Mike Sparr, CEO and founder of Goomzee, just wrote great post about the challenges and decisions vendors face in this business. It’s a long post but worth the read.
I’ll add to his advice with a bit of my own. Mike talked about the challenges investing in a sales team.
“Now they could make 400 calls per day, automate the voicemail part, reach 90 people daily, do 30 demos and close 1-2 sales. Agents then averaged 20-22 sales/month, bringing my CAC down to about $135. This means at $20/mo product after 7 months of service I pay for my cost of sales and begin earning revenue for the actual product, support, and ongoing R&D. If I wanted to scale sales of this product, I’d have to set aside enough cash to float realistically the first 10 months of every rep’s paychecks before expecting to break-even. You really want to recapture your investment per rep within 2-3 months. Either raise your prices, lower your wages, or roll the dice.”
I would say that adding a Yearly Plan or Two Year Plan, where the agents pay up-front, can help you finance your sales team growth. I’m not sure if Mike meant this when he stated “raise prices”. Good stuff.
Greg – One problem with longer-term contracts (pay up front) are that agents don’t like them (hate them!) and you will have to factor in at least a 50-60%% drop off of TAM in your pricing model. If the product is good, why do I need to be locked in to buy it?
You will also have to factor that in when an agent wants to cancel, they stop paying and therefore a long contract is worthless. Agents are so use to this, it’s a way of doing business. I agree with Mike that sales and distribution is really the secret sauce of any business, particularity real estate technology services. Anyone can reproduce great technology given enough time and money, but cost effectively scaling customers and retaining them through the industry churn life cycle will ultimately separate the winners from the losers.
Mike – Great read and thanks for sharing. It certainly resonates with us!
@mark Yes TAM turnover is something to consider. But I don’t agree with your statement that agents hate to “pay up front”. Depending on the way you present it so agents do not like having their credit card dinged every month an would rather be charged once. Plus we offer a better deal for a year or two year commitment.
Looking about Cloud CMA signups this month (so far) We have…
324 Monthly Plan Signups.
120 Yearly Plan Signups
55 Two Year Plan Signups
That represents over $58,000 in “up-front” revenue this month (so far).
@greg you are right and I didn’t mention the yearly plans, typically sold at some discount for yearly purchase. That is indeed a way to recapture your up front cost of sales. If you are successful in converting those in Y2 into renewals then a year later you can begin to earn revenue on your product using the example pricing provided. I know you added a 24-month option and we have not done that to date. Cool to see your ratio. We are actually about 50/50 on monthly vs. yearly and in some months more yearly than monthly.