So who are you invoicing?
(This was first published on Linkedin Pulse on 19 Nov 2015)
This came up earlier this week at Tech23, and best captured the main questions being asked. The founders answering the questions were exceptional at their product area, however this was used as a way to test their understanding of building a successful business.
Answering the question well can be a struggle. There is only one way to learn this, and that’s get in there and do it (it’s the best MBA you’ll ever get).
Dealing with the semantics first – if you have a B2B product (your customers are businesses) then you send them an invoice, with the details of what they’ve purchased and (most importantly) the amount of GST on the bill. They need this to claim the GST back. This is regardless of whether they pay you on account or via credit card.
If you have a B2C product (your customers are consumers) then often you send them a receipt. This may have the GST on it, this is less important to consumers as they can’t claim it back. They do need a receipt, and it is another touch point you can use to communicate with them.
What do they both have in common? Customers pay you money for product. Those who use your product for free are NOT customers. They are users, who through their usage create an asset of value to someone else.
To be clear, if you don’t have customers, you don’t have a business. You may be building an assets that creates eyeballs which will be interesting one day to people who want to advertise to your audience. If that;s you, then invoicing is not so relevant.
The original question sounds simple but isn’t – there’s several aspects you need to be clear on to answer the question well:
- Who is your customer (who pays you money)? This sounds obvious but is one people often struggle with.
- Where is the most value to be found in your product:
- Is your product related to the revenue, or cost, side of your customer’s financial model. For example, the sharing economy platforms appearing for odd jobs is revenue generating for many who freelance, hence this is highly valuable for them.
- If your proposition is about time saving for a business owner, you have an upbill battle as business owners don’t tend to value their time, so are unlikely to pay for apps purely on a productivity basis. One of the reasons the cloud accounting companies are so valuable is you have to have the product for tax compliance reasons. The productivity benefits help choose between platforms, not the decision to pay for one in the first place.
- How often will they pay you? Monthly subscription, or per transaction.
- How “sticky” is your product, if you’re not based on monthly subscription, how do you keep people coming back. If you are on monthly subscriptions how do you make sure people are using it to its full potential so they're more likely to stay.
- How much? For example, major players like Xero and Quickbooks set price points in the market, it is often harder to go higher than those price points for business management apps as they are seen as core, with other systems being add on.
- How will you find them (prospect acquisition)
- How long does it take from prospect acquisition to close
- What’s the path from prospect acquisition to close, and what levers can you press to speed this up and/or increase the conversion rates at various points.
There is more to “who do you invoice” than meets the eye.