Before leaving Google to work on my own startup, I did not think about monetization. It was assumed that if so many websites do this every day, it will be easy to charge for online services. But when I started developing Kapwing, a video editing site with a simple freemium model, I was confronted with an amazing amount of dangers on the road to simple profit making. In this article I will share some unexpected problems that we faced so that other start-up entrepreneurs would avoid them when they start making money on the Internet.

Pre-launch before monetization

After leaving our previous corporate jobs this summer, Eric (my co-founder) and I started creating Kapwing in late September. We released a pilot project in mid-October 2017. At first we had no monetization strategy. We asked users to send “donations” to Kapwing. No wonder no one did.


The first version of Kapwing MVP
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Source Pricing Scheme

Startups that do not have a monetization plan die before they can maintain or scale their product. Erik and I live in San Francisco. To work on a full-time startup, we need a revenue stream that can pay for apartment rent.

We have chosen the base model of a premium subscription. About three weeks after launch, they began to add a small watermark “kapwing.com” in the corner of each video and asked users to pay for its removal. Users could pay either $ 1 for one video, or $ 10 / month for an unlimited number of videos without watermarks with access to all Kapwing tools. I like this scheme for several reasons: it is easy to try out new functions without obligations, the payment options are clear and limited, and the numbers are round.


Kapwing video confirmation page

Monetization Issues

As usual in the startup world, things didn't go according to plan. It turned out that making money on the Internet is not as easy as I thought. Here are the surprises we encountered when we tried to develop the SaaS website:

1. Passive user care has a significant effect on audience retention . I knew that the payment on the card does not always pass, but the cards change, but from my own experience I considered this a rare case. Mistake. Kapwing lost more users due to the failure of payment on the card than due to voluntary cancellation of the operation. Due to the high percentage of payment failures, we even added a $ 100 / year tariff plan, allowing users to save a little when paying in advance. Several people have chosen the annual plan. Conclusion: if your service charges a monthly fee, add an annual plan with some discount for regular customers.


Current pricing plans on the Kapwing payment page

2. Transaction fees reduce the benefits of small payments . We tried to offer Kapwing services at the lowest possible price, but from the commission, Stripe hair stands on end. For every $ 1, Stripe is charged 2.9% + 30 cents. This means that we receive only 66 cents per customer. We raised the price to $ 2 for one video, which is almost three times more profitable, because now we get $ 1.64. Conclusion: if your site supports microtransactions, when searching for ideal tariffs, consider the income after the transaction.

“It's not expensive, I like that you have a one-time payment, many people have only one video!” - From user reviews

3. Authentication and payment processing is technically non-trivial . Even with many existing subscription / registration and paid entry solutions, it took a lot of development effort to customize Kapwing's payment processing. We use Stripe in the payment process and rely on Google / Facebook for authentication. But even on these powerful platforms, to create a reliable paid service, you still needed to implement access restrictions yourself, processes for undo and update threads, contact points with support, and user profiles. We are still faced with serious errors when paid users can not log in. Conclusion: while you are not ready, it makes sense to start the site in free mode or without authentication.

4. Honest politics can be costly . When we started charging, I wanted to implement some noble ideas in order to be different from other subscription services. For example, cancel a monthly fee if the customer has not used the product within the last 30 days, automatically increase the level of access for customers who have paid more than $ 10 in one-time payments of two dollars, and set prices in round numbers [without popular marketing techniques like $ 9.99 - note trans.]. But some of these principles turned out to be expensive and difficult to maintain, and it’s hard to refuse money if you still don’t have enough to rent an apartment. I have not yet abandoned these ideas, but we will leave them for the future. Conclusion: when you are small and start to grow, it is difficult and often foolish to spend money or engineering efforts on things that you absolutely do not need.

5. If you are unable to prevent a person from evading payment, use this to your advantage . In Kapwing there is a not-too-obvious workaround on the payment page, which allows the user not to pay if he writes an apology or leaves a review on the website. Clicking on the link "I really can not pay", the user removes the watermark for free. As a result, about 75% of the customers who removed the watermark did so without payment. We received good reviews about the product and something else (one user gave us exclusive access to his upcoming music album, and the other “like” our tweets from the celebrity Twitter account, which he administers [official Blink 182 account - note lane.] ), but at the beginning of a business, nothing replaces cash. Conclusion: if you can not stop people from bypassing the payment, think about how to make it easier for them, so that they themselves can benefit.


Option to evade payment

6. Many prefer to pay via Paypal . Many Kapwing users who skip a payment write that they do not have a credit card or do not trust us with their information. One of the users even wrote an e-mail how grateful for the free access to the service, because in his country the government controls credit card transactions. We plan to add Paypal in the near future to solve this problem, but so far this is not on the list of priorities. Conclusion: Consider alternatives to credit cards, especially if your product is targeted at users in Europe, China, India or in countries with other dominant payment methods.

“I didn’t like the tariff plan, because it’s not quite clear: what happens in a month or two or if I want to unsubscribe? I have accumulated a lot of negative experience on the Internet, when such plans are automatically extended and you are robbed, so I really do not want to pay in this way. And more: what about PayPay? I am in Europe, and if a dispute arises, they will take care of everything. There, I feel safer than a credit card. ”- From user reviews

7. Authorization through Google and Facebook is not enough for some professional users . To log in to Kapwing, you need to log in to Facebook or Google. We like the fact that accounts are basically open to real names and verified email addresses. But users in companies that do not use GSuite say they want to use work email and are uncomfortable with logging in with their personal data. In the future, for these people, you can add the option "Sign up with e-mail", although it seems to me that this will reduce the effectiveness of e-mails. Conclusion: if you create a registration process for your application, then think about the options of registration through social networks and email.



8. Customers cannot say how much they are willing to pay . Before adding a paid subscription, we surveyed a sample of users. They were asked if they were ready to pay a fee for removing the watermark. Most said they would not pay. But when we added paid service, several people who said they would not pay did it. After launching, some said that our service is cheap, and many said that it was too expensive. Conclusion: the easiest way to determine whether people will pay is to make them an offer and see.

“And although I really like the simplicity of this service, the price does not compare with other, more advanced software tools” - the user who later subscribed to the paid rate

9. People will pay for things that you would not pay for . When we started charging $ 10 a month for creating video memo (the first Kapwing tool), some comrades at Product Hunt and Hacker News said that we were crazy. But again and again our paid customers express their appreciation and gratitude, and the site grows by 300% per month. We are considering the possibility of increasing the price, as more tools are added, such as the recently launched video trimmer for trimming videos. Personally, I would never pay $ 10 a month for Kapwing, but I’m not an SMM specialist who needs this service. Conclusion: do not set prices on the advice of people who are not users, or based on your own intuition, if you do not belong to the target group.

Conclusion

Over the past three months, our SaaS website has grown from $ 0 to thousands of dollars of repeated payments per month, but we have modified it several times and are still considering options for improving the monetization scheme. I hope this article will help other Internet entrepreneurs to develop a good monetization strategy the first time.