Lesson #3: Customer Validation

What is Customer Validation?

Customer validation is the second step of the customer development model.


In this step, you are showing potential customers a solution to the problem(s) you learned during the customer discovery step. By doing so, you are looking to find a scalable business model.


During customer validation, you will reach out to the customers from customer discovery, both those you interviewed and those who did not interview.


And with any luck, you will build anticipation to pre-sell your product.

What Questions Should I Ask When Getting Customer Validation Feedback?

At this stage of the customer development process, you have a possible solution you can show potential customers.


While you aren’t going to sell your possible solution, you should find out what might stand in the way of buying your solution.


To find out what questions you should ask during customer validation, ask yourself this question, “What would you like to learn to improve your sales conversion?”


Whatever your answers are, turn those into an open-ended question. Here are some questions we like to ask:


1. Do you have any questions about the offer?


Ask any copywriter worth their salt which is better: clarity or creativity.


When it comes to sales, I guarantee they will say clarity crushes creativity every time.


By asking potential customers what questions they have, you will find out what wasn’t clear, what is missing in your sales copy, and any objections they have to buy your product.


2. What is the most valuable feature?


When someone is buying your product, they buy it for what will improve their life.


By asking what feature is the most valuable to them, you may learn what is your unique value proposition.


3. What is the least valuable feature?


Not every feature you propose in your solution is valuable to your customers.


By asking what is the least valuable, you will learn what features are worthless.


Seeing someone say a feature isn’t valuable doesn’t mean you should not create it. However, if you notice a pattern among your customers, that is a sign it’s not worth building.


As you grow your business, you will segment customers. Learning what features are valuable to each segment will help you create your pricing tiers.

4. Is there anything missing that I should add?


This question is similar to the last two questions. However this may reveal a feature you forgot to add or a feature that needs to be clarified.


5. What objections might you have buying this product?


By asking your customers about their objections, you will learn what you need to do to make the buying decision easier.


Here is one customer objection: “I have already wasted money in the last 5 years growing my business and trying different marketing techniques that people told me I had to do. I don’t want to waste any more time or money.”


From that objection, here are 3 potential ways you can overcome it:

  1. You can offer a money-back guarantee or free trial.
  2. If you are offering a product version of your services, you can show case studies of how your services made a specific ROI.
  3. Spend an hour 1-on-1 with her to show how she can make more money in 60 days.

Keep in mind not every potential solution will overcome a customer’s objection.


For example, a free trial may not help this customer because she has been burned in the last five years. Doing a free trial on a product she thinks isn’t a better solution is a waste of time.


6. On a scale of 1-5, how likely are you to buy this product?


If you’re thinking, “Not everyone who answers a 5 will buy your product,” you are 100% correct.


So why should you ask this question?


Simple: You can filter the answers of non-customers and compare them to someone who is more likely to become a customer. If you see a trending difference between the two, you know what is worth listening to and what you should ignore.


At Growth Ramp, the benchmarks we use is a “5” has a 50% chance of buying. A “4” has a 10% chance of buying. Consider anyone “3” and lower as a non-buyer.


7. How much will you pay for this solution?


This question surprises skeptics who don’t like to talk to customers.


And rightfully so. Who would ever say, “I’d love to pay $200 more every month for the same product?”


That is why there are four questions you should ask to find the pricing range.


I will go over this in the next section when finding out the customer’s willingness to pay (WTP).


8. Is there any other feedback you would like to give to me?


Sometimes a potential customer will tell you what they have already said. This is a clue you should prioritize that feedback, assuming they are a customer.


Other times a potential customer might tell you something new.


I recommend keeping this question as optional because not everyone has feedback they want to give to you.

Now you know what someone thinks about your potential solution. But what are they willing to pay for it?

What Method Should I Use to Determine a Customer’s Willingness to Pay for My Product?


At Growth Ramp, we use the Van Westendorp Method to find the acceptable price range of your potential customers.


In this method, you will ask four questions:

  1. At what price would you consider the product to be so expensive that you would not consider buying it? (Too Expensive)
  2. At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too Cheap)
  3. At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive, Will Buy)
  4. At what price would you consider the product to be a bargain, a great buy for the money? (Inexpensive, Will Buy)


You will then create a line graph based on how many people responded to each price point.

Your graph should look something like this:




Not only will you find out the acceptable price range, but you will often learn how you should price your product.


As an example, one of our clients had numbers below the amount they wanted to charge. It seemed like they needed a better solution.


But after a few customer validation interviews, someone suggested a different pricing structure. Instead of doing a high flat price per month, the customer suggested a lower flat price and a percent based on the usage.


This new pricing model increased sales for our client and created more happier paying customers. I’ll discuss pricing models in the next article on creating a pricing strategy.

How Do I Create a Price Sensitivity Analysis to Find the Optimal Price Point?


In Excel, create a chart for each question you asked. You will want to compare a price point to how many people’s answers fit that price point.


Your price sensitivity table should look something like this:


Depending on how many responses you got, you may decide either to keep or remove non-buyers from this price analysis.


You may have noticed that “Too Cheap, Won’t Buy” and “Inexpensive, Will Buy” are also reversed. This allows you to get four crossing lines, as you will see in the chart below.


The price increment you use depends on what price range you notice people gave you.


It doesn’t make sense to use $10 for a $500-$2,000/month enterprise package. But $10 makes sense for a $20-$100/month SaaS product.


Once you create your line chart, you are looking for the acceptable price range. AKA, your money zone:


There are four key points you want to look for:

  1. Where “Expensive, Will Buy” (Red) meets “Too Cheap” (Green). This is the lowest price of your acceptable price range.
  2. Where “Too Expensive” (Yellow) meets “Too Cheap” (Green).
  3. Where “Expensive, Will Buy” (Red) meets “Inexpensive, Will Buy” (Blue).
  4. Where “Too Expensive” (Yellow) meets “Inexpensive, Will Buy” (Blue). This is the highest price of your acceptable price range.


You should also look at your data manually. If you notice there are two price ranges (e.g. some answering $200-$500 and others $2,000-$5,000), you may want to do price skimming. I will talk about this more in the pricing strategy article.


How should you price your product? Again, this depends on your pricing strategy.


However, my typical recommendation for new products is to price your product somewhere between the point where the blue and red lines meet, and yellow and green lines meet.


This is where you will capture the highest percentage of the market at a reasonable price. Once you get product-market fit, increase the price to the highest value in the acceptable price range.

I’ve Validated My Business Model. What Should I Do Next?

If you are like 80% of entrepreneurs, I know what you are thinking. “I should put my price into my pre-sales landing page and sell my product!”


But I would recommend you resist the urge.


Why?


Because you need a clear pricing strategy.


Let me ask you three questions:


1. What pricing psychology tactics do you want to use to increase sales, and which should you avoid to not kill your brand position?


2. Do you know when you want to discount your product, if ever?


3. Are there certain customer segments you will price your product differently?


Your pricing strategy will walk you through how to answer these questions, and more. That’s what you should do next.


Then once you’ve figured out your pricing strategy, you can put your price into your pre-sales landing page and see if your potential customers will buy your product.