11 ms·

The worst users come from referral programs, free trials, coupons

182 points by jyunwai 3y ago

steveBK123 3y ago
Anecdotally makes sense. Coupons attract scarcity mindset people. If your product targets more time poor money rich growth mindset people, this is a bad fit. My wife has a friend that did every Groupon known to man. She routinely signs up for gyms that have a 30 day special then quits. She says she wants to get in shape but can’t get over her own scarcity mindset to just pay for a regular gym continuously.
- baq 3y ago
  She says she wants to get in shape but actually she likes visiting new gyms. Nothing wrong with that, right?
  - steveBK123 3y ago
    She is a gym member maybe 1 out of 3 months because she is perpetually rotating through the deal she can get. The secret to this stuff is boring - persistent, continuous effort. If you can't even maintain a regular gym membership, you will not get that effort in. She's been complaining for over a decade as she continuous this charade.
    - dahart 3y ago
      To be fair, gym memberships are often crappy rent-seeking contracts. They love it when people start memberships for their New Year’s resolutions and then stop coming in February but keep paying, and they often try to hike the prices on you, renew automatically, and make it difficult to cancel. I’m perfectly fine with paying for a gym but I absolutely hate signing up for memberships. Currently I’m going to a city-run gym that has a day rate, and it’s more expensive than a monthly or yearly rate, and I still pay it happily and I feel like I’m getting a good deal, because I’m paying as I go for what I use and I’m not locked in and there’s no risk of wasting money. Maybe she’s actually staying more motivated to go this way, maybe her engagement is higher than if she paid. Or, maybe she’d love it if you gave her a gift and pre-paid for 6 or 12 months of membership somewhere? You could even tell her you got a deal, which is true regardless of what you pay. Valentine’s Day is here…
      - steveBK123 3y ago
        You actually hit the nail on the head re: gift giving. I stumbled upon this years ago with family more.. If you want to gift anything nice to family who is more scarcity mindset, you absolutely HAVE to talk up the deal/discount you got, or how you paid for it with points that were going to expire, or something. It's also better if the thing you are gifting has opaque pricing / is somewhat custom or uncommon so they can't just google the price. Anyway.. everything turns into sales/marketing sometimes!
      - hakfoo 3y ago
        I'm amazed at this point, given the "subscriptions are a nightmare to cancel" meme, that nobody's turned that into a marketing message. Some of the gym ads say "cancel anytime", but "sure, just bring in this blood-endorsed document countersigned by at least five Supreme Court justices" is still implied. Services that say "prepay up-front and we'll never bill you" is a viable selling premise. Gift subscriptions are an obvious viable business that comes out of that model. I wanted to get my father a gift subscription to the local newspaper, and they basically had no idea how to handle a fixed-term subscription-- all they could point to were recurring auto-pay setups.
        jyunwai 3y ago
        In 2016, a gym in Canada had a news article written about it in The Globe and Mail, a national newspaper [1], due to the notability of its policy at the time of only offering a pay-as-you-go plan. You would pay each time you visited, until you hit a cap at a maximum fee per month—this would make future visits free for this period. The marketing clearly worked, as the business earned a national news article solely due to this policy. However, after some time, the gym changed the policy to offer discounts for people who signed a contract—effectively make it more expensive for people to pay-as-you-go without easier cancellation. As of now, I can no longer find pricing on their website (maybe it's there, but I've looked around a while), nor any mention of their once-notable pay-as-you-go model. Instead, the gym's website now focuses on encouraging members to sign up for a personal trainer. At least in this case, the gym showed that the "prepay and we'll never bill you" policy was, as you predicted, a headline-grabbing policy. But it appears that the owners decided it was more profitable to either cancel or de-emphasize the policy and promote the usual payment model for gyms, even at the cost of standing out from other gyms. [1] https://www.theglobeandmail.com/report-on-business/small-business/sb-growth/the-challenge/pay-per-use-gym-offers-contract-free-workouts/article29249178/ https://www.theglobeandmail.com/report-on-business/small-bus...
- AlexandrB 3y ago
  It's really weird to frame this as a question of "mindset". I certainly had a "scarcity mindset" when I was younger and had no money. Now that I'm older and have some money I have a "growth mindset". But really the main difference is my access to resources.
  - warner25 3y ago
    I agree with you. I've seen other people write about this before and it seems that the people talking about it are people who happen to make a lot more money than the average person. Good for them, but that doesn't mean that people who make less money just have the wrong mindset or some kind of moral failing. I apparently have gone from an extreme "scarcity mindset," when I was in my 20s with questionable job security, to a moderate "scarcity mindset" now that I'm in my late 30s with a higher income, better job security, and 10x more in savings. It's still moderate because I'm a government employee with a relatively low ceiling on what I can make; not much room for growth.
    - steveBK123 3y ago
      There's nothing wrong with either mindset, most people are incapable of doing both at once. You can have "scarcity mindset" and be rich. Of course someone with scarcity mindset grows savings over time because they have scarcity mindset! They are good at saving your money! But this part: > It's still moderate because I'm a government employee with a relatively low ceiling on what I can make; not much room for growth. Pretty firmly puts you in one bucket. You might have more money, but you are asserting that in your 30s your growth is limited. Someone with a growth mindset would not settle into that job & accept that life path. They'd be job hopping, running a side gig for extra income, squirreling away every last dime into investments so that they can immediately flip into private business at early retirement, etc. Getty is an example of a really rich guy with scarcity mindset. My parents & in-laws were scarcity mindset.. which is how they retired at 59! People think it's a slur, it is not!
      - warner25 3y ago
        I see where you're coming from regarding "[settling] into that job & [accepting] that life path" as a government employee. I thought about that after I wrote it myself. The alternative, however, strikes me as taking imprudent risks, if one is supporting a family, and having a work-life balance that one's family wouldn't appreciate (mine already thinks that I work too much). You're right on the mark: my savings rate, and government pension, should result in early retirement. I think I'm interested in having more time, not more money. I'm really content with consuming relatively little. Maybe it's the "scarcity" and "growth" parts of the terminology that I take issue with, but I'm not sure what better descriptive terms would be. Edited to add: The more verbose descriptions that you wrote in your other comment make sense... "I'm going to make as much money as possible" vs "I'm going to spend as little money as possible"
arbuge 3y ago
Eh, YMMV. There are innumerable stories of SaaS companies succeeding with referrals and free trials. And coupons + referrals have been the lifeblood of retail ecommerce for ages. All of these are a function of what you put into them though. Poorly run referral / free trial / coupon programs cannot be expected to yield optimal results or ideal customers.
- ghaff 3y ago
  Free trials in that context makes some sense. I don't want to pay you sight unseen. I'm not really looking for a discount. I just want to evaluate something at no cost other than my time (which isn't nothing).
palmfacehn 3y ago
I've seen similar outcomes where free users required more support than paid.
- dazc 3y ago
  I once did a free gig for a neighbouring business, that was a lesson for me and not one I intend to repeat.
  - cpach 3y ago
    What happened?
    - dazc 3y ago
      Turned out to be a huge waste of time and if I had actually billed them it would have been such a high sum that they would never be able to pay me anyway. For example, several meetings in the local coffee shop where subjects covered could be done within an email. They once arranged a meet with their database guy so we could discuss how it would be stored and accessed etc? Both looked at each other as if to say wtf are we doing here? The lesson for me is that if you don't value your time then no one else will.
- CM30 3y ago
  This is one of the reasons free web hosting mostly died out. You'd spend more time and effort helping people that weren't interested in paying (and often didn't want to learn how anything worked) than you'd make through ads or upsells.
ghaff 3y ago
I sort of expected something more insightful. This general topic was discussed quite a bit when Groupon was a thing. The coupons brought in people who were pretty much only there for the discount, tipped poorly, and generally didn't become repeat customers. They weren't looking for a new place. They were looking for a deal. ADDED: Per another comment, there is probably an angle whereby a free trial is the necessary nudge for someone to try something they'd be willing to pay full price for if they liked it. But I didn't get that distinction between those two modes from this short piece.
- Veuxdo 3y ago
  The note at the end that referrals performed better than non-referrals _for drivers_ was interesting. Plus I'd say that even if this isn't earth-shattering insight, there is still benefit hearing the results for something on the scale of Uber. I agree that including free trials with referrals and coupons doesn't make much sense. As others have commented, free trials are all-but-unavoidable in certain markets.
- gumby 3y ago
  > I sort of expected something more insightful. It’s just marketing spam. The legal disclaimer is longer than the content in this self-described “high quality newsletter” (and in Safari reader mode all you get is the disclaimer!”. Plus you need to enter something that looks like an email to read it — ironically, given the subject, nobody@a16z.com works! Par for the course for a16z, really.
dazc 3y ago
Recent example, a piece of furniture costing over £3k and I can get 10% off if I sign-up to their newsletter. As someone who works in retail marketing, this is a guaranteed way to ensure I don't spend a penny in your store.
- jstanley 3y ago
  Are you saying that if they offer 10% off when you sign up to the newsletter, that will prevent you from buying a product from them at all? Why?
  - dazc 3y ago
    Because they are throwing money around which means they either have ridiculous margins or are just desperate for cash.
  - photonbeam 3y ago
    It makes you feel overcharged even with the discount, the product must actually be junk
    - rchaud 3y ago
      I don't feel that way. A 10% discount simply sweetens the deal for a commodity (clothing, furniture, etc) I could get at many other places. It's the cost of acquiring a new customer. The whole reason I'm stopping to look around is because every price tag just got 10% lower.
- mrweasel 3y ago
  What programs like that tells me is that I can get at least a 10% discount if I talk to one of your sales people. My wife doesn't consider something a discount if it's less than 20%, because "You can always get a 20% discount" (on certain product categories). I did have to deal with a store where I almost couldn't buy something, because I refused to signup for the "customer club program discount card", which gives you a 20% discount. The staff just looked confused and didn't know what to do. In the end my wife filled in the form and got the stupid card.
penjelly 3y ago
> Incentive programs often don’t perform should be "incentive programs have a lower conversion rate". > less qualified (users) ... will use your app Thats a good thing, and their negative interactions with the app can be measured to improve the experience for other non-technical users. if gamification doesnt work, explain the popularity of the gacha games. Sure it may attract users who enjoy easy dopamine which is kinda dystopian, but apps need to make money, thats that reality app developers end up facing.
JoshTriplett 3y ago
How well do invite systems perform, of the style that gmail and other services famously used, where you need an invite to sign up and users get a certain number of invites to hand out? (They do a great job of rate-limiting user acquisition, such as if you want to ramp up slowly for resource reasons. The question is, how's the quality of users obtained through invite systems?)
- wcunning 3y ago
  So it famously worked really well to create desire around Gmail, but it also famously didn't actually get anyone to use Google Plus or Google Wave. I was desperate for invites to both and then... never found a reason to use them? So it probably does better in terms of rate limiting than anything else. Maybe the right modern comparison would be Threads to BlueSky?
  - ghaff 3y ago
    Everyone increasingly needed email at the time, people weren't especially wedded to their current email providers, and Gmail was arguably better than whatever they were using and free. Google Plus was a social network that never got widely used outside of certain circles and Wave was this new weird thing that never took off.
    - coffeebeqn 3y ago
      The free alternatives were also kind of ridiculous with terrible UX. Like hotmail was the best MS could do
      - ghaff 3y ago
        Yahoo wasn't terrible but Gmail was definitely better. I kept using Yahoo for a while as the address I used when I ordered stuff but over time Gmail tabs did a pretty good job of compartmentalizing email and it made more sense to just have the one address.
    - JoshTriplett 3y ago
nottorp 3y ago
That's a definite it depends :) In the case of Uber, all those didn't help acquiring me as a customer. I wasn't even aware of the existence of any coupons, referrals and stuff. I installed it because clicking a button in an app is much easier than calling for a taxi on voice AND explaining where exactly you are. In other cases though, they help. If you don't have a free trial or free tier and don't have an unique offering suited to me, how would I know if I want your product? As a small piece of anecdata, I would have never subscribed to GeForce Now if they hadn't let me try it for as long as I wanted in 30 minute sessions. Coupons are a well known form of discounting for customers who have more time than money. Referrals may be useful if your product needs to achieve critical mass. Etc etc, I'm no professional marketer.
oatmeal1 3y ago
This is a big reason why it's so hard to start a startup. You need access to high quality customers. You can't just start by making the beta version of your product free, because the customers you want aren't motivated by price. Implementing feedback from the low quality customers you start out with can make the product worse for the customers you actually want.
rconti 3y ago
What quality of users come from forcing people to give up their email address to read a single effing blogpost?
vintermann 3y ago
Let me add one more: people who were signed up in some collective deal against their will e.g. cable TV). You bet I'm a bad "customer", I don't even want to be their customer!
deleted 3y ago
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forsyth2024 3y ago
For the most part, it doesn’t sound like these “bad” customers are doing anything illegal or in violation of TOS. They’re just exploiting offerings for something they wouldn’t normally spend any money on. To be surprised that they don’t stick around long or spend as much as non-incentivized customers shouldn’t come as a surprise to anyone and shouldn’t be seen as some kind of failing. They would not normally have used the service anyway so why moan when they use it for a little while and then stop?
- red_admiral 3y ago
  For "bad", read "poor".
  - yCombLinks 3y ago
    Nah, there is more than 1 bucket here. There are the poor people, who actually need the coupon to afford it, but they are not usually the problem. The problem is the stingy people. They'll complain the most, try to get refunds the most etc. Blah blah blah, if they can get it they should. Whatever, I'd rather not have their business, I'll take the 80% of people that are happy.
- steveBK123 3y ago
  It's less a complaint and more a warning to people who try to use this kind of marketing. It generally doesn't work, and where it does.. only very narrowly. If you are losing money to try and attract customers by this method, you may just burning money. They won't become regular customers, you just lost money for no reason. His point about it working to attract Uber DRIVERS makes sense because it's like a hustle culture thing. You could probably attract sales people or affiliates with this kind of thing, but again, not retail customers. I had a friend who ran a gym and for a while he kept trying to get more people in using Groupon and Classpass. The problem was that literally zero of them ever converted to a regular membership. So full paying members were complaining that the classes were getting crowded, meanwhile he was collecting pennies on the dollar from the discounters. In his case at least it was "free revenue" in that it didn't directly cost him anything to serve the discounters. BUT.. If even a single regular member quit due to crowding, it offset 100 Groupon/Classpass people. That's how skewed the economics are.
hnthrowaway0328 3y ago
Well then don't offer them?
deleted 3y ago
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red_admiral 3y ago
The kind of people who ran coupon schemes in the pre-internet days could have told you this. Back in the day, coupon schemes were things like you had to physically cut out and mail in vouchers from newspapers or magazines, and you got a discount on something like groceries in return. The point of this was market segmentation: you want to get people who (1) otherwise wouldn't buy your product, or at least not as much and (2) without giving it away any cheaper to those who would buy it already. Who goes through the effort to cut out and collect vouchers for a little bit off their weekly shop? One answer is "poor people". Calling them "much, much worse customers", is a value judgement.
- IG_Semmelweiss 3y ago
  Actually , the one answer you gave, is a common myth[1] https://www.investmentzen.com/news/the-surprising-identity-of-the-average-couponer https://www.investmentzen.com/news/the-surprising-identity-o...
  - vdaea 3y ago
    Which makes sense to me - more educated people are those who know how to save.
    - ghaff 3y ago
      There's a difference between being frugal where it actually moves the needle and pinching every penny when the effort/scarifice far exceeds any benefit.
      - dylan604 3y ago
        What effort/sacrifice was expelled? Flipping through the paper with a pair of scissors? You didn't even need to buy the paper as the coupons were ignored by the majority of those that did buy the paper and would just toss the coupons. It took no more effort than what people expend doom scrolling the socials.
steveBK123 3y ago
Thinking more on this, I have a group of friends who partake in these types of deals. They are arguably a leading indicator of business models that are going to fail. Why? Because they will cycle through every single deal and never sign up. Every single one of them cycled through all the meal kit trial discounts during the ZIRP era, without ever signing up for one (it's free food dude). If you think I am kidding, go google "Blue Apron competitors".. there's so many more than I even remember. If the startups they were hustling were public companies, they'd be an incredible indicator of stocks to short.. alas.
- TheCaptain4815 3y ago
  I did the same with the free money those gambling sites were all giving away. Stayed disciplined and made around $800
  - _puk 3y ago
    That coupled with the crazy cashback deals that were on offer from referral sites.. I cleared double that, but doubt it would work these days.
  - pxx 3y ago
    Ah with gambling the business model is very different. You just need to be fishing for whales. Somebody can't be a 1000x or even 100x customer on Uber compared to the median. Somebody can easily be a 1000x gambler
    - HWR_14 3y ago
      Doesn't Uber offer helicopter rides? I'd imagine those people are 100x customers.
  - coffeebeqn 3y ago
    I remember playing a lot of very boring optimal blackjack to break even on money and pick up the deposit bonus. Usually you had to do something like play the total amount of the bonus once before you could withdraw it
rib3ye 3y ago
The core issue here, is the campaign responsible for conversion or not? Some of the most profitable businesses of our era are just endless free trials and, surprise, they are just portals that sell ads.
eightysixfour 3y ago
I spent some time in UX consulting and I started to notice a pattern that surprised me a bit - having really slick UX (if that isn't your key selling point!) in a very early product seemed to be a bit of an anti-pattern for long-term success. My hypothesis is that there are a group of users who will sign up for anything and "play with it" if it is easy enough and slick enough, but that doesn't make them good customers, much like the customers Andrew is talking about.
- graemep 3y ago
  Could you elaborate? Easy to signup for or initially easy to use? Would it actually lose customers long term or just give you early extra customers you fail to retain?
  - eightysixfour 3y ago
    Sure - an example for me is RunwayML. It is a neat product that is very accessible to anyone, so I signed up and played with it a bit. Every once in a while I hop on and show someone a little demo of it as a cool GenAI/ML thing, but video isn’t a medium I work with or intend to work with. I am never going to become a paying customer. The low barrier to entry (both in sign-up and usage) helps amp up user counts and usage which makes you think you have some sort of market fit, but the interest is not real. The startups I worked with that experienced explosive growth were ones where their initial UX was mediocre or even hostile, but the demand for the thing was so high they had customers anyways. Improving the UX unlocked more growth. I have a skewed perspective since people came to us for UX issues, so this isn’t an iron law or anything, but I think about it a lot when I see very shiny, polished launches. A counter to this may be something like Linear, where the UX is the value.
    - graemep 3y ago
      Thank you. That makes a lot of sense.
    - properbrew 3y ago
      > The startups I worked with that experienced explosive growth were ones where their initial UX was mediocre or even hostile, but the demand for the thing was so high they had customers anyways. Improving the UX unlocked more growth. Thank you for this comment. I've been stressing over UI elements a bit and this was the kick I needed to just go and get it out there.
pflenker 3y ago
Only tangentially related - one big hardware store chain in Germany ran bankrupt because they started to frequently ran „20% on everything“ marketing activities. The idea was to attract customers who would return when one activity ended, but the result was the opposite: the extra customers only came for the 20% and didn’t return between the activities, and the loyal customers started avoiding the chain and waited for the next program to start.
- standardUser 3y ago
  In the US we had Bed, Bath and Beyond which was famous for it's ubiquitous 20% off coupons. I'm not sure if their failure had anything to do with the coupons, but many people, myself included, only went there with the specific intention of using that coupon. They were bought by Overstock and all the stores were shut down.
  - jawns 3y ago
    Those 20% off coupons allowed them to price an $80 item at $100. If the customer has a coupon, they get that item for as low as the store is willing to sell it for -- which works out to be market price. But if they lack a coupon, they're likely paying above-market price, and that's extra revenue for the store! Granted, this is an oversimplification, because many people might decide not to buy the item at a perceived above-market price. But I think, in general, coupons work. JCPenney famously got rid of coupons in 2012, and the customer outcry and effect on its stock price forced them to restore them soon after.
- switch007 3y ago
  That's pretty tragic. Did nobody realise that hardware purchases are infrequent?
  - pflenker 3y ago
    It’s even worse - those who frequently buy hardware are small one-person companies who drive from building to building gig. They are very cost conscious and very mobile , so they are the most likely candidates to buy bigger quantities whenever the price is right. They for sure are not loyal to any brand.
arthurofbabylon 3y ago
> Incentives are a form of selection and you need to make sure you know what you’re selecting for. That’s the best insight from the article. I’m a little disappointed that the leader of one of the world’s most prolific referral programs didn't have more to say about it.
awinter-py 3y ago
have heard similar feedback from brick + mortar businesses go-kart track: folks who came in through groupon never converted to repeat customers at full price boutique fitness franchise: classpass users have low or negative margin, and don't convert to full price. they may be useful to fill out a part-empty class because that incurs no extra cost, but if you're spending new money to host them it's not economical opposite case of this is pharma, where the subsidies go up the stack instead of down. arguably goodrx is the 'true' price, and the retail price you pay as a walk-in is drastically inflated there are also communities of people who rotate credit cards to chase the best reward / rebates deals; imo they are behaving rationally in the face of an industry that offers bundles which decline in value over time
BAUTISTAF 3y ago
[flagged]
amluto 3y ago
> You have a target market and sometimes it takes time for a product to spread through its ideal users — this is magical because word of mouth is free. And when it happens in an organic way, the intent is even higher. But if these ideal users encounter the product via an incentive program, you often “pull forward” these users, thus costing you money, when you would have gotten them anyway. It’s worse than that. Some of these users you think you pick up via an incentive program were already loyal repeat customers! As a silly example, there’s a local cafe that is part of a small chain that roasts its own (excellent!) coffee. I used to buy bags of coffee at their shop. But their website often has promotions, which they market to me heavily, which makes it cheaper to shop online and even cheaper if I wait for the right promotion. And if I go to the cafe, I don’t cost them money in free shipping and I might buy a drink or a snack! The moral: set up your pricing structure and promotions to incentivize the behavior you want from your customers.
- amtamt 3y ago
  > The moral: set up your pricing structure and promotions to incentivize the behavior you want from your customers. Is it aligned with the incentive digital marketing team has?
AlwaysRock 3y ago
But but but growth over everything... Right?
pierat 3y ago
Eh, probably. When I bought a webcam at the local best buy, I price-matched scamazon's price that was 30$ cheaper. I trust Best buy to not sell scam shit, but do NOT trust Scamazon. But hey, I'll get the scamazon price WITH the convenience of in-person pickup.
geor9e 3y ago
It's me, I'm the worst user. I subscribe&save at every opportunity, then cancel all of them before the next shipment. I get several new credit cards a year just qualify for the $500 sign up bonus, then never use them again. I have 20+ gmail accounts to use new customer promos over and over. You do not want me as a customer.
kbos87 3y ago
It’s really easy to spot effective vs. ineffective/“empty calorie” growth channels when you look at them through the lens of a single word - intent. Ads appearing alongside search results are among the highest intent, which is why they perform well and are thus so expensive. Referral programs and coupons are people looking for generic deals. You might form habits among a few of them, but the likelihood is low. Free trials are probably more dependent on the context.
oneoff123 3y ago
Ive always looked at it as a spectrum. You can buy thousands of hits for €3 but if you want to convert those you have to offer a service where one gets paid (very little) for visiting websites.
spiffytech 3y ago
I agree that low cost attracts "pathological users", but I was surprised to see this part presented as a negative: > But if these ideal users encounter the product via an incentive program, you often “pull forward” these users, thus costing you money, when you would have gotten them anyway. The premise of annual discounts is that having $0.80 today is worth more than $1.00 a year from now. Doesn't the same logic apply here? That if you can get someone in the door sooner, that's worth some cost?
anonimo37 3y ago
Another problem with these incentives to attract new users is how do you think existing users feel when they see discounts offered to new users? Their loyalty is rewarded by paying full price. I may be the outlier but I have almost no interest in new user incentives. I know the discount will only last a short while before I am paying full price so I never factor the discount into the total cost of using the service. Even free trials don't interest me as there is still the hassle of signing up and remembering to cancel before the trial ends. Why bother signing up for something that I intend to cancel a month later? If I intend to keep using the service then as I said above, the discount is meaningless in the long term.
carbine 3y ago
A lot of comments here from people who think this is "obvious" but have probably never been personally responsible for monetizing and scaling a product. If you run referral programs you will often drive meaningful incremental revenue, and founders/investors etc. will push for more. Actually scaling a product successfully requires a lot of testing/pricing/segmentation. Crucially, advertising is the most expensive way to acquire a new user. If every high quality user refers >1 other net new high quality user, you cut your CAC in half. Well-run referral programs for the right type of product can be lucrative, but countering the narrative that every product needs to have one is probably a good thing.
zubairq 3y ago
Yes using referral programs brings users who want the bonus payment, but not the product. A good referral program should just be the icing on the cake, not the cake itself!
Ccecil 3y ago
My experience over the last couple decades working for myself (or running my own company) that the worst customers are the ones who want it cheapest. They start out by spending extra time negotiating lower prices...often with a story about how "getting your name out there will help your company" or "We plan on working with you a ton in the future so you should discount us now". During the job they will have you do extra work to which you are supposed to "keep track of and we will pay you whatever it takes". I cannot think of one time where this did not end up where I end up eating even more of the already discounted profit. After the job is done they tend to also be the ones who are hypercritical. Often requiring extra rework or doing the work over all together. Then they will use how they "paid you extra during the job" as a reason why you owe them. All of that being said. The companies who are honest and understanding tend to make up for the trouble that the others cause. Throughout the years I have become able to spot the problem customers in the first meeting (sometimes phone calls are enough) to where I just say "no" before ever negotiating the job. In my case this has mostly led to me not working with the "local" people at all and mostly focusing on the remote customers.
pomatic 3y ago
Related: Our highest-maintenance users by far (SaaS) are the 'small fry' - companies with a handful of users. They are usually an order of magnitude more demanding than companies with 50+ users.

182 points by jyunwai 3y ago

Anecdotally makes sense. Coupons attract scarcity mindset people. If your product targets more time poor money rich growth mindset people, this is a bad fit. My wife has a friend that did every Groupon known to man. She routinely signs up for gyms that have a 30 day special then quits. She says she wants to get in shape but can’t get over her own scarcity mindset to just pay for a regular gym continuously.

baq 3y ago
She says she wants to get in shape but actually she likes visiting new gyms. Nothing wrong with that, right?
- steveBK123 3y ago
  She is a gym member maybe 1 out of 3 months because she is perpetually rotating through the deal she can get. The secret to this stuff is boring - persistent, continuous effort. If you can't even maintain a regular gym membership, you will not get that effort in. She's been complaining for over a decade as she continuous this charade.
  - dahart 3y ago
    To be fair, gym memberships are often crappy rent-seeking contracts. They love it when people start memberships for their New Year’s resolutions and then stop coming in February but keep paying, and they often try to hike the prices on you, renew automatically, and make it difficult to cancel. I’m perfectly fine with paying for a gym but I absolutely hate signing up for memberships. Currently I’m going to a city-run gym that has a day rate, and it’s more expensive than a monthly or yearly rate, and I still pay it happily and I feel like I’m getting a good deal, because I’m paying as I go for what I use and I’m not locked in and there’s no risk of wasting money. Maybe she’s actually staying more motivated to go this way, maybe her engagement is higher than if she paid. Or, maybe she’d love it if you gave her a gift and pre-paid for 6 or 12 months of membership somewhere? You could even tell her you got a deal, which is true regardless of what you pay. Valentine’s Day is here…
    - steveBK123 3y ago
      You actually hit the nail on the head re: gift giving. I stumbled upon this years ago with family more.. If you want to gift anything nice to family who is more scarcity mindset, you absolutely HAVE to talk up the deal/discount you got, or how you paid for it with points that were going to expire, or something. It's also better if the thing you are gifting has opaque pricing / is somewhat custom or uncommon so they can't just google the price. Anyway.. everything turns into sales/marketing sometimes!
    - hakfoo 3y ago
      I'm amazed at this point, given the "subscriptions are a nightmare to cancel" meme, that nobody's turned that into a marketing message. Some of the gym ads say "cancel anytime", but "sure, just bring in this blood-endorsed document countersigned by at least five Supreme Court justices" is still implied. Services that say "prepay up-front and we'll never bill you" is a viable selling premise. Gift subscriptions are an obvious viable business that comes out of that model. I wanted to get my father a gift subscription to the local newspaper, and they basically had no idea how to handle a fixed-term subscription-- all they could point to were recurring auto-pay setups.
      - jyunwai 3y ago
        In 2016, a gym in Canada had a news article written about it in The Globe and Mail, a national newspaper [1], due to the notability of its policy at the time of only offering a pay-as-you-go plan. You would pay each time you visited, until you hit a cap at a maximum fee per month—this would make future visits free for this period. The marketing clearly worked, as the business earned a national news article solely due to this policy. However, after some time, the gym changed the policy to offer discounts for people who signed a contract—effectively make it more expensive for people to pay-as-you-go without easier cancellation. As of now, I can no longer find pricing on their website (maybe it's there, but I've looked around a while), nor any mention of their once-notable pay-as-you-go model. Instead, the gym's website now focuses on encouraging members to sign up for a personal trainer. At least in this case, the gym showed that the "prepay and we'll never bill you" policy was, as you predicted, a headline-grabbing policy. But it appears that the owners decided it was more profitable to either cancel or de-emphasize the policy and promote the usual payment model for gyms, even at the cost of standing out from other gyms. [1] https://www.theglobeandmail.com/report-on-business/small-business/sb-growth/the-challenge/pay-per-use-gym-offers-contract-free-workouts/article29249178/ https://www.theglobeandmail.com/report-on-business/small-bus...
AlexandrB 3y ago
It's really weird to frame this as a question of "mindset". I certainly had a "scarcity mindset" when I was younger and had no money. Now that I'm older and have some money I have a "growth mindset". But really the main difference is my access to resources.
- warner25 3y ago
  I agree with you. I've seen other people write about this before and it seems that the people talking about it are people who happen to make a lot more money than the average person. Good for them, but that doesn't mean that people who make less money just have the wrong mindset or some kind of moral failing. I apparently have gone from an extreme "scarcity mindset," when I was in my 20s with questionable job security, to a moderate "scarcity mindset" now that I'm in my late 30s with a higher income, better job security, and 10x more in savings. It's still moderate because I'm a government employee with a relatively low ceiling on what I can make; not much room for growth.
  - steveBK123 3y ago
    There's nothing wrong with either mindset, most people are incapable of doing both at once. You can have "scarcity mindset" and be rich. Of course someone with scarcity mindset grows savings over time because they have scarcity mindset! They are good at saving your money! But this part: > It's still moderate because I'm a government employee with a relatively low ceiling on what I can make; not much room for growth. Pretty firmly puts you in one bucket. You might have more money, but you are asserting that in your 30s your growth is limited. Someone with a growth mindset would not settle into that job & accept that life path. They'd be job hopping, running a side gig for extra income, squirreling away every last dime into investments so that they can immediately flip into private business at early retirement, etc. Getty is an example of a really rich guy with scarcity mindset. My parents & in-laws were scarcity mindset.. which is how they retired at 59! People think it's a slur, it is not!
    - warner25 3y ago
      I see where you're coming from regarding "[settling] into that job & [accepting] that life path" as a government employee. I thought about that after I wrote it myself. The alternative, however, strikes me as taking imprudent risks, if one is supporting a family, and having a work-life balance that one's family wouldn't appreciate (mine already thinks that I work too much). You're right on the mark: my savings rate, and government pension, should result in early retirement. I think I'm interested in having more time, not more money. I'm really content with consuming relatively little. Maybe it's the "scarcity" and "growth" parts of the terminology that I take issue with, but I'm not sure what better descriptive terms would be. Edited to add: The more verbose descriptions that you wrote in your other comment make sense... "I'm going to make as much money as possible" vs "I'm going to spend as little money as possible"

arbuge 3y ago

Eh, YMMV. There are innumerable stories of SaaS companies succeeding with referrals and free trials. And coupons + referrals have been the lifeblood of retail ecommerce for ages. All of these are a function of what you put into them though. Poorly run referral / free trial / coupon programs cannot be expected to yield optimal results or ideal customers.

ghaff 3y ago
Free trials in that context makes some sense. I don't want to pay you sight unseen. I'm not really looking for a discount. I just want to evaluate something at no cost other than my time (which isn't nothing).

palmfacehn 3y ago

I've seen similar outcomes where free users required more support than paid.

dazc 3y ago
I once did a free gig for a neighbouring business, that was a lesson for me and not one I intend to repeat.
- cpach 3y ago
  What happened?
  - dazc 3y ago
    Turned out to be a huge waste of time and if I had actually billed them it would have been such a high sum that they would never be able to pay me anyway. For example, several meetings in the local coffee shop where subjects covered could be done within an email. They once arranged a meet with their database guy so we could discuss how it would be stored and accessed etc? Both looked at each other as if to say wtf are we doing here? The lesson for me is that if you don't value your time then no one else will.
CM30 3y ago
This is one of the reasons free web hosting mostly died out. You'd spend more time and effort helping people that weren't interested in paying (and often didn't want to learn how anything worked) than you'd make through ads or upsells.

ghaff 3y ago

I sort of expected something more insightful. This general topic was discussed quite a bit when Groupon was a thing. The coupons brought in people who were pretty much only there for the discount, tipped poorly, and generally didn't become repeat customers. They weren't looking for a new place. They were looking for a deal. ADDED: Per another comment, there is probably an angle whereby a free trial is the necessary nudge for someone to try something they'd be willing to pay full price for if they liked it. But I didn't get that distinction between those two modes from this short piece.

Veuxdo 3y ago
The note at the end that referrals performed better than non-referrals _for drivers_ was interesting. Plus I'd say that even if this isn't earth-shattering insight, there is still benefit hearing the results for something on the scale of Uber. I agree that including free trials with referrals and coupons doesn't make much sense. As others have commented, free trials are all-but-unavoidable in certain markets.
gumby 3y ago
> I sort of expected something more insightful. It’s just marketing spam. The legal disclaimer is longer than the content in this self-described “high quality newsletter” (and in Safari reader mode all you get is the disclaimer!”. Plus you need to enter something that looks like an email to read it — ironically, given the subject, nobody@a16z.com works! Par for the course for a16z, really.

dazc 3y ago

Recent example, a piece of furniture costing over £3k and I can get 10% off if I sign-up to their newsletter. As someone who works in retail marketing, this is a guaranteed way to ensure I don't spend a penny in your store.

jstanley 3y ago
Are you saying that if they offer 10% off when you sign up to the newsletter, that will prevent you from buying a product from them at all? Why?
- dazc 3y ago
  Because they are throwing money around which means they either have ridiculous margins or are just desperate for cash.
- photonbeam 3y ago
  It makes you feel overcharged even with the discount, the product must actually be junk
  - rchaud 3y ago
    I don't feel that way. A 10% discount simply sweetens the deal for a commodity (clothing, furniture, etc) I could get at many other places. It's the cost of acquiring a new customer. The whole reason I'm stopping to look around is because every price tag just got 10% lower.
mrweasel 3y ago
What programs like that tells me is that I can get at least a 10% discount if I talk to one of your sales people. My wife doesn't consider something a discount if it's less than 20%, because "You can always get a 20% discount" (on certain product categories). I did have to deal with a store where I almost couldn't buy something, because I refused to signup for the "customer club program discount card", which gives you a 20% discount. The staff just looked confused and didn't know what to do. In the end my wife filled in the form and got the stupid card.

penjelly 3y ago

> Incentive programs often don’t perform should be "incentive programs have a lower conversion rate". > less qualified (users) ... will use your app Thats a good thing, and their negative interactions with the app can be measured to improve the experience for other non-technical users. if gamification doesnt work, explain the popularity of the gacha games. Sure it may attract users who enjoy easy dopamine which is kinda dystopian, but apps need to make money, thats that reality app developers end up facing.

JoshTriplett 3y ago

How well do invite systems perform, of the style that gmail and other services famously used, where you need an invite to sign up and users get a certain number of invites to hand out? (They do a great job of rate-limiting user acquisition, such as if you want to ramp up slowly for resource reasons. The question is, how's the quality of users obtained through invite systems?)

wcunning 3y ago
So it famously worked really well to create desire around Gmail, but it also famously didn't actually get anyone to use Google Plus or Google Wave. I was desperate for invites to both and then... never found a reason to use them? So it probably does better in terms of rate limiting than anything else. Maybe the right modern comparison would be Threads to BlueSky?
- ghaff 3y ago
  Everyone increasingly needed email at the time, people weren't especially wedded to their current email providers, and Gmail was arguably better than whatever they were using and free. Google Plus was a social network that never got widely used outside of certain circles and Wave was this new weird thing that never took off.
  - coffeebeqn 3y ago
    The free alternatives were also kind of ridiculous with terrible UX. Like hotmail was the best MS could do
    - ghaff 3y ago
      Yahoo wasn't terrible but Gmail was definitely better. I kept using Yahoo for a while as the address I used when I ordered stuff but over time Gmail tabs did a pretty good job of compartmentalizing email and it made more sense to just have the one address.
  - JoshTriplett 3y ago

nottorp 3y ago

That's a definite it depends :) In the case of Uber, all those didn't help acquiring me as a customer. I wasn't even aware of the existence of any coupons, referrals and stuff. I installed it because clicking a button in an app is much easier than calling for a taxi on voice AND explaining where exactly you are. In other cases though, they help. If you don't have a free trial or free tier and don't have an unique offering suited to me, how would I know if I want your product? As a small piece of anecdata, I would have never subscribed to GeForce Now if they hadn't let me try it for as long as I wanted in 30 minute sessions. Coupons are a well known form of discounting for customers who have more time than money. Referrals may be useful if your product needs to achieve critical mass. Etc etc, I'm no professional marketer.

oatmeal1 3y ago

This is a big reason why it's so hard to start a startup. You need access to high quality customers. You can't just start by making the beta version of your product free, because the customers you want aren't motivated by price. Implementing feedback from the low quality customers you start out with can make the product worse for the customers you actually want.

rconti 3y ago

What quality of users come from forcing people to give up their email address to read a single effing blogpost?

vintermann 3y ago

Let me add one more: people who were signed up in some collective deal against their will e.g. cable TV). You bet I'm a bad "customer", I don't even want to be their customer!

deleted 3y ago

[deleted]

forsyth2024 3y ago

For the most part, it doesn’t sound like these “bad” customers are doing anything illegal or in violation of TOS. They’re just exploiting offerings for something they wouldn’t normally spend any money on. To be surprised that they don’t stick around long or spend as much as non-incentivized customers shouldn’t come as a surprise to anyone and shouldn’t be seen as some kind of failing. They would not normally have used the service anyway so why moan when they use it for a little while and then stop?

red_admiral 3y ago
For "bad", read "poor".
- yCombLinks 3y ago
  Nah, there is more than 1 bucket here. There are the poor people, who actually need the coupon to afford it, but they are not usually the problem. The problem is the stingy people. They'll complain the most, try to get refunds the most etc. Blah blah blah, if they can get it they should. Whatever, I'd rather not have their business, I'll take the 80% of people that are happy.
steveBK123 3y ago
It's less a complaint and more a warning to people who try to use this kind of marketing. It generally doesn't work, and where it does.. only very narrowly. If you are losing money to try and attract customers by this method, you may just burning money. They won't become regular customers, you just lost money for no reason. His point about it working to attract Uber DRIVERS makes sense because it's like a hustle culture thing. You could probably attract sales people or affiliates with this kind of thing, but again, not retail customers. I had a friend who ran a gym and for a while he kept trying to get more people in using Groupon and Classpass. The problem was that literally zero of them ever converted to a regular membership. So full paying members were complaining that the classes were getting crowded, meanwhile he was collecting pennies on the dollar from the discounters. In his case at least it was "free revenue" in that it didn't directly cost him anything to serve the discounters. BUT.. If even a single regular member quit due to crowding, it offset 100 Groupon/Classpass people. That's how skewed the economics are.

hnthrowaway0328 3y ago

Well then don't offer them?

deleted 3y ago

[deleted]

red_admiral 3y ago

The kind of people who ran coupon schemes in the pre-internet days could have told you this. Back in the day, coupon schemes were things like you had to physically cut out and mail in vouchers from newspapers or magazines, and you got a discount on something like groceries in return. The point of this was market segmentation: you want to get people who (1) otherwise wouldn't buy your product, or at least not as much and (2) without giving it away any cheaper to those who would buy it already. Who goes through the effort to cut out and collect vouchers for a little bit off their weekly shop? One answer is "poor people". Calling them "much, much worse customers", is a value judgement.

IG_Semmelweiss 3y ago
Actually , the one answer you gave, is a common myth[1] https://www.investmentzen.com/news/the-surprising-identity-of-the-average-couponer https://www.investmentzen.com/news/the-surprising-identity-o...
- vdaea 3y ago
  Which makes sense to me - more educated people are those who know how to save.
  - ghaff 3y ago
    There's a difference between being frugal where it actually moves the needle and pinching every penny when the effort/scarifice far exceeds any benefit.
    - dylan604 3y ago
      What effort/sacrifice was expelled? Flipping through the paper with a pair of scissors? You didn't even need to buy the paper as the coupons were ignored by the majority of those that did buy the paper and would just toss the coupons. It took no more effort than what people expend doom scrolling the socials.

steveBK123 3y ago

Thinking more on this, I have a group of friends who partake in these types of deals. They are arguably a leading indicator of business models that are going to fail. Why? Because they will cycle through every single deal and never sign up. Every single one of them cycled through all the meal kit trial discounts during the ZIRP era, without ever signing up for one (it's free food dude). If you think I am kidding, go google "Blue Apron competitors".. there's so many more than I even remember. If the startups they were hustling were public companies, they'd be an incredible indicator of stocks to short.. alas.

TheCaptain4815 3y ago
I did the same with the free money those gambling sites were all giving away. Stayed disciplined and made around $800
- _puk 3y ago
  That coupled with the crazy cashback deals that were on offer from referral sites.. I cleared double that, but doubt it would work these days.
- pxx 3y ago
  Ah with gambling the business model is very different. You just need to be fishing for whales. Somebody can't be a 1000x or even 100x customer on Uber compared to the median. Somebody can easily be a 1000x gambler
  - HWR_14 3y ago
    Doesn't Uber offer helicopter rides? I'd imagine those people are 100x customers.
- coffeebeqn 3y ago
  I remember playing a lot of very boring optimal blackjack to break even on money and pick up the deposit bonus. Usually you had to do something like play the total amount of the bonus once before you could withdraw it

rib3ye 3y ago

The core issue here, is the campaign responsible for conversion or not? Some of the most profitable businesses of our era are just endless free trials and, surprise, they are just portals that sell ads.

eightysixfour 3y ago

I spent some time in UX consulting and I started to notice a pattern that surprised me a bit - having really slick UX (if that isn't your key selling point!) in a very early product seemed to be a bit of an anti-pattern for long-term success. My hypothesis is that there are a group of users who will sign up for anything and "play with it" if it is easy enough and slick enough, but that doesn't make them good customers, much like the customers Andrew is talking about.

graemep 3y ago
Could you elaborate? Easy to signup for or initially easy to use? Would it actually lose customers long term or just give you early extra customers you fail to retain?
- eightysixfour 3y ago
  Sure - an example for me is RunwayML. It is a neat product that is very accessible to anyone, so I signed up and played with it a bit. Every once in a while I hop on and show someone a little demo of it as a cool GenAI/ML thing, but video isn’t a medium I work with or intend to work with. I am never going to become a paying customer. The low barrier to entry (both in sign-up and usage) helps amp up user counts and usage which makes you think you have some sort of market fit, but the interest is not real. The startups I worked with that experienced explosive growth were ones where their initial UX was mediocre or even hostile, but the demand for the thing was so high they had customers anyways. Improving the UX unlocked more growth. I have a skewed perspective since people came to us for UX issues, so this isn’t an iron law or anything, but I think about it a lot when I see very shiny, polished launches. A counter to this may be something like Linear, where the UX is the value.
  - graemep 3y ago
    Thank you. That makes a lot of sense.
  - properbrew 3y ago
    > The startups I worked with that experienced explosive growth were ones where their initial UX was mediocre or even hostile, but the demand for the thing was so high they had customers anyways. Improving the UX unlocked more growth. Thank you for this comment. I've been stressing over UI elements a bit and this was the kick I needed to just go and get it out there.

pflenker 3y ago

Only tangentially related - one big hardware store chain in Germany ran bankrupt because they started to frequently ran „20% on everything“ marketing activities. The idea was to attract customers who would return when one activity ended, but the result was the opposite: the extra customers only came for the 20% and didn’t return between the activities, and the loyal customers started avoiding the chain and waited for the next program to start.

standardUser 3y ago
In the US we had Bed, Bath and Beyond which was famous for it's ubiquitous 20% off coupons. I'm not sure if their failure had anything to do with the coupons, but many people, myself included, only went there with the specific intention of using that coupon. They were bought by Overstock and all the stores were shut down.
- jawns 3y ago
  Those 20% off coupons allowed them to price an $80 item at $100. If the customer has a coupon, they get that item for as low as the store is willing to sell it for -- which works out to be market price. But if they lack a coupon, they're likely paying above-market price, and that's extra revenue for the store! Granted, this is an oversimplification, because many people might decide not to buy the item at a perceived above-market price. But I think, in general, coupons work. JCPenney famously got rid of coupons in 2012, and the customer outcry and effect on its stock price forced them to restore them soon after.
switch007 3y ago
That's pretty tragic. Did nobody realise that hardware purchases are infrequent?
- pflenker 3y ago
  It’s even worse - those who frequently buy hardware are small one-person companies who drive from building to building gig. They are very cost conscious and very mobile , so they are the most likely candidates to buy bigger quantities whenever the price is right. They for sure are not loyal to any brand.

arthurofbabylon 3y ago

> Incentives are a form of selection and you need to make sure you know what you’re selecting for. That’s the best insight from the article. I’m a little disappointed that the leader of one of the world’s most prolific referral programs didn't have more to say about it.

awinter-py 3y ago

have heard similar feedback from brick + mortar businesses go-kart track: folks who came in through groupon never converted to repeat customers at full price boutique fitness franchise: classpass users have low or negative margin, and don't convert to full price. they may be useful to fill out a part-empty class because that incurs no extra cost, but if you're spending new money to host them it's not economical opposite case of this is pharma, where the subsidies go up the stack instead of down. arguably goodrx is the 'true' price, and the retail price you pay as a walk-in is drastically inflated there are also communities of people who rotate credit cards to chase the best reward / rebates deals; imo they are behaving rationally in the face of an industry that offers bundles which decline in value over time

BAUTISTAF 3y ago

[flagged]

amluto 3y ago

> You have a target market and sometimes it takes time for a product to spread through its ideal users — this is magical because word of mouth is free. And when it happens in an organic way, the intent is even higher. But if these ideal users encounter the product via an incentive program, you often “pull forward” these users, thus costing you money, when you would have gotten them anyway. It’s worse than that. Some of these users you think you pick up via an incentive program were already loyal repeat customers! As a silly example, there’s a local cafe that is part of a small chain that roasts its own (excellent!) coffee. I used to buy bags of coffee at their shop. But their website often has promotions, which they market to me heavily, which makes it cheaper to shop online and even cheaper if I wait for the right promotion. And if I go to the cafe, I don’t cost them money in free shipping and I might buy a drink or a snack! The moral: set up your pricing structure and promotions to incentivize the behavior you want from your customers.

amtamt 3y ago
> The moral: set up your pricing structure and promotions to incentivize the behavior you want from your customers. Is it aligned with the incentive digital marketing team has?

AlwaysRock 3y ago

But but but growth over everything... Right?

pierat 3y ago

Eh, probably. When I bought a webcam at the local best buy, I price-matched scamazon's price that was 30$ cheaper. I trust Best buy to not sell scam shit, but do NOT trust Scamazon. But hey, I'll get the scamazon price WITH the convenience of in-person pickup.

geor9e 3y ago

It's me, I'm the worst user. I subscribe&save at every opportunity, then cancel all of them before the next shipment. I get several new credit cards a year just qualify for the $500 sign up bonus, then never use them again. I have 20+ gmail accounts to use new customer promos over and over. You do not want me as a customer.

kbos87 3y ago

It’s really easy to spot effective vs. ineffective/“empty calorie” growth channels when you look at them through the lens of a single word - intent. Ads appearing alongside search results are among the highest intent, which is why they perform well and are thus so expensive. Referral programs and coupons are people looking for generic deals. You might form habits among a few of them, but the likelihood is low. Free trials are probably more dependent on the context.

oneoff123 3y ago

Ive always looked at it as a spectrum. You can buy thousands of hits for €3 but if you want to convert those you have to offer a service where one gets paid (very little) for visiting websites.

spiffytech 3y ago

I agree that low cost attracts "pathological users", but I was surprised to see this part presented as a negative: > But if these ideal users encounter the product via an incentive program, you often “pull forward” these users, thus costing you money, when you would have gotten them anyway. The premise of annual discounts is that having $0.80 today is worth more than $1.00 a year from now. Doesn't the same logic apply here? That if you can get someone in the door sooner, that's worth some cost?

anonimo37 3y ago

Another problem with these incentives to attract new users is how do you think existing users feel when they see discounts offered to new users? Their loyalty is rewarded by paying full price. I may be the outlier but I have almost no interest in new user incentives. I know the discount will only last a short while before I am paying full price so I never factor the discount into the total cost of using the service. Even free trials don't interest me as there is still the hassle of signing up and remembering to cancel before the trial ends. Why bother signing up for something that I intend to cancel a month later? If I intend to keep using the service then as I said above, the discount is meaningless in the long term.

carbine 3y ago

A lot of comments here from people who think this is "obvious" but have probably never been personally responsible for monetizing and scaling a product. If you run referral programs you will often drive meaningful incremental revenue, and founders/investors etc. will push for more. Actually scaling a product successfully requires a lot of testing/pricing/segmentation. Crucially, advertising is the most expensive way to acquire a new user. If every high quality user refers >1 other net new high quality user, you cut your CAC in half. Well-run referral programs for the right type of product can be lucrative, but countering the narrative that every product needs to have one is probably a good thing.

zubairq 3y ago

Yes using referral programs brings users who want the bonus payment, but not the product. A good referral program should just be the icing on the cake, not the cake itself!

Ccecil 3y ago

My experience over the last couple decades working for myself (or running my own company) that the worst customers are the ones who want it cheapest. They start out by spending extra time negotiating lower prices...often with a story about how "getting your name out there will help your company" or "We plan on working with you a ton in the future so you should discount us now". During the job they will have you do extra work to which you are supposed to "keep track of and we will pay you whatever it takes". I cannot think of one time where this did not end up where I end up eating even more of the already discounted profit. After the job is done they tend to also be the ones who are hypercritical. Often requiring extra rework or doing the work over all together. Then they will use how they "paid you extra during the job" as a reason why you owe them. All of that being said. The companies who are honest and understanding tend to make up for the trouble that the others cause. Throughout the years I have become able to spot the problem customers in the first meeting (sometimes phone calls are enough) to where I just say "no" before ever negotiating the job. In my case this has mostly led to me not working with the "local" people at all and mostly focusing on the remote customers.

pomatic 3y ago

Related: Our highest-maintenance users by far (SaaS) are the 'small fry' - companies with a handful of users. They are usually an order of magnitude more demanding than companies with 50+ users.