#148 - Startup School Week 7 Recap - Kevin Hale on Conversion Rates and Pricing

**Craig Cannon** (0:00)
Hey, how's it going? This is Craig Cannon, and you're listening to Y Combinator's podcast. Today's episode is a recap of the seventh week of Startup School.
I've cut down the seventh week of lectures to be even shorter and combined them into one podcast. Kevin Hale gave both lectures this week. Kevin's a partner at YC and co-founded Wufoo. His first lecture is on how to improve conversion rates, and his second lecture is on pricing for startups.
All right, here we go.

**Kevin Hale** (0:27)
So, this presentation on improving conversion rates, it's designed to mostly focus on landing pages, but all of the principles and ideas that I'll talk about in this talk actually can help you improve the conversion rates of almost anything, any user interface. So, keep that in mind.
This is a typical example conversion rate funnel, and when you're trying to improve on conversion rate, you're basically trying to improve the efficiency of going from one step to the next. And the thing is, why we care about conversion rate is because it's part of two different aspects of growth, the two main sort of drivers. And so growth is kind of like the balance between conversion and churn, and basically growth happens as a gap between the two. Something to keep in mind is that working on churn is actually much easier than working on conversion. So in this talk, we're working on the harder thing. It's the thing that usually are going to get started. When I talk to a company, and I'm trying to help them with their conversion rates, the first thing I usually try to figure out is do we even need to be working on this at all? So the only time you should be working on and improving your conversion rate is because you have a leaky bucket. So I'd like to just talk about a couple of benchmarks into industry so that we all kind of sit on the same page and understand whether we should be working on this or working on something else, like putting more things into the top of the funnel.
Shareware. Conversion rates here is about.5%. So basically, this is old school, like before the internet, if people just release software out for free and they just hope that somebody will pay for it out of their own goodwill. This is the conversion rate you can expect.
Casual download games.
It's about 2%, so stuff that you sort of play on and off while waiting in line.
Most companies kind of care about this one. Freemium Software as a Service companies, they range between 1.5 and 5%. On average, it's about 3%. So once I talk to a company and they have pages that are converting at about 3%, and that is from out of 100 visitors that visit your page, 2-3% sign up. I used to say, you probably don't need to spend that much more time on this. There's probably other things you should work on instead. That being said, you can do much better than that. Flickr back in the heyday had a conversion rate between 5 and 10%.
Adult friend finder. So depending on what you're selling, people wanted a whole lot more. So 10 to 22% for sex and end of loneliness.
Even better, so these are, if you don't recognize them, children's social networks. And so basically, this is the conversion rate to get your kid to shut the fuck up, right? To leave you alone.
TurboTax Online, the monster. 70% conversion rate. Basically, you're going to TurboTax, you're downloading that software, you are paying for it. It is very, very high intent.
Every conversion rate problem looks like every other user interface problem. And the concept or framework that I like to use to explain how to solve any user interface problem is using something called the knowledge spectrum. This was created by an amazing interface designer named Jared Spool. And basically, the knowledge spectrum says that this represents all knowledge on a spectrum, and on this side represents zero knowledge. No knowledge, you don't know anything. And on the other side is god-like all knowledge. Your product and your user sits on two points on that line.
Just two dimensions.
Your user sits here at what we call the current knowledge point, and your interface, your landing page, the thing you want them to do, sits here at the target knowledge point. And every interface problem that's trying to be solved is trying to close what we call the knowledge gap. That's it. You don't need to go to a complicated design school to know how to solve these problems. You either are going to increase the amount of knowledge that is needed by your user, or you need to decrease the amount of knowledge needed to use your product or interface. That's it. And I, whenever I'm looking at anyone's design problem and trying to figure out, do I need to increase knowledge, or do I need to decrease it?