the deal. I felt like we weren't on the same team when it came to getting the most value from our products, as he would generally talk about the deal from the perspective of our client's offer, rather than from what we were worth, what we could leverage to get more, etc.

So, we go down there and pretty much ask for exactly what we want and tell them we want all their business and that's what it'll take for them to get a discount. After a lot of talking, we leave there with a deal on the table for $0.12 per ton, for 3 months, on two of their crews to test. Which would be like $10,000 total. He told us to call him back Friday to confirm the deal, but we never got in touch.

Well, fast forward to today and we hear back from them. They basically want to ramp up to like 25,000 - 50,000 tons per week, at $0.12 per ton, on all their contract crews and then add their company crews later, for the same price, which would put us anywhere from $150k - $300k annually. WOO!

Update #2:

One of the largest software consulting companies has been reaching out to us in order to test our progress and discuss a potential relationship.

We got a call this week that said the VP of corp dev would be presenting our company to the board-of-directors suggesting they should either invest or figure out a strategic partnership.

The company I discussed in previous posts signed an agreement this week, so after 3 years, September could be a huge month, like game-breaking.

pharmakos said:

getting the money up front should always be better, as long as you its used well/responsibly. it gives you more flexibility, and you can start investing in whatever earlier, which means an earlier return on your investment, etc.

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I'm starting to get the feeling that we need a mix of money up front and SAAS to incentivize our customers to gtf started.

Pyratec said:

I work for a SAAS company and we do the incremental discount thing. We have a lot of smaller customers while you appear to have fewer large ones so maybe it doesnt totally apply but we do something similar to what a_skeleton_03 said.

0 - 1000$ per month, no discount
1001 - 2500$ per month, 10% discount
2501 - 5000$ per month, 20% discount
5001$+ is a 30% discount

Even if a customer does 7500 per month, they still pay full price on the first thousand, it would break down like this:

0 - 1000 = 1000
1001 - 2500 = 1350 (10% discount of 1500)
2501 - 5000 = 2000 (20% discount of 2500)
5001 - 7500 = 1750 (30% discount of the final 2500)

So they would end up paying 6,100 per month instead of 7,500, net discount of 19%.

Most customers like it as they get a bigger discount the more business they do with us and we are of course happy to motivate our customers to do more business with us as well. We were previously on a bronze/silver/gold type thing with monthly minimums, our customers seem to like the new model a lot better.

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How do you guys get people onboarded?

The thing we're finding is that without skin in the game up front, it seems like people take their time onboarding, which puts a strain on our sales cycle, because we're having to facilitate onboarding over long periods, while still maintaining sales.

Cad said:

Why is it priced per ton and not priced per transaction or use of your software?

Logistics software in my experience was priced per site, with each site being priced based on transaction volume... it wasn’t priced based on the value of the goods being moved or the number of goods. E.g. if I do 10 transactions a year with 10 billion units each my usage of your software is super low, but if I do a million transactions of 1 unit each I’m using the fuck out of your software but I’m shipping orders of magnitude less “units” or “tons” in the second instance.

Why not price your software around usage of that software?

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We are.

Our customers move like 100,000 to 6,000,000 tons annually, so our model scales pretty well.

On Thursday, I got called down to meet with the VP of Technology at a company I'd pretty much given up on. The two of us sat down at the end of a twenty-person conference table and he basically told me that they wanted to integrate one of our products with their accounting system. They move 6,000,000 tons annually and they want to do it at $0.05 per ton.

The beginning of this year was incredibly difficult. And I'd literally given up to the point of offering my dad all of my shares of the business. But, now it seems like the snowball has finally, after 2-3 years of grinding, picked up momentum.

Tmac said:

On Thursday, I got called down to meet with the VP of Technology at a company I'd pretty much given up on. The two of us sat down at the end of a twenty-person conference table and he basically told me that they wanted to integrate one of our products with their accounting system. They move 6,000,000 tons annually and they want to do it at $0.05 per ton.

The beginning of this year was incredibly difficult. And I'd literally given up to the point of offering my dad all of my shares of the business. But, now it seems like the snowball has finally, after 2-3 years of grinding, picked up momentum.

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LOL at this.

This was, what, the beginning of September? After taking 3 months for the VP of IT to have three meetings with us, we finally got them a proposal in November without so much as a phone call in return. I called and called and sent a few emails to let them know I sent it with no response. I did get one text that was like, "Hey I'm not ignoring you and will you call you next week." Guess what? No call. I finally emailed them and said we couldn't honor our offer into the New Year and finally got a response that basically said, "We're finalizing our 2019 budget at the beginning of January, so if you could send us your expenses it would be helpful." ... ... ... I want to rip my hair out.

Anyways, since my last post we've kind of been courted by a larger software company in our space that wants to give us an offer. It sounds like they want to give us a shitty deal where they would barely keep us alive at like a $20k per month burn rate and essentially acqui-hire us over time. We've probably had 10 phone calls and 3 meetings over that time and they move agonizingly slow for a relatively small company (30 employees I think). After meeting with their CEO we were told they'd get us something "quickly", so after they didn't get back to us within the week I sent them this:

Pissy Me said:

Hey VP Guy,

Thanks for all of the time and effort you've put into understanding our business and product. It's been a really tough road, with blood, sweat, and tears, but hopefully in the next year our sales process will start paying off and it's encouraging that companies like X believe in what we're doing.

I think at this time it's hard for me to wrap my mind around the upside on a deal with X.

In my mind this is the direction we seem to be going:

• X acquires a majority share of Y
• • All money will go toward developing the software
  • X will reap the majority of the reward for all of the hard work we've put into creating value for the industry
  • X will ultimately get the credit for any long term improvement the industry gets from our product
• X will acqui-hire me to focus on their products
• • I think a shift of focus from Timber App's logistics solutions will totally miss an opportunity and a big need that's been growing in the industry for the last 2 - 3 years
  • It's not a very exciting proposition, as I'm not familiar with any future projects X is pursuing (maybe this is my fault for not asking enough questions)
• This process has taken a lot of time and effort to seemingly only benefit X in the long run
• • We have a real need and a real direction to pursue, but the focus of X's due diligence seems to be more of a defensive pursuit than a pursuit for the benefit of my dad, me, or Y

I know that I said I was open to anything, but as I've thought about it, this isn't the case.

I have a specific vision. I have a big vision. And I want to get to where I want to go and at this point I'm not sure I see a very big upside for us partnering with X, even if that means our company dies. And I'm not sure X believes in me or my product.

I have a ton of respect for what you're doing and CEO and CTO's ability to grow an incredibly successful company. None of these accomplishments are lost on me.

I wish you guys good luck in finding companies to partner with, but at this time I don't understand how a deal with Xwould be mutually beneficial in the long run.

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He immediately called me back and insisted he at least send me something. I'm not hopeful.

Currently have 5 customers and two of them gave a lot of money up front so they're not generating any cashflow and we put all that back into the software. Our one other large customer is surprisingly inept and it's taking for-effing-ever to onboard them. I think in 2-3 months they'll prob be generating $5k per month and maybe in a year it'll be more like $10k per month.

As far as sales go a lot of potential customers want to talk at the beginning of 2019. Mostly medium to large dealers and mills, with a few global mills thrown in there too. I don't have much hope in them judging by the way everyone else does business in this space. I even had a conversation with a guy who's dad runs a pretty big outfit, but they're currently paying like $4k annually for their spreadshitty software and we cost nearly 10x that, so his dad isn't into it.

That's pretty much how these guys operate. "How much is it? Hrmm... Microsoft Excel is free, so I'ma stick wit that." It doesn't matter how much more efficient other customers have become or how many processes we can automate, bc they just get lost on the fact that it actually costs money. For example, if a company has 10 crews and 1 crew doesn't cut out well one week, they stand to lose $10k. Now multiply 10 crews times 50 weeks and if every crew on every week cuts out poorly, you've got a fuckton of cash. And that's just one smaller feature in the software!

I'm about ready to give up selling software to white-hairs.

iannis said:

sounds like there's an awful lot of momentum to be shifted. Also sounds like you're selling efficiency and having a hard time because most people don't actually care that much about efficiency. It's on the list, but not real high on the list.

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I did write efficiency, but that's not what we're selling people.

The biggest problem is that a lot of companies don't actually know their numbers, so when we come in and show them how they can access real time info in their business (leverage risk), make better decisions (make more per sale), replace their office admin ($50k+ annually), and get rid of a lot of the waste (that $10k number per week I mentioned is one area) they just ask, "Well how much is it?", and typically they're paying like $5,000 annually and the idea of paying even $1 more is immediately bad news.

For example, most companies subsidies their log trucking operation to the tune of $15 / ton. We can give that back to them, but they won't believe it bc they don't even know their numbers well enough to know how much they're already losing on trucking. Today they're using solutions like Verizon's enterprise truck tracking that doesn't actually give them data other than "this truck is right here". We go way above and beyond that showing them what mill their truck is headed to, the route it took on the delivery, a photo of their security tag and scale ticket, and if their truck is empty and headed back to the job. We could give them back hundreds of thousands of dollars annually.

iannis said:

You'd have to find a couple of outfits that do recognize the value of it, and then those outfits would have to outperform. And even then a lot of men are still gonna be of the "eh, good enough is good enough" mindset.

Uphill both ways. And more than half of that is outside your control. Takes luck too, I guess.

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A couple of our current customers are VERY well respected in the industry, but it still doesn't translate for other people like you'd think it would or it should.