Successful Software

Lack of feedback is one of the most difficult things about caring for a small child. You know they are unhappy because they are crying. But you don’t know if that unhappiness is due to: hunger, thirst, too hot, too cold, ear ache, stomach ache, wind, tiredness, boredom, teething or something else. They can’t tell you, so you can only guess. Creating software without feedback is tough for the same reasons. You know how well or badly you are doing by the number of sales, but without detailed feedback from your customers and prospective customers, it is difficult to know how you could do better.

The importance of feedback is amply illustrated by many of the stories of successful companies in the excellent book “Founders at work” by Jessica Livingston. For example, PayPal started out trying to sell a crypto library for the PalmPilot. They went through at least 5 changes of direction until they realised that what the market really wanted was a way to make payments via the web.

So good feedback is essential to creating successful software. But how do you get the feedback?

Face-to-face meetings

Meeting your customers face-to-face can give you some detailed feedback. But is time consuming and doesn’t scale when you have hundreds or thousands of customers. You can meet a lot of customers at a exhibitions, but it hardly an ideal venue for any sort of in-depth interaction. Also, they may be too polite to tell you what they really think to your face.

Technical support

Technical support emails and phone calls are a gold-mine of information on how you can improve your product. If one customer has a particular problem, then they might be having a bad day. But if two or more customers have the same problem, then it is time to start thinking about how you can engineer out the problem. This will both improve the utility of your product and reduce your support burden.

In order to take advantage of this feedback the people taking the support calls need to be as close to the developers as possible. Ideally they should be the same people. Even if you have separate support and development staff you should seriously think about rotating developers through support to give them some appreciation of the issues real users have with their creation. Outsourcing your support to another company/country threatens to completely sever this feedback.

Monitoring forums and blogs

Your customers are probably polite when they think you are listening. To find out what they really think it can be useful to monitor blogs and relevant forums. Regularly monitoring more than one or two forums is very time-consuming, but you can use Google alerts to receive an alert email whenever a certain phrase (e.g. your product name) appears on a new web page. This feedback can be valuable, but it is likely to be too patchy to rely on.

Usability testing

A usability test is where you watch a user using your software for the first time. You instruct them to perform various typical tasks and watch to see any issues that occur. They will usually be asked to say out loud about what they are thinking to help give you more insight. There really isn’t much more to it than that. If you are being fancy you can video it for further analysis.

Usability tests can be incredibly useful, but it isn’t always easy to find willing ‘virgins’ with a similar background to your prospective users. Also the feedback from usability tests is likely to be mainly related to usability issues, it is unlikely to tell you if your product is missing important features or whether your price is right.

Uninstall surveys

It is relatively easy to pop-up a feedback form in a browser when a user uninstalls your software. I tried this, but got very few responses. If they aren’t interested enough in your software to buy it, they probably aren’t interested enough to take the time to tell you why. Those that I did get were usually along the lines “make it free”[1].

Post purchase surveys

I email all my customers approximately 7 days after their purchase to ask whether there is anything they would like me to add/improve/fix in the next version of the software. The key points about this email are:

• I give them enough time to to use the software before I email them.
• I increase the likelihood of getting an answer by keeping it short.
• I make the question as open as possible. This results in much more useful information than, say, asking them to rate the software on a one to ten scale.
• I deliberately frame the question in such a way that the customer can make negative comments without feeling rude.

The responses fall into five categories[2]:

1. No response (approx 80%). They didn’t respond when given the opportunity, so I guess they must be reasonably happy.
2. Your software is great (approx 10%). This really brightens up my day. I email them back to ask for permission to use their comment as a testimonial. Most people are only too happy to oblige.
3. Your software is pretty good but it doesn’t do X (approx 10%). Many times my software actually does do X - I tell them how and they go from being a satisfied customer to a very happy customer. Also it gives me a pointer that I need to make it clearer how to do X in the next version. If my software doesn’t do X, then I have some useful feedback for a new feature.
4. Your software sucks, I want my money back (rare). Thankfully I get very few of these, but you can’t please all of the people all of the time. Sometimes it is possible to address their problem and turn them from passionately negative to passionately positive. If not, I refund them after I get some detailed feedback about why it didn’t work for them[3].
5. Stop spamming me (very rare). From memory this has happened once.

I consider them all positive outcomes, except for the last one. Even if I have to make a refund, I get some useful feedback. Anyway, if you didn’t find my software useful, I don’t really want your money.

Being pro-active like this does increase the number of support emails in the short-term. But it also gives you the feedback you need to improve your usability, which reduces the number of support emails in the longer term. I think the increased customer satisfaction is well worth the additional effort. Happy customers are the best possible form of marketing. Post-purchase emails are such a great way to get feedback, I don’t know why more people don’t use them. Try it.

If you make it clear that you are interested in what your customers have to say they will take more time to talk to you. If you act on this feedback it will improve your product (some of the best features in my software has come from customer suggestions). A better product means more customers. More customers means more feedback. It is a virtuous cycle.

All you have to do is ask.

[1] Only if you pay my mortgage. Hippy.

[2] The percentages are guesstimates. I haven’t counted them.

[3] My refund policy specifies that the customer has to say what they didn’t like about the software before I will issue a refund.

As a regular on FogCreek’s Business of Software forum I see the same questions come up time and again.

• How do I do SEO?
• How do I improve my return on Adwords?
• Which hosting company should I use?
• Which payment processor should I use?
• etc.

So I have quickly thrown together a BOS FAQ page in an attempt to raise the level of debate. Hopefully other people will add it to it. Even if you don’t read the forum you might find some of the links useful.

David Heinemeier Hansson of 37Signals espouses a radical new business model: create something people want, then charge them money to use it.

The secret to making money online (video, 32 minutes)

I think it is well worth watching, especially if you have been brainwashed into the prevailing VC-funded, Facebook-or-bust, flip-it-before-we-run-out-of-cash mentality. If you still aren’t convinced, read this post by Dennis Forbes.

Developers often ask in forums how they can get their software into retail. I think a more relevant question is - would you want to? Seeing your software for sale on the shelves of your local store must be a great ego boost. But the realities of selling your software through retail are very different to selling online. In the early days of Perfect Table Plan I talked to some department stores and a publisher about selling through retail. I was quite shocked by how low the margins were, especially compared with the huge margin for online sales. I didn’t think I was going to make enough money to even cover a decent level of support. So I walked away at an early stage of negotiations.

The more I have found out about retail since, the worse it sounds. Running a chain of shops is an expensive business and they are going to want take a very large slice of your cake. The various middlemen are also going to take big slices. Because they can. By the time they have all had their slices there won’t be much left of your original cake. That may be OK if the cake (sales volume) is large enough. But it is certainly not something to enter into lightly. Obviously some companies make very good money selling through retail, but I think these are mostly large companies with large budgets and high volume products. Retail is a lot less attractive for small independents and microISVs such as myself.

But software retail isn’t an area I claim to be knowledgeable about. I just know enough to know that it isn’t for me, at least not for the foreseeable future (never say never). So when I spotted a great post on the ASP forums about selling through retail, I asked the author, Al Harberg, if I could republish it here. I thought it was too useful to be hidden away on a private forum. He graciously agreed. If you decide to pursue retail I hope it will help you to go into it with your eyes open. Over to Al.

In the 24 years that I’ve been writing press releases and sending them to the editors, more than 90 percent of my customers have been offering software applications on a try-before-you-buy basis. In addition, quite a few of them have ventured into the traditional retail distribution channel, boxed their software, and offered it for sale in stores. This is a summary of their retail store experiences.

While the numbers vary greatly, a software arrangement would have revenues split roughly:

• Retail store - 50 percent
• Distributor - 10 percent
• Publisher - 30 to 35 percent
• Developer - 5 to 10 percent

Retail stores don’t buy software from developers or from publishers. They only buy from distributors.

The developer would be paid by the publisher. In the developer’s contract, the developer’s percentage would be stated as a percentage of the price that the publisher sells the software to the distributor, and not as a percentage of the retail store’s price.

The publishers take most of the risks. They pay the $30,000(US) or so that it currently takes to get a product into the channel. This includes the price of printing and boxing the product, and the price of launching an initial marketing campaign that would convince the other parties that you’re serious about selling your app.

If your software doesn’t sell, the retail stores ship the boxes back to the distributor. The distributor will try to move the boxes to other dealers or value-added resellers (VARs). But if they can’t sell the product, the distributors ship the cartons back to the publisher.

While stores and distributors place their time at risk, they never risk many of their dollars. They don’t pay the publisher a penny until the software is sold to consumers (and, depending upon the stores’ return policies, until the product is permanently sold to consumers - you don’t make any money on software that is returned to the store, even though the box has been opened, and is not in good enough condition to sell again).

The developer gets paid two or three months after the consumer makes the retail purchase. Sometimes longer. Sometimes never. If you’re dealing with a reputable publisher, and they’re dealing with a major distributor, you’ll probably be treated fairly. But most boilerplate contracts have “after expenses” clauses that protect the other guys. You need to hire an attorney to negotiate the contract, or you’re not going to be happy with the results. And your contract should include an up-front payment that covers the publisher’s projection of several months’ income, because this up-front payment might well be the only money that you’re going to ever see from this arrangement.

Retail stores’ greatest asset is their shelf space. They won’t stock a product unless there is demand for it. You can tell them the most convincing story in the world about how your software will set a new paradigm, and be a runaway bestseller. But if the store doesn’t have customers asking for the app, they’re not going to clutter their most precious asset with an unknown program.

It’s a tough market. It’s all about sales. And if there is no demand for your software, you’re not going to get either a distributor or a store interested in stocking your application. These folks are not interested in theoretical demand. They’re interested in the number of people who come into a retail store and ask for the product.

To convince these folks that you’re serious, the software publisher has to show a potential distributor that they have a significant advertising campaign in place that will attract prospects and create demand, and that they have a press release campaign planned that will generate buzz in the computer press.

Many small software developers have found that the retail experience didn’t work for them. They’re back to selling exclusively online. Some have contracted with publishers who sell software primarily or exclusively online. Despite all of the uncertainties of selling software online, wrestling with the retail channel has even more unknowns.

Al Harberg

Al Harberg has been helping software developers write press releases and send them to the editors since 1984. You can visit his website at www.dpdirectory.com.

I am offering £100 off my daily consulting fee until the end of March. Could you use an experienced and objective review of your strategy, marketing and product? When you have been eating, sleeping and breathing your business it can be difficult to ’see the wood for the trees’ and a fresh perspective can be a huge help. More details here.

If people buy your software in bulk they expect to get a discount. But how much of a discount should you give them? A simple formula I have seen used is:

discounted price = unit price * n^f

Where n is the total number of units purchased and f is a scaling factor between 0 and 1. So, for example, if my unit price is 24.95 (pounds, dollars etc) and f is 0.8, the discounted price for 10 units is = 24.95 * 10^0.8 = 157.42, which you can then round to a more aesthetically appealing number.

This is a little over-simplistic, as it doesn’t take account of the cost to you of each unit (for example the duplication and postage cost of CDs and the cost of payment processing). We can get around this by breaking the price into a fixed cost and a margin and only applying the discount to the margin. Below is a link to a simple Excel spreadsheet that does this for you. You can change any of the values in the orange fields. f seems to give sensible results in the range 0.75 to 0.9.

discount spreadsheet (29kb, Excel 97-2003 format)

This spreadsheet can be useful to give you a starting point, but you also need to consider what the customer is prepared to pay. You maximise your profit by giving the buyer the minimum discount that is required to make the sale. For example, a reseller is out to make a profit and will probably expect a bigger discount on the same number of units than a large company buying in bulk for their end users. When in doubt, reduce the discount. You can always increase it a bit later if they don’t buy.

I have belatedly got around to reading Bob Walsh’s new e-book: “MicroISV Sites that Sell! Creating and Marketing Your Unique Selling Proposition”. This is the first in a series of e-books for microISVs that allows Bob to go into selected subjects in more depth than was possible in his book “Micro-ISV: From Vision to Reality“.

The e-book is aimed very specifically at microISVs looking to create a website to sell their software effectively. It has a lot of detailed advice that I think will be invaluable to anyone creating their first microISV website. I have lost count of the number of microISV sites that make some of the mistakes Bob identifies, including:

• it isn’t immediately clear what the product does
• selling on features instead of benefits
• too much text
• inappropriate use of technical jargon

The content will inevitably be less useful for established microISVs, but you only need to find one useful idea to justify the cost of the e-book. My only real gripe is the comparison between programming patterns and marketing. I didn’t find this a helpful comparison. Marketing is a very different beast to programming and the sooner we face up to it, the better.

You can get a copy for $19 here.

Full disclosure: I got a free review copy of this e-book.

I don’t really ‘get’ Facebook. Maybe that is because I am 42 years old and I am not supposed to. But I do get the advertising potential. Facebook have cunningly extracted detailed demographic data from their customers and are using this to offer highly targeted advertising to businesses. For example, Facebook currently has 32,080 females, aged 25-40, with a college education, in the USA who are engaged. These are the sort of people I would love to advertise my seating planner software to. But Facebook doesn’t want my money. A quick read through the Facebook advertising guidelines reveals:

No ad is permitted to contain or link, whether directly or indirectly, to a site that contains software downloads, freeware, or shareware.

This might possibly be due to worries about malware, but that seems to be covered by other clauses. Maybe they just want to keep their customers on the Facebook site, so they can click more ads? But, aren’t most URLs going to indirectly link to sites containing software downloads if you keep following links?

One of the keys to success in Google Adwords (and other pay per click services) is to write good ad copy. This isn’t easy as the ads have a very restrictive format, reminiscent of a haiku:

• 25 character title
• 2×35 character description lines
• 35 character display url

Whats more, there are all sorts of rules about punctuation, capitalisation, trademarks etc. You will soon find out about these when you write ads. Most transgressions are flagged immediately by Google algorithms, others are picked up within a few days by Google staff (what a fun job that must be).

Google determines the order in which ads appear in their results using a secret algorithm based on how much you bid, how frequently people click your ads and possibly other factors, such as how long people spend on your site after clicking. Nobody really knows apart from Google, and they aren’t saying. The higher your click frequency, generally the higher your ad will appear. The higher your ad appears in the results, generally the more clicks you will get. So writing relevant ads is very important. This means that each adgroup should have a tightly clustered group of keywords and the ads should be closely targeted to those keywords.

There is no point paying for clicks from people who aren’t interested in your product, so you need to clearly describe what you are offering in the few words available. For example you might want to have a title “anti-virus software” instead of “anti-virus products” to ensure you aren’t paying for useless clicks from people looking for anti-viral drugs (setting “drugs” as a negative keyword would also help here).

I have separate campaigns for separate geographic areas. Each campaign contains the same keywords in the same adgroups, but with potentially different bid prices and ads. This allows me to customise the bid prices and ads for the different geographic areas. For example I can quote the £ price in a UK ad and the $ price in a US ad. Having separate campaigns for separate geographic areas is a hassle, but it is manageable, especially using Google Adwords editor.

Writing landing pages specific to each adgroup can also help to increase your conversion rate. It is worth noting that the ad destination url doesn’t have to match the display url. For example you could have a destination url of “http://www.myapp.com/html/landingpage1.html?ad_id=123″ and a display url of “www.myapp.com/freetrial”.

Obviously what makes for good ad copy varies hugely with your market. Here are some things to try:

• a call to action (e.g. “try it now!”)
• adding/removing the price
• different capitalisation and punctuation
• keyword insertion (much beloved of EBay)
• changing the destination url

But, as always, the only way to find out what really works is testing. Google have made this pretty easy with support for conversion tracking and detailed reporting. I run at least 2 ads in each adgroup and usually more. Over time I continually kill-off under-performing ads and try new ones. Often the new ads will be created by slight variations on successful ads (e.g. changing punctuation or a word) or splicing two successful ads together (e.g. the title from one and the body from another). This evolutionary approach (familiar to anyone that has written a genetic algorithm) gradually increases the ‘fitness’ of the ads. But you need to decide how to measure this fitness. Often it is obvious that one ad is performing better than another. But sometimes it can be harder to make a judgment. If you have an ad with a 5% click-through rate (CTR) and 0.5% conversion rate is this better than an ad with a 1% click-through rate and a 2% conversion rate? One might think so ( 5*0.5 > 1*2 ) but this is not necessarily the case. I think the key measure of how good an ad is comes from how much it earns you for each impression your keywords get.

I measure the fitness by a simple metric ‘profit per thousand impressions’ (PPKI) where, for a given time period:

PPKI = ( ( V * N ) - C ) / ( I / 1000 )

V = value of a conversion (e.g. product sale price)

N = number of conversions (e.g. product sales) from the ad

C = total cost of clicks for the ad

I = impressions for the ad

Say your product sells for $30. Over a given period you have 2 ads in the same adgroup that each get 40k impressions and clicks cost  an average of $0.10 per click.

• ad1 has a CTR of 5%, a conversion rate of 0.5% and gets 10 conversions, which gives PPKI=$2.5 per thousand impressions
• ad2 has a CTR of 1%, a conversion ratio of 2% and gets 8 conversions, which gives PPKI=$5 per thousand impressions

So ad2 made, on average, twice the profit per impression despite the lower number of conversions. Given this data I would replace ad1 with a new ad. Either a completely new ad or a variant of ad2.

PPKI has the advantage of being quantitative and simple to calculate. You can just export your Google Adwords ‘Ad Performance’ reports to Excel and add a PPKI column. Some points to bear in mind:

• Selling software isn’t free. You may want to subtract the cost of support, CD printing & postage, ecommerce fees, VAT etc from the sale price to give a more accurate figure for the conversion value.
• PPKI doesn’t take account of the mysterious subtleties of Google’s ‘quality score’. For example an ad with low CTR and high conversion rate might conceivably have a good PPKI but a poor quality score. This could result in further decreases in CTR over time (as the average position of the ad drops) and rises in minimum bid prices for keywords.
• PPKI is a simple metric I have dreamt up, I have no idea if anyone else uses it. But I believe it is a better metric than cost per conversion, or any of the other standard Google metrics.

To ensure that all your ads get shown evenly select ‘Rotate: Show ads more evenly’ in your Adwords campaign settings. If you leave it at the default ‘ Optimize: Show better-performing ads more often’ Google will choose which ads show most often. Given a choice between showing the ads that make you most money and the ads which make Google most money, which do you think Google will choose?

Text ads aren’t the only type of ads. Google also offer other types of ads, including image and video ads. I experimented with image ads a few years ago, but they got very few impressions and didn’t seem worth the effort at the time. I may experiment with video ads in the future.

The effectiveness of ads can vary greatly. Back in mid-December I challenged some Business Of Software forum regulars to ‘pimp my adwords’ with a friendly competition to see who could write the best new ads for my own Google Adwords marketing. The intention was to inject some fresh ‘genes’ into my ad population while providing the participants with some useful feedback on what worked best. Although it is early days, the results have already proved interesting (click the image for an enlargement):

The graph above shows the CTR v conversion ratio of 2 adgroups, each running in both USA and UK campaigns. Each blue point is an ad. The ads, keywords and bid prices for each ad group are very similar in each country (any prices in the ads reflect the local currency for the campaign). Points to note:

• There were enough clicks for the CTR to be statistically significant, but not for the conversion rate (yet).
• The CTRs vary considerably within the same campaign+adgroup. Often by factor of more than 3.
• Adgroup 1 performs much better in the USA than in the UK. The opposite is true for adgroup 2.
• Adgroup 1 for the USA shows an inverse correlation between CTR and conversion rate. I often find this is the case - more specific ads mean lower CTR but higher conversion rates and higher profits.

‘Pimp my adwords’ will continue for a few more months before I declare a winner. I will be reporting back on the results in more detail and announcing the winner in a future post. Stay tuned.

Some years back my wife bought a PC and got a ‘free’ inkjet printer with it. It was a really lousy printer, but hey, it was free. When it ran out of ink we tried to get a new inkjet cartridge, but the cheapest set of cartridges we could find was £80. That was 4 times the price of other comparable cartridges at the time. Some further research showed that you could buy the printer for £20 - with cartridges! Their ugly sales tactics didn’t work. We threw it in the dustbin and bought an Epson inkjet, which gave years of sterling service using third party sets of cartridges costing less than £10.

When I started my company I had a thousand decisions to make. One of them was which software to use to create and maintain my new product website. It just so happened that my new ISP (1and1.co.uk) was offering a bundle of ‘free software worth £x’ when you signed up (I forget the amount). It included a web design package (NetObjects Fusion 8 ) and an FTP package (WISE-FTP). Hoorah, free (as in beer) software and 2 less decisions to make. I was weak. Instead of spending time checking out reviews and evaluating competitors, I just installed and starting using them. It didn’t occur to me that they might be using the same sales tactics as the manufacturer of the lousy printer. In this imperfect world, if something appears too good to be true, it usually is. And so it was in this case. I grew to hate both these pieces of software.

WISE-FTP was just flaky. It kept crashing and displaying German error messages, despite the fact that I had installed the English version. No problem, I just uninstalled and installed FileZilla which is free (as in beer and speech), stable and does everything I need and more.

NetObjects Fusion was flaky and hard to use. By saving after every edit I could minimise the effects of the regular crashes and I assumed that I would learn how to work around other problems in time. But I never did. By the time I decided that the problems were more due to the shortcomings of NetObjects Fusion as a software package, rather than my (many) shortcomings as a web designer, it was a little late. I had already created an entire website, which was now stored in NetObjects Fusion’s proprietary database. Some of the bugs in NetObjects Fusion are so major that one wonders how much testing the developers did. My ‘favourite’ is the one where clicking a row in a table causes the editor to scroll to the top the table. This is infuriating when you are editing a large table (my HTML skills haven’t yet reached the 21st century).

In despair I eventually paid good money to upgrade to NetObjects Fusion 10. Surely it would be more stable and less buggy after two major version releases? Bzzzzt, wrong. The table scrolling bug is still there and it crashed 3 times this morning in 10 minutes. Also, every time I start it up the screen flashes and I get the ominous Vista warning message “The color scheme has been changed to Windows Vista Basic. A running program isn’t compatible with certain visual elements of Windows”. Even just trying to buy the software upgrade off their website was a confusing nightmare. The trouble is that it is always easier in the short-term to put up with NetObject Fusion’s many shortcomings than to create the whole site anew in another package.

For want of a better term I call this sort of software ‘upgradeware’ - commercial software that is given away free in the hope that you will buy upgrades. This is quite distinct from the ‘try before you buy’ model, where the the free version is crippled or time-limited, or freeware, for which there is no charge ever. Upgradeware is the software equivalent of giving away a printer in the hope that you will buy overpriced cartridges. Only it is less risky, as the cost of giving away the software is effectively zero. It seems to be a favoured approach for selling inferior products and it is particularly successful when there is some sort of lock-in. It certainly worked for NetObjects in my case.

Norton Anti-virus are the masters of upgradeware. Norton Anti-virus frequently comes pre-installed on new PCs with a free 1-year subscription. The path of least resistance is to pay for upgrades when your free subscription runs out. By doing these deals with PC vendors, Symantec sell vast amounts of subscriptions, despite the fact that Norton Anti-virus has been shown in test after test to be more bloated and less effective than many of its competitors. And if you think Norton Anti-virus doesn’t have any lock-in, just try uninstalling it and installing something else. It is almost impossible to get rid of fully. Last time I tried I ended up in a situation where it said I couldn’t uninstall it, because it wasn’t installed, and I couldn’t re-install, because it was still installed.

I feel slightly better now that I have had a rant about some of my least favourite software. But there is also a more general point - ‘free’ commercial software can end up being very expensive. Time is money and I hate to think how much time I have wasted struggling with upgradeware. So be very wary of upgradeware, especially if there is any sort of lock-in. When I purchased a new Vista PC, the first thing I did was to reinstall Vista to get rid of all the upgradeware that Dell had installed (Dell wouldn’t supply it to me without it). You could also draw the alternative conclusion that upgradeware might be a good approach for making money from lousy software. But hang your head in shame if you are even thinking about it. It would be better for everyone if you just created a product that was good for customers to pay for it up-front.

Ps/ If you fancy the job of converting www.perfecttableplan.com to beautiful sparkly clean XHTML/CSS and your rates are reasonable - feel free to contact me with a quote.