The huge benefit hidden in budget-conscious customers

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In the software business, these are the customers who india phone numbers sign up for the lowest rate and never move up. Do you want customers like that?

In fact, it is worth working with such clients. There can be great benefits hidden in these clients.

At least that's what Dharmesh Shah thinks, and he's worth listening to, as he's a successful, very successful marketer, investor, and writer. As Apple would say, Shah is a guy who "thinks differently."


Cloud clients
Shah's background includes selling software to enterprise customers, particularly software as a service (SaaS), also known as cloud computing.

In many cases, the cloud world is new, and companies in the space are still trying to figure out what works and what doesn't.

Which brings us to a question Shah once asked himself, one he received from an entrepreneur who said two-fifths of the company's customers chose the lowest rate. These customers represent 40% of the customer base, but only account for 10% of the company's monthly revenue.

Worse, most of them don't upgrade to a higher rate. They also have a very high turnover rate - meaning they come and go instead of sticking around for years and becoming regulars.

The entrepreneur's question was: "Should I keep the low rate to attract more customers, or should I give it up?"


Run, Forrest, Run




Customer churn is a nuisance for any business, but for a cloud software business it's deadly.

In the world of off-the-shelf software, companies make a huge amount of money from new customers in the form of license fees and, on top of that, collect an annual subscription fee for service.

Cloud companies don't work that way. A customer signs a contract and pays a monthly subscription fee. Depending on how much each customer costs to acquire, it can take months or even years for the company to start making a profit from that customer.

So if people sign up for the cheapest plan and then leave before you even break even with them, then what's the point?


Pros and cons

Some of those who discussed this topic advised to abandon the low tariff. Yes, it will probably drive away 40% of customers, but if these customers provide 10% of revenue, who cares?

Plus, it's also a way to separate the wheat from the chaff. Good customers will stay and upgrade to a more expensive plan, while the runaways will be weeded out. Maybe it's better to quickly identify the runaways and get rid of them?

But Shah argues otherwise. In his view, there is enormous value in these “low-quality” clients, and here’s why:

1. Construction of the moat

If someone is going to break into your space and compete with you, they are likely to attack from below with their own low price. If you keep your low price, their potential customers will be locked out by you.

2. The puffer fish trick


Have you heard of fish that puff themselves up to look bigger than they really are, thus scaring away predators? These freeloading clients do the same thing for you. They don't make you much money, but they do inflate your client list.

Looking bigger will help you when trying to partner with other software companies and when hiring developers.


Making friends on the cheap

People who work for companies that use your low-cost plans won't work there forever. They'll eventually move on to other companies, and if they like your software, they might become your customers at their new job - and there might be enough money there to afford your higher-cost plan.

In other words, you use this low-cost plan in the same way some companies use minimally free “freemium” plans to attract more potential customers.

No matter what business model you use, consider that the clients you think are “low quality” may be much more valuable than you think.