Jon Birdsong, CEO of Rivalry, wrote a post last month titled SaaS Gratification. The idea with SaaS gratification is that some products are faster to get value from whereas others take more time. There’s a related idea that’s equally important: the wallet test. Simply, the wallet test is how tightly the product is associated with revenue. Put another way, how easily and quantifiably does the software help customers make money.
Here are a few examples of the wallet test:
- Products that directly generate revenue (e.g. ecommerce shopping cart software or lead generation marketplaces for taxi drivers), are undeniably tied to the wallet (e.g. a 10 on a scale of 1-10 with 10 being the best)
- Products that are closely tied to revenue, but don’t actually collect money (e.g. marketing automation software), are slightly lower on the wallet test (e.g. an 8 or 9)
- Products that help organize information, and clearly add value but are harder to quantify (e.g. a CRM), are a bit higher than middle of the road on the wallet test (e.g. a 6)
- Products that are a productivity tool, but aren’t in the revenue conversation (e.g. a screen capture app), are valuable yet low on the wallet test (e.g. a 3 or 4)
When thinking through startup ideas, or evaluating opportunities, include the wallet test as part of the analysis. New ideas that score high on the wallet test are often areas of interest.
What else? What are some more thoughts on the wallet test?
David Cummings on Startups 