Customers as partners

Our company has seen some tremendous growth over our first five years, with our revenues set to hit $5M this year. Luckily for us, 80% of this revenue is derived from recurring monthly charges, and from over 250 happy customers. Sitting and reflecting tonight how we did that, it came to me pretty quickly that we started in 2005 with our first customer as a partner.

Now I am not talking about using empty euphemisms to make our customers feel better about us taking their money. (Like when big companies call their employees “associates”). I mean really partnering with them in value-added revenue sharing partnerships, or pay-per-use license agreements, which place the risk and reward of their success on both of us.

Now it helps that when we got our start as a software company, our application was perfectly suited for organizations that wanted to SELL online exams, exam prep or training. But not every company does it this way, and most companies are simpy trying to sell the customer something, extracting their revenue and hopefully profit from the relationship, often before the customer does.

The obvious benefit of a risk based partnership for the customer is a dramatically reduced up-front cost and lowered risk as they start up their project, and then sharing in the success as the site grows. The nature of our application (multi-tenant web-application) still assured the customer that even after the site was a success, they would still be paying less than if they tried to tackle the project themselves.

The downside to us, is that we have built many projects where we have never received a penny of revenue, as the risk we shared with the customer was a bad one. Not always a bad idea, but perhaps bad timing, a change in market condition, and yes even the selection of a bad partner.

But this is not the single biggest reason we have found success with this model. The number one reason it has helped us, is that we are always working to help and improve the success the customer gets from our service. If they succeed, we succeed. This dramatically reduces any animosity between parties that inevitably happens when the vendor gets paid for something that doesn’t work for the customer, and vice versa.

Now if revenue sharing doesn’t work for your business model, that doesn’t mean that you shouldn’t still consider a model that pays you for your customers success. Every effort should be made to structure a win/win model, no matter how you charge. In the world of software especially, everyone is hurt when large up-front investments are made and the relationship turns to pay for service, instead of pay for success. For our non e-commerce partners, we use a low-cost per usage license model, ensuring that the customer only pays when the product is adopted and used by it’s stakeholders. The abandonment rate of software usage within an organization is alarming, and this means much risk to a pay-per-use model like ours, but I can guarantee you that if the product’s value quotient is correct, then the customer will be happy to pay when it gets used.

Something to consider when you are pricing your product. Take some risk and believe in your solution, if you’re right, everybody wins.

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One comment

  • Tristan Dressler June 1, 2010   Reply →

    Great post.

    "we are always working to help and improve the success the customer gets from our service."

    There are few things more rewarding than seeing an idea really take off after months of working with a partner on marketing strategies and re-designs. After that idea finally finds it’s wings, it’s a blast to hold on for the ride.

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