Micro Payments, Micro Profit?

Posted on by David
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The only way to make significant revenue with micro payments is to get an awful lot of them.

Any questions? 🙂

OK, I’ll say a bit more about my rationale for that position.

I work with a lot of membership organizations and the idea of micro payments is often very appealing to their leaders. They provide a very low price point on some products which they can point to when members complain about overall prices of products. It’s also quite trendy, with high profile examples like Kiva.com leading the way with that business model for micro-lending.

Let’s take a look at the math for a hypothetical association. Let’s say they are a scientific society with 20,000 members who pay $399 a year to join. We’ll use them as our pre-qualified base of prospects for a micro-payment product.

Evernote, the very popular note taking application that works on almost anything with a chip and a screen, recently shared some stats. Shortly after they started up, about 1% of their free users converted to paying customers.

If we take a mirco-priced product at $1.00 and 1% of our hypothetical base makes the purchase, then you end up with this:

(20,000 * 1%) * $1.00 = $200.00

Compare that revenue to what they get in membership dues:

20,000 * $399.00 = $7,980,000.00

The organization will literally waste more in jammed paper in their printers than they would make on this single micro-priced product. This is before taking into account the costs of producing the product and implementing micro payments, online access, etc.

Hell, having a single staff meeting to discuss this product already puts it in the hole!

This association would need a base market of about 2,000,000 people to make the revenue even slightly interesting with these assumptions. They still need a lot more people in that market even if you bump up the price and the conversion rate.

Other issues with micro payments include:

  • They must be frictionless to complete (think texting to donate to the Red Cross for Haiti, for example).
  • Products with micro prices are often perceived as low value by your prospective buyers.
  • You’ll often need a wide array of micro-priced products rather than just one to have the level of sales you need to create significant revenue.
  • Repackaging content from other sources into micro-priced chunks often requires selling it to an entirely different, and larger, market.

The only exceptions I might make for developing micro payments if you don’t have a large enough market include:

  • It serves a political or policy need that provides enough value beyond cash revenue;
  • People who purchase the micro-priced product are great candidates for macro priced products that you then sell to them (classic loss leader transactions).

I’m sure someone somewhere in the association world has done a successful micro payment model. (Let me know about it in the comments if you have!) But every leader and product manager must go into the decision making process with a realistic understanding of the numbers involved before committing resources to implement this model.

Opening the Books to Staff

Posted on by David
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Great story in the New York Times today as part of their series on small businesses. The post is about how a new factory owner revealed and explained the financials of the company to the staff and placed accountability on them to make the changes necessary to save turn the operation around. A choice quote:

Starting Over in Lexington: Blowing the Doors Off

Seeing an opportunity to diversify the plant’s products and clients, we took it over, saving 100 in jobs in the process. But we didn’t write a blank check: we told the employees that we would teach them financial literacy, that we would open our books to help them understand how the place works and think more like owners, and that the onus was on them to turn the place around. We also told them they had 36 months to turn it into a sustainable operation.

I talked about this in one of the e-mails sent as part of my Orgpreneur Weekly Tip (you subscribe, right?). If staff don’t know where the money comes from and how it gets spent they can’t predict or help with causes and effects that influence the bottom line for your organization.

Show staff the money! This factory in ‘blowing the doors off’ their revenue goals in part because the employees figured out how to make it happen. They were able to do this because they had knowledge they needed to do so and ownership of the results.

Assuming Risk

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My friend Wes Trochlil pointed out his favorite definition of entrepreneur in a post today:

…someone who organizes a business venture and assumes the risk for it.

That really does get to the essence of it, especially the part that comes after ‘and.’

Entrepreneurship is all about taking on risk in order to achieve something greater. The classic business entrepreneur puts their cash, assets, time and relationships on the line when she starts a new enterprise. The risks for an orgpreneur, someone who works within an organization in an entrepreneurial way, are different.

Orgpreneurial risk can include:

  • Time.
  • Budget.
  • Staff.
  • Status.
  • Relationships.
  • Employment.

Rarely if ever does an orgpreneur put their house on the line when they start something new. The risks are significantly lower when working internally while the gains do not have as much direct financial reward for the individual.

So, why take on the risk inside an organization? Many people chose not to. But what a boring professional life! The risks for an orgpreneur are hardly fatal and, if you should lose your job over something (very rare), you have the skills and value to be back at it in short order even in the worst of economies.

The value of orgpreneurial risk taking internally include: achievement and tangible results; personal satisfaction; motivated teams; contribution to your mission; looking forward to work; career advancement; preparation for better work somewhere else.

The other benefit to taking risk within the organization is that you will achieve things, you will be more valuable. You will be more secure in your position and career than if you never took a risk internally. Taking no risk is simply too risky for anyone working in organizations today.

Example of a Goal That Matters in Action

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An Apparel Factory Defies Stereotypes, but Can It Thrive

I read this story in the New York Times over the weekend about Knights Apparel, a company that manufactures t-shirts and other clothing for college book stores. The founder and CEO, Joseph Bozich, wanted to not only offer a great and profitable product, he wanted to address a critical issue in the apparel market: being successful without paying wages that keep workers below the poverty level.

As you read it, you can note the passion for their work that the executives, their workers, and their customers have for the idea of creating apparel while paying workers a living wage. This is the dynamic that goals that matter create.

The kind of endeavor you are in, for profit or not, doesn’t really matter. What does is a goal that motivates your leadership and staff while drawing to you the customers or constituents you need to make it happen.

The IE6 Decision

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More and more website publishers are deciding to drop support for Internet Explorer 6. This browser has notoriously poor, incomplete, and outright missing support for modern standards in web design and interactivity. Thus making a site that works well in IE6 and current browsers requires significant additional effort. Many web design firms are moving to a model of charging extra for IE6 support on top of regular design fees.

IE6’s days are numbered.

However, many organizations wrestle with when to drop it from the list of supported browser for their site. Total traffic from that browser version is often cited as a metric to use. Only 6% of our visitors use it? Drop that browser like a hot potato!

Hold on though, what if those 6% do something important, like making 20% of your online purchases in your store? Do you want to walk away from that income? Probably not.

Here are a few criteria to use in assessing if you should continue to support IE6 for the time being while we wait for it to finally die off (which is happening more rapidly now).

Do a significant proportion of IE6 users on your site:

  • Login to a members-only area or frequently use other core functionality?
  • Make purchases in your store? Representing how much revenue?
  • Represent key constituents or prospects for your organization?

You get the idea. If IE6 users are not part of a relevant audience for your key goals online then you are safe dropping them even if they are a somewhat high percentage of your traffic. If IE6 users are valuable to your organization, then you very well may be better off investing in supporting them.

Great Ideas Often Start Out Merely Good

Posted on by David
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When I was growing up in Columbus, Ohio, in the 70s and 80s a new product line was introduced at the Big Bear grocery store: white label products. This was one of the first experiments with this new kind of consumer product.

The original white label products actually had white labels on them! A can of beans would have a white label and large text saying ‘Beans.’ The idea was that the products were offered at a lower price point because they didn’t have large marketing expenses built in to get people to buy them. (A huge part of the cost of many consumer food items is from marketing rather than raw materials and processing.)

Now white label products carry the brand of the supermarket selling them rather than just ‘Beans.’ Turns out consumers like the comfort of a brand when making a buying decision and adding the supermarket’s brand to a product spreads out their marketing costs across more products, allowing either lower price points or higher profits (or a bit of both).

The overall lesson here is that providing true white label products was a good idea. It lowered prices significantly. But it wasn’t a great idea until stores married it to their own brand.

Give your good ideas a shot and look to see how you can improve upon them. Most great ideas don’t start out that way.

Fly the Airplane

Posted on by David
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I just finished Atul Gawande’s The Checklist Manifesto: How to Get Things Right, in which he discussed how instituting checklists can reduce risk and increase positive results in many areas of management and operations.

One of many stories that caught my eye in the book was that of the checklist for engine failure in single engine Cesna planes. These craft, flown by a solo pilot, have a set series of actions that the manufacturer recommends taking when the engine fails, giving the pilot the best chance possible of getting the propeller back in action.

The first item on the checklist? FLY THE AIRPLANE.

Solo pilots become so absorbed in restarting the engine that they are prone to forget flying the gliding craft so that when they do restart the engine they haven’t already nosed over into the ground.

This is a very important point when in crisis, either professional or personal. We have to keep flying our planes. Whether that is making sure important tasks are still being completed during overwhelming crises at work or taking care of healthy family members even while caring for another who is critically ill.

If we don’t keep flying the plane we won’t have much left to work with once the crisis has passed. And they all do pass eventually.

As Winston Churchill said, “If you are going through Hell, keep going.” Keep flying the plane.

We Have Data! Now What?

Posted on by David
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Perfectly executed and statistically valid survey results won’t help you unless you actually do something based on the results. The trick is to design the survey and your business processes to enable action. Here are a few tips for doing so.

What questions will help us to determine results and make changes?
This is the most important of the three: considering what questions will best help you to improve the program, service or product about which you are gathering data.

If you offer a training seminar, is the satisfaction of the attendee during the event the most important aspect or are the improved outcomes they create on their job using this new knowledge? Probably the latter, although it is much more common to survey the former.

Who can best answer those questions for us?
Following what to ask is then who to ask it. Continuing the example above, if the key metric is improved job performance, then the right people to ask about that are probably the supervisors or managers of the people attending the event rather than those who were there.

It can often be extra work to identify and contact those who can actually answer your questions but it is critical if you want data that is valuable and enables you to take action.

Build in time and resources for analysis and action.
Even when you ask the right people the right questions, you won’t get anywhere unless you build in time and resources to really go through the results.

Who can make decisions about what to do? Who can best analyze the results and recommend alternatives and changes if warranted? Put time on their calendars before the surveys goes out so they will convene to review results and make decisions.

If you do the above you’ll be much more likely to improve the quality of whatever it is you are surveying about.

Mid Year 2010

Posted on by David
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We are officially half-way through the Year 2010.

How’s it going? Hit your goals? Made good progress? Delighted someone yet? I hope so!

There are 6 months to go in this year which feels like a lot of time, just like it did in January.

Take a moment by yourself or with your team and identify one thing that you absolutely want to make sure is achieved this year. Map out the next three actions you should do to move it forward. Put them in your calendar, freeing up time for it if necessary.

If you don’t make it a priority, who will?

Launch Lessons from Five Guys Burgers

Posted on by David
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A new Five Guys burger restaurant just opened in our town, which I had been eagerly anticipating. I used to eat at the original restaurant in Arlington, VA, back in the early 90s. When I stopped in to the Salisbury shop for the first time they had been open for about four days.

I got my order and sat down at a table next to a guy who was wearing a Five Guys t-shirt but without the demeanor of someone who flips burgers. As I unwrapped my burger I noticed it had all the wrong toppings on it. It must have shown on my face because suddenly I hear from the next table, “Not what you wanted?”

I said it wasn’t, he confirmed my original order and then headed back to the kitchen. A few minutes later he was back with a new burger, another round of fries, and offered his apology.

Great customer service, no? I asked if he were the owner of the store and he said he was. He was doing something very smart for a business leader: he was sitting in his store during peak operations in the first week, watching how it went. Taking care of my individual burger was nice but the real important thing for him as the owner was that he had evidence of a broken process, poor training, or a simple one-off error. It was data he could act on, discovered during the shakedown cruise of his restaurant.

The first cruise of a new ship is often called a shakedown because components that will fail early usually do so during that first cruise. They identify those problems, fix them, and then have confidence that the rest of the ship ought to hold up for the normal lifetime of those components.

Same principle applies to launching a new restaurant, a new product or a new service. Pay a lot of attention during the shakedown run. Stay close to the action and see what isn’t working as planned. Being close lets you catch these items quickly and do something about it.