When do you start charging customers?

Answered by: Phil Fernandez, Founding CEO, Marketo

Category: Passionate Teams

I personally wrote this stupid thing on our website that said, "At Marketo, your success doesn't have a price." It was there on the website for a number of years and I was so proud of that we didn't charge for services because we were so customer-centric and we're just going to help our customers be successful. Boy, that's a mistake.

Then, sales started to evade the topic. We had a hard product that had a hard learning curve and a long deployment and we had to master it to be any good at. But we said to a bunch of customers, "It's easy. Don't worry about it. It's easy." Wherever we examined attrition, it's because we lied to our customers about how easy it was but they said it was hard. We had 70% retention, 30% unit attrition for the longest time. We had an amazing- acquisition engine covering a bunch of sins that we were making with a whole bunch of customers. think even very early on being, at least, much more self-aware about how hard it was.

I remember the day when we were replacing our financial system because we were outgrowing our current one. The vendor gave us an incredible deal for $10,000 a year for a pretty good financial accounting system but they wanted $120,000 to deploy the thing. They said, "This is hard. We're not going to do it any other way," My organization was just like, "How dare they?" I said, "Write the damn check. Just pay them, let's get this thing up and running."

What I realized was that there really isn't any friction about asking people to pay for services, asking people to commit to learning. As we started to get good at asking for more and pushing back, customers just kept saying "yes,"

I actually think it's true in a lot of places. If you say, "Look, this product is great. It's going to transform your business but it's not that easy so we're going to ask you for $50,000 to get out of the gate. It's going to be a good $50,000 and it's going to be money well spent." They will spend it.

In terms of the mix of revenue and professional services, I set a really early goal that I never wanted to have more than 20% services. I actually think that's a pretty good number - a services line that's about 20% contribution margin through series B and then it gets to break even. If you can paint a picture for how it gets to 10 or 15 or 20 at maturity, later stage investors are fine with it, public markets are fine with it.

When it gets above 15 or 20, it starts to get to be is a services company. As a software company in the 10-15% range, it basically represents that you're listening to your customers and you're monetizing it.

Foster choice, foster the creation of services and then keep driving engagement. We did some studies later on that showed the best single predictor of renewal and growth on our business was whether customers were spending on services.