by Gordon Graham, Editor, SoftwareCEO
Building a website for your software firm is one thing. Developing an entire e-commerce system to sell software over the web is another.
Ask any developer, and he’ll tell you, “Sure! I can do that in a few days.” Ahhhhh… would you believe 18 months?
That’s how long Dan Engel says one of his software companies struggled to build an e-commerce platform.
“I went down that path myself. We spent one and a half years trying to build a system. We wound up having something decent, but it took away from our focus on growing revenues. That’s how I learned the lesson.”
Engel should know what he’s talking about. He’s had a successful career at a number of software companies, including marketing for GoToMyPC (now Citrix) and Picasa (now Google). And he was in charge of online marketing for AdWords and AdSense for Google.
Then he joined Santa Barbara, CA-based e-commerce service provider FastSpring, a company focused on helping software publishers increase sales and save headaches on e-commerce.
“We’re dealing with one pretty large company now and they’re looking at outsourcing e-commerce because they’re losing so many opportunities there,” he says. “They can’t do promotions, they don’t localize their order page, they can’t deal with the VAT and all the taxes.
“They’re a $5-million software company trying to become a $10-million company, and we fully expect that we can grow their bottom line 25 percent over the next year.”
After chatting with Engel, we came away with these seven tips on how to boost profits with e-commerce.
“Each piece adds a few percentage points,” he says. “So if you get two percent here and three percent there, it starts to add up. And it will far exceed the cost of outsourcing this, in terms of slightly higher transaction fees.”
So before you sink another $50,000 into building your own back end, listen to some words of wisdom from an e-commerce specialist.
Boost profits with e-commerce tip #1: Focus on developing and marketing your software, not on building e-commerce
Building e-commerce is a lot like any other big project, cautions Engel, say renovating a house.
There are lots of unforeseen complications, and many issues you won’t see going in. It can easily become a major distraction that sucks up resources, but never gets finished.
“It’s a lesson that’s been learned many times over by many developers and business people,” says Engel.
“The best strategy, if you’re interested in generating revenue from software, is to focus on product development and marketing and sales, and completely outsource the e-commerce to a firm that specializes in nothing but e-commerce.
“It’s hard enough growing your software business, without being in charge of your own e-commerce too.”
Boost profits with e-commerce tip #2: Accept multiple forms of payment
Sure you can already accept Visa and PayPal, but how about American Express? A company check? A money order? A purchase order?
How significant are these other forms of payment?
Well, they can certainly add up, says Engel.
“Certain types of customers are more likely to pay with an Amex card. More technical customers are more likely to have a PayPal account. Old school, old-fashioned customers might want to use a check or money order.
“Sometimes schools or corporations order hundreds or thousands of units at once, but they do require a PO. When a school purchaser comes to your site, you have to cater to their needs; the last thing they want is someone who can’t deal with POs.
“At the end of the day, these multiple forms of payment make your sales appealing to a much wider audience. You don’t want to lose 10 percent of potential revenue because you don’t have a payment option for certain people.”
If you’re developing your own e-commerce system and negotiating with every partner, you’ll want to make sure that the demographics of each payment system work for you.
But if you can get one-stop shopping for all these options from a service provider like FastSpring, why not?
Boost profits with e-commerce tip #3: Increase sales with CDs and download protection
Engel says these two simple tactics can help build online sales.
“The variables are, is it opt-in or opt-out? And how complementary to the purchase is it?
“If you’re selling software to the average joe, and you ask if he’d also like it shipped on CD as an opt-out, we’ve seen 80 percent accept that CD for an additional $10.
“Extended download service doesn’t cost anything, but it gives your customer the assurance that they can come back and download in the future, if their computer crashes or whatever, so that’s a nice service that can get you another $5.”
The funny thing is, most companies would do this for free if a customer called in to say they needed to re-download.
So there’s a way to bump up most sales by $15 just for dropping a CD in the mail.
Boost profits with e-commerce tip #4: Don’t forget volume discounts and bundles
This one sounds like a no-brainer, but there are lots of sites out there without it.
“You want to give an incentive for a customer to buy five copies, or 10 or 50 or 100, so they make that purchase immediately,” says Engel. This applies equally well to seats for SaaS products.
And you likely want to offer a discount off your other products at the time of sale.
“Software is not like most businesses, you don’t have any physical product in most cases, so when you’re discounting or bundling products together, there isn’t really the same cost of goods sold that you have with something like hardware.
“You want to take advantage of that.”
Don’t overlook discounts and bundles, not to mention bundling third-party products too.
Boost profits with e-commerce tip #5: Start using rebates
“Companies are making a lot of money with coupons. But to date, rebates have been too much of a logistical headache for anyone to offer on software,” says Engel.
To overcome this, FastSpring recently partnered with another company to bring the concept of offline rebates to online sales.
Note: A “coupon” is a code a buyer can enter at the time of purchase for an immediate discount, while a “rebate” is an offer to send in for a check by snail mail.
The big difference: Everyone will use a coupon that’s in their hands, but not everyone will use a rebate. In fact, perhaps 60 percent will never get around to mailing in for their rebate… which puts that money back on your bottom line.
FastSpring’s rebate partner has mailboxes all over the world, so a customer in Germany can mail to an address in Germany and get their rebate dropped into their bank account in Euros.
Here’s a flow diagram that shows all this.
But wait, there’s more…
“We just did a study and found that only 20 percent redeemed the rebate: 60 percent never redeemed it in general, and we convinced another 20 percent to use the money on other software, instead of redeeming it for cash,” says Engels.
“Say on your home page, you have a product for $50. Now you can say it’s only $30 with a $20 rebate, knowing that 80 percent are never going to use the rebate.
“What I love about this is that you can reduce the price you present to the customer up-front, from $50 to $30 with a $20 rebate, and that’s really compelling. Imagine how many more units you can sell if you reduce your selling price by 40 or 50 percent?”
And to reduce your costs even more, you can offer to redeem the rebate for software instead of cash, bundling in another $30 program that you’ve discounted down to $20.
“Our clients are very excited to start testing this out, and we think it’s going to be a very big success,” says Engel.
Boost profits with e-commerce tip #6: Automatically localize language and currency for each visitor
Imagine your order pages being so “smart” that they automatically reconfigure to match the language and currency of your visitors.
Ideally your e-commerce system would analyze the IP address, mailing address, and browser settings of each visitor, and change to accommodate them. So if they speak Spanish and come from Spain, they see the European Spanish version of your order pages with the prices in € (euros).
That’s another development challenge that’s already been solved by FastSpring. Prices can be given in euros, pounds, yen, or Australian, Canadian, or American dollars, and the order pages support something like 14 different languages.
“On most sites, when you see a converted price, instead of $60, you see $59.23 or something. So we let our publishers determine what the price will be in each currency as a nice round number.
“And there are no currency exchange fees like those charged by banks; no one wants that extra $3 to end up on their credit card bill.”
FastSpring will also match the branding and look and feel of your original site to avoid turning off shoppers.
“If you don’t do that, people are more likely to abandon the shopping cart,” says Engel.
Boost profits with e-commerce tip #7: To optimize results, test and re-test your order pages
We’ve heard this advice before. But with all of Engel’s experience on so many sites, aren’t there some rules of thumb for what works best?
“I really wish there were,” chuckles Engel. “Then I could write a book and make a lot of money.”
But like most things, it all depends.
“It really depends on the type of product and the type of customer, whether they’re corporate, or consumers, or my parents’ generation. It’s foolish to assume that you know all this without testing.”
He suggests that software firms should run through between 25 and 75 orders for each variable being tested.
With FastSpring, you can re-test the whole order flow, the number of pages, the buttons, the cross-sells, anything.
“You can try a single-page order flow or three pages; you can try the credit card on the first page or on the third page. And all that stuff should be re-tested at least once a year,” he says.
“There is always something out there that you haven’t tried, some little tweak that makes a difference.”
We could go with the other features of FastSpring:
- Collecting sales taxes and VAT
- Eliminating chargebacks, with a rate below 0.5 percent
- Minimizing fraud, with a 12-point self-correcting algorithm
- Multiple merchant accounts, so you’re never frozen out due to a sudden spike in ordering activity or fraud
- A blog with lots of marketing tips and ideas.
So what does all this cost an ISV?
FastSpring charges either 5.9 percent plus 95 cents per transaction, or a flat 8.9 percent, with a minimum of 75 cents per transaction. You take your pick.
“Most companies think they’re paying 2 percent because that’s what gets quoted,” says Engel. “But they’re really paying between 3 and 4 percent. If they have transactions in AMEX or Paypal, or overseas, or anything other than the standard transactions, all of those cost significantly more.”
You can be up and running in as little as one day, with no setup or cancellation fees, and a lot of advice on tweaks you could make to increase sales.
We think that’s reasonable, and moving to a service like FastSpring makes a lot of sense.
About the author: Gordon Graham is an award-winning journalist with 30 years in the software industry. And as That White Paper Guy, he helps B2B software firms tell their stories with crisp, compelling white papers.
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We received this nice note from one of our new clients, with special attention to the SpringBoard store administration UI:
While customers redeem coupons nearly 100% of the time, typically less than 40% of rebates get redeemed, so the difference gets added to your profit instead. Run these numbers on your own coupon promotions and you’ll quickly see how much you can potentially increase your profit in short order by replacing some coupon promotions with mail-in rebate promotions. Through the service’s global mail-in locations and payment options, customers mail a form in to an in-country address and get paid in the default currency for that country. For example, a customer in Germany would be provided with an address in Germany to mail their rebate to and would subsequently be paid via an EFT in Euros.
