How to get your first customers to pay for your product

by Jun Loayza on September 13, 2011

Early stage startups love to give their product out for free.  It lets them beta test their product with early stage customers, get the bugs fixed, and build case studies so that they can later use these case studies to close large accounts.  This model has been tried again and again.

Stop doing it: stop giving your product away for free; stop letting your early-stage customers take advantage of you; stop de-valuing the product that you’ve built.

I’m going to tell you two lessons that I learned a long time ago:

  1. If a client uses your product for FREE, it does NOT mean that a future client will pay for the product
  2. Clients don’t purchase your product based on case studies

Who should read this post: Early stage startups that don’t have case studies and are looking to find their first paying customers.

What you will learn: How to pitch your product to your first customers so that they pay for your product without needing to look at case studies.

This is the usual pitch that a startup gives to their first prospective clients:

Hi David, thanks so much for meeting with me today.  My startup does the following… Since we’re an early stage company and don’t have many clients yet, we’d like to give you our product for free to test it out.  If you love our product and it does great things for your business, then we can talk about future pricing.  What do you think?

Stay as far away from the above pitch as possible.  To get a prospective customer to want your product and to pay for your product, follow the following steps:

  1. Understand their pain
  2. Customize the product message to solve their pain (pitch the dream)
  3. Do not focus on pricing until they’ve committed to your product
  4. Exit the pitch on your terms

Understand their pain

When given the opportunity to pitch, it’s only natural to want to jump in and start telling the prospective client about all of the cool features and services that your product offers.  Before you do, take a moment to show the customer that you respect him and that your product solves his exact needs.

To do this, you’ll need to understand his pain.

Every startup will have a unique set of questions to ask.  Below are the questions that I ask customers in the CRM industry – go ahead and model the questions to fit customers in your industry.

  1. How do you currently manage your customer relationships?
  2. How do you measure the effectiveness of your campaigns?
  3. What are your greatest challenges in building a relationship with your current customers?

At most I’ll ask 3 questions.  I will then use the information I gathered to customize the pitch I give.

Pitch the Dream

This is your chance to show the prospective client that you understand their pain and that the product that you’ve built solves it.  But before you begin, you must understand that the prospective client will not understand all of the technical mumbo-jumbo that you’re about to throw at him.  It’s not enough to make your message simple and concise; you must make your message attractive to your prospective customer.

How to make your message attractive

If you’re speaking to a local merchant, then you need to speak in ways that are attractive to him.  A local merchant is entrenched in the day-to-day activities; therefore, you will scare your prospective client away by talking about all the various features that your product has.  Too many features means more training for his staff; too many features means more time for him to manage the product.  To make it attractive, you must focus the pitch on one of two things: your product will increase revenue or your product will decrease costs.

If you’re speaking to an MBA corporate executive, then this professional wants to know the numbers.  How will this product increase revenue?  How will this product decrease costs?  What are expected projections for the next 3 years?  How will you deploy the product at all locations?  How will you train employees?  You will not need to dive into all of this in extreme detail during the meeting, but it is important for you to have the answers to these questions should they arise during the meeting.

The ‘Dream’ must hit on an emotional level

People make decisions based on emotions and later justify these decisions rationally.

Example of our product pitch:

The Dream is NOT: A new loyalty program that gets customers to come back more often to your store and spend more money

The Dream IS: We give medium-sized franchises and retailers the power and technology that McDonald’s and Starbucks have.

I know that my target customer wants to compete with the bigger franchises, but they lack the money and technology to do it.  We solve this pain – we give them the platform that makes them as powerful as the big players in the market.  This message resonates with our target customer; this message impacts them on an emotional level.

Do not focus on pricing until they’ve committed to your product

Do not let a prospective customer jump straight into pricing; they must first commit to the dream you have pitched.

I took the following strategy from the book Pitch Anything:

Prospective customer: “How much does it cost?”

You: “Before we talk about pricing, I’d like to first know that we are in line with the vision we have presented for your company.  It’s important to us that you are committed to the value proposition that we have presented and the execution of these goals.  If we are now in line at this fundamental level, then there is no point in continuing and talking about pricing.”

Get them to commit to your value proposition.  If they don’t, then there’s no way they’re going to use your product – even if you give it away for free.

Exit the Pitch on your own terms

I have taken this strategy from Pitch Anything as well as I’ve seen it work marvelously in meetings.

At the very beginning of the meeting, you should have set a time frame for the end of the meeting. Commit to this time frame religiously.  For example, if you’re still in the Q&A session of your meeting and your 30 minutes are up, respectfully let your prospective customer know that you must head out for your next meeting.

Use the following script:

“It was a real pleasure to speak with you today.  If you believe in the vision of enter vision statement here, then I encourage you to contact me at my office so that we can talk about next steps.”

They must commit to your product and your vision.  If they’re committed, then they need to reach out to you to talk about next steps.

The entire point of this pitch is to create the feeling that you’re not desperate for a client and that you’re not desperate for money; you have a solid product that solves a real pain for this prospective customer – if he believes that, then he should pay for what the product is worth.

Of course you will not close a paying customer every time; however, if you use the above techniques, you will make sure that your first customer closed is a paying customer.

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  • Theresa

    Jun, how much should I charge for our product?

    We don’t have any paying customers at the moment, so I’m worried that we may charge too much or too little.

    I also don’t want to scare away my potential customers with the price.

    Any advice?

    • http://JunLoayza.com Jun Loayza

      What does your competition currently charge for their product?

      What do you want to be seen as:
      – A high end product (more expensive than the competition)
      – A low end product (cheaper than the competition)

      Most corporations will negotiate pricing with you. Start honest but high, and then let them negotiate down.

      Since this is your first client, be firm, but know that you’ll eventually have to give in to their price in order to get the client.

      Key thing is to make sure you don’t let them have the upper hand. You’re experienced, your product works, and you should be paid what you’re worth. Keep that mentality and you should be fine with pricing.

  • mboudin

    I work in sales at a new startup in New York.

    I’m not paid a lot, but since I’m one of the first employees, I do get equity based on commission.

    We’re currently targeting local merchants. The model right now seems to slow; it takes me more than 2 weeks to close a small client – which is not scalable.

    How can I increase my close rate?

    • http://JunLoayza.com Jun Loayza

      There’s are a few reasons we got out of the local merchant space:

      1. They don’t understand technology
      2. They don’t have any money
      3. They want more foot traffic

      We have quickly pivoted our target market and now focus on 20 – 100 location franchises.

      The model for on-foot sales in the local merchant word is to throw money at a large sales team and call all day. It’s what Groupon and Yelp are doing now.

      The only way to get out of it is to go after a different target client

  • skout123

    I’m trying to raise funding, recruit developers, and close client deals. It’s too much to handle at once.

    How can I get some good sales people on the team for cheap?

    • http://JunLoayza.com Jun Loayza

      Good sales people don’t come cheap. They’re going to ask for a lot of commission, or equity in your company.

      We currently have some sales people on our team that work for commission-equity. Every time they close a deal, they receive a certain percentage of equity.

      They of course have a cliff they must hit. The cliff is a benchmark that the sales person must hit in order to get any equity at all.

      Where are you currently located? I’m sure there are a lot of startup events to go to with sales people looking for cool technology to sell

  • Matt

    Would it be possible to get some sample pitches from you or for me to see your pitch PDF that you give to clients?

    I’m having trouble crafting my own.

    • http://JunLoayza.com Jun Loayza

      Perhaps. Send me an email at me [at] junloayza.com and we can talk further.

  • Pingback: Getting Your First Paying Customers | Inside-Startups.com()

  • http://www.pipdigital.com Nancy

    I’m having a really hard time making that first sale. The product we offer is something that’s going to require an investment by the customer. Second, we’re targeting customers who depend on public funding so every penny has to be accounted for. How do I bridge the gap and get people past the sticker shock?

    I’ve pitched to many, many customers and not once have I made a sale. I don’t think it’s my pitch because I get people VERY excited about the product. However, the moment I hand them the price sheet, they go pale and say, “That’s pretty expensive and I just don’t think we can do it.”

    There’s not even an attempt at negotiation.

  • http://RunAStartup.com tom

    I also read Pitch Anything and watched his interview.

    @Theresa and @Nancy Before stating your price, you want to anchor the value to a current expense they might have, then tell the prospect how much more return they get on your product.

    Example: Your inventory tracking software product is $99/monthly. Your prospect currently has two employees keeping tracking of inventory on clipboard. Cost of two employees per month $5,000. Your software speeds up inventory tracking so only one employee can handle it or two employees do it in half the time. Thus cutting their expense to $2,500. Essentially your $99 software save the company $2,500 each month.

  • r

    I work in a company, the mission is designing websites
    we have some website but we cant find any customer to use them
    what should we do?

  • http://comingmore.com/sitemap.xml hamayon

    nice tips for increasing customers here Jun Loayza, normally people offer some products for free in the start ( to make their reputation ) and this is a normal practice. But here you have explained the other side of picture, hope this will help me.

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