Canadian Brothers Bootstrapping to $40M Exit: Chris Sinkinson, Co-Founder AppArmor (Part 5)

Sramana Mitra: Double click down on pricing. Now that you are getting these inbound leads and it sounds like you are not having too much difficulty closing the accounts, what’s the pricing?

Chris Sinkinson: We did start increasing pricing, but we were doing it wrong. We were charging an upfront setup fee and then a very small recurring fee for maintenance.

Ironically, we were in Toronto at this point. There was another company that was near our office. We had been to trade shows and happened to be talking to him. They did dispatch software for police departments and public safety. They had actually gone to the same school that we had gone to as well. We had gone to lunch with them. We told them our pricing and they said, “Why don’t you just get rid of the setup fee and charge more on the recurring?”

That got us thinking. That would make it a lot easier for people to get in because initially clients were hesitant to pay $10,000 up front. They were asking us to break it up into a monthly fee so that they can deal with that better from a budgeting perspective. So, we got less upfront, but more ongoing and, it worked out much better for us. That was probably about 2015 or so. That obviously changed the complexion of the company. We then had much more money coming in.

So, the first year we’d obviously do a lot of work to get the app set up and running. But then the second year, we might only have to do an update to the app or something minor, but we got that same amount of money that second year. It snowballed.

Sramana Mitra: That’s the beauty of recurring revenue software.

Chris Sinkinson: Exactly. So, by the end, I don’t even think we ever charged one-time fees. Everything had to be a recurring fee, because it just made life so much easier.

Sramana Mitra: How much is the recurring revenue?

Chris Sinkinson: It depended because we had some clients that were small campuses and only had a smaller budget. Other big schools had much more to spend, but they were more demanding. They would want more support and things like that. We had kind small, medium, and large clients, and the average purchase price per year was around $15000 per client. That was the way we built up our revenue streams.

In another model, we had a lot of success with the safety apps, and we were integrating with other pieces of software that these clients were using. One of them was something called a mass notification system. When there’s an emergency like an active shooting, they send out texts. Our product was very difficult for other companies to replicate, but we had looked at some of these other things that the clients were buying. We thought we can build better versions. So, we proliferated our products. We added more products to our product line to try and increase the size of the basket of goods that our customers were buying on a monthly basis.

Sramana Mitra: Upsell and cross-sell.

Chris Sinkinson: Exactly. It’s a lot easier to sell something to an existing client than to go find a new client. We had a nice core client base, and we came up with about three other pieces of software that they could purchase. We were able to increase the amount each client was spending. We were probably getting $45K-$50K a year spend per client on average than just $15K for the safety app on its own.

This segment is part 5 in the series : Canadian Brothers Bootstrapping to $40M Exit: Chris Sinkinson, Co-Founder AppArmor
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