REVENUE MODEL: What is the best way to charge your customers?

Dave Schappell - @daveschappell

Who am I?

• Founder – TeachStreet– Angel-funded / VC-backed– Founded in ‘07 – Profitable in ‘11

• ex-Amazon, JibJab

• Former CPA

• NEVER built a profitable business on my own (yet)

TeachStreet, Inc. Confidential 3

49M College Grads / 77M Baby Boomers / 31M Retirees>$30B/year spent by 54M in U.S. taking personal interest classes

$5B/year TAM (Marketing, Transaction Fees, Affiliate Sales)

Transform the Lifelong Learning Marketplace

Why Should You Listen to Me?

You

• done that• almost done that

• thought that too (& was wrong)• wasn’t positive either

• Want to start a (web) business• Don’t want to go bankrupt

• Think customers will pay• Aren’t sure how they’ll pay

• Not sure how to find out/test

I’ve

What Type of Business?

Direct

• Ads

• Lead-Gen

• Affiliates/CPA

• E-commerce

• Subscriptions

• Virtual Goods

Indirect

5 Steps to Business Planning

1. Plan next 2-3 Years of your Biz2. What HAS to come first?

- Features, Assets, Office, Employees * Make a Good/Great Product! * What’s your MVP (Minimum Viable Product)?

3. Remove unnecessary items4. Create a timeline5. Add 3-6 months to everything

Product / Market Fit

80% on Optimization

Revenue When?

Don’t Put Ads on your Site!

Don’t Worry about Viral

5 Tips to Transitionfrom

Free to PAID

5 Tips to go Free to PAID

1. Give plenty of notice & (real) chance for feedback2. Price it ‘fairly’ (probably still at a deep discount)3. Offer customers a way to get product for free4. Provide Grandfather’d Pricing5. Make transition gradual– people should only pay if you’re delivering value

5 Tips to go Free to PAID

1. Give plenty of notice & (real) chance for feedback– As expected, many angry (that’s life…)– Some were HAPPY about fees:• to reduce clutter/listings from non-serious teachers• we’d be around over long-term• we’d have money to pay for advertising (more students)

– Learned we weren’t sharing metrics with them• Fixed this, with better reporting

– Feature request enable EARNING ‘free’ listings (#3)

5 Tips to go Free to PAID

2. Price it ‘fairly’ (probably still at a deep discount)– $3 = Starbucks Latte!• Lasts 30 days, or 10 leads ($0.30 per lead)

– $3 still expensive vs. Free (Craigslist, WOM)

– More than just an Ad:• SEO benefits• Marketing tools (Craigslist Ads, Flyers)• Payments

5 Tips to go Free to PAID

3. Offer customers a way to get product for free– Virtual Currency – Write Articles / Answer Questions– Launched with 5=Free Listing• Reduced f/5 to 3 & Doubled Content Creation (Iterating!)

– Win-Win• Great Content is Good for SEO (Traffic)• Content helps to merchandise the Teacher (Leads)• Lost $3 is minor in the short- to medium-term

5 Tips to go Free to PAID

4. Provide Grandfather’d Pricing– Offered 6 month ‘Pro’ pricing for $10 (vs. $30)

– GOOD - SEOMoz locks Annual Fees of $299 vs. $799– BAD – Airlines changing rules for Miles (20k vs. 40k)

5 Tips to go Free to PAID

5. Make transition gradual– people should only pay if you’re delivering value

– CRITICAL DECISION FOR US!• Only force listing payment if Lead Delivered in last 30 days• Maintained our Class Listing Inventory (SEO benefits)• Triggered a Payment Decision only with Value (Conversion)

So, How’s TeachStreet?

• Launched ‘All Paid’ in late April 2010– Pro/Sub Revenue up 56%– Listing Fee Rev is now 75% of Pro/Sub Rev• And, it’s 2x’d since May 2010

– Operational Revenue up >100%– Leads to Teachers up 88%

Timeline to Semi-Success• Jun ‘07 - founded company; raised Angel $• Apr ’08 - ~25k classes & teachers in Seattle – teachers could add unlimited classes;

students could contact teachers. Limited functionality. Let us demonstrate value & learn (100% free)

• Apr ’09 - +7 cities; expanded tools (phone tracking, teacher metrics) (100% free)• Jul ‘09 - Student-to-Teacher payments. 15 months to launch?!? Believed needed to

demonstrate value-add. Students paid small booking fee (to cover costs); Teachers paid commission (still free to add listings)

• Sep ‘09 - Pro teacher $29.99/month; extra promo, marketing tools, free payments. (still 100% free to add listings; revenues are building from services)

• Apr ‘10 - optimize/weblab – addt’l lead-tracking – believed we’d never earn biz if didn’t deliver value (more, new students) to teachers (still free to add listings)

• Apr 7, 2010 - “pre-announce” introduction of fees for all new class listings• April 27, 2010 - “turned on” listing fees (100% new listings paid; All rev-enabled)• May 12, 2010 - last day of $10/month “Pro”-motion (100% new listings paid)• At present - Traffic’s growing, Revenue's ramped sharply, and we’re 100% sure that

we’re going to have to keep pivoting. Because that’s what startups do.

Rules We Break• Both Direct & Indirect– Subscriptions & Listing Fees– Lead-Gen, Affiliates & Ads

• We have Ads– Not for long?

• We don’t Weblab/test enough– Too few resources / too many ideas

• Still are attracted to shiny objects

Resources

• Andrew Chen – www.andrewchenblog.com

• Dave McClure – 500hats.typepad.com

• Alyssa Royse – Seattle 2.0 Post(s)

• My TechCrunch Post on ‘Free to Paid’ http://techcrunch.com/2010/06/13/free-to-paid-tips/

• Hops & Chops Startup Happy Hour (Thursdays)– www.hopsandchops.com