4 ms·

How much to charge for your Web App?

68 points by chanux 17y ago

patio11 17y ago
I'm torn. On the one hand, it clearly succeeded as a publicity stunt. On the other hand, in terms of discovering what users will pay for Creately, the experiment was a failure. By essentially structuring the system as "donate us money", you prime the users to think "Hmm, even $1 is being generous to them. I'm a big spender... I'll go as high as $3." That is, ahem, an insane price point for any service. You have to convince someone to dig out their credit card to pay you money. There is essentially no differentiation between $3 and $9 at that point, since neither amount is an appreciable amount of money to working professionals. (Students are another case. Since they're going to complain long and loudly about being made to pay, and are going to do their level best to steal your service anyhow, I think you can quite rationally make the decision just not seek their custom. Alternatively, you can segment your plans such that one which is free but helps your marketing meets their needs.) There are tremendous advantages to the business, however, from moving from $3 to $9. (Revenues net of Paypal fees just increased by a factor of four.) Note that $9 is still VERY VERY cheap. The fully loaded cost of a professional exceeds that for every ten minutes. Also, if you look at any SAAS business they'll tend to tell you the same thing: the most expensive plan, which is typically bought by employed professionals spending other people's money, brings in more revenue than any other plan. This has been mentioned by Wufoo in interviews, it was true of DropSend when they published their numbers, and I know it to be true of three other companies who have not given me explicit permission to make the fact known. Additionally, as Creately noticed, the kind of people who are attracted by "This only costs a buck!" are the worst customers in the known universe. They cause hugely disproportionate loads on your support resources, and feel entitled to do so because they're Paying Good Money For This, Damn It. They tend to churn like crazy. They'll fail at the most trivial of tasks (like typing in their credit card details) and then blame you for it. (When you spend a buck on something, if something goes wrong it is the merchants fault, the lazy bum. When you spend hundreds on something, you darn well check to make sure it went through alright.)
- thegeekster 17y ago
  Perhaps now that we are moving into an age of micropayments the smaller dollar amounts have regained their separation. i.e. a buck vs a fiver.
  - patio11 17y ago
    I understand how someone typing a blog post on their $2,000 Mac while listening to music on their $300 iPod could perhaps think that we are moving into a new age of micropayments because he paid $1 for a fart app on the the $600 iPhone in the pocket of his $100 jeans, but I don't agree with him.
    - ohashi 17y ago
      But those are physical products and these are virtual services. In the user's mind there is (or starting to be?) a huge distinction between the two. I am not saying it's right or wrong, but would you agree you see a distinction?
      - potatolicious 17y ago
        "In the user's mind there is (or starting to be?) a huge distinction between the two." Actually, I'd venture to say that the distinction between the two is shrinking, and will continue to do so in the future.
        ohashi 17y ago
        Why do you think that?
        jackowayed 17y ago
        Because if you go back, say, 20 years, no one would pay anything that wasn't physical. It just didn't make sense to people back then. There was no reason to. Now computers are so ubiquitous and powerful that people pay for "virtual" things all the time. They pay to download that song off of iTunes. They pay to download that iPhone app. Hell, they pay for "land" in Second Life and "money" in Farmville.
ohashi 17y ago
What if this were done iteratively? As they add more features to the premium, one could try creating different tiers with higher and higher starting points, you could then really start to see and breakdown where different segment's fall in the value scale. Anyone that paid more than the next tier, automatically gets in(can donate more if they want)? I am sure this would lead to too many plans (would probably need a moving bar to keep the numbers of plans reasonable).
robryan 17y ago
Given the prices listed of comparable products if they deliver more value than there competition they should be charging at in the same range. If your app gets the job done better than visio for a company why shouldn't they pay you a comparable amount?
- trevelyan 17y ago
  Because you are working to put the competition out of business?
  - piotrSikora 17y ago
    But, in my humble opinion, fighting with lower price isn't good option (for anyone, in the long run). You should fight with features and/or better quality.
    - sunir 17y ago
      Depends on your market position. You can create a lot of value in the marketplace by commoditizing and simplifying an over-serviced, over-delivered, over-matched product. This works in software too. For instance, Gmail and Amazon Web Services pull prices down on webmail and cloud services respectfully. If the competition's strength is excellent service for more, provide no service for less. I know it sounds weird, but it has often worked. In a maturing market, many pragmatic and conservative customers will prefer the cheaper, simpler packaged product. The key is that you cut prices by far less than the actual cost of service of the premium competition, so you can make more profit across a wider base of customers.
    - robryan 17y ago
      Well there trying to say that they have a better feature set than a product that's worth over $200 but the average price there getting is $5, it's just devaluing the product.
jacquesm 17y ago
I have a funny story about this subject. A while ago when we were charging $9.95 per month for the site and I felt pretty good (several thousand members) I was visiting someone that also runs a large for pay website. He looked at what we were doing and he said 'double your price'. I laughed at him, and said no way, people will cancel in droves, if more than half cancel it'll be a net loss. Sales went up. We basically doubled our income overnight.
- jules 17y ago
  Wow. Did you get complaints from existing customers?
  - jacquesm 17y ago
    No, the opposite, they made sure that their credit cards were updated well in time for fear of losing the good rates. The really interesting thing about the whole affair I think is that our retention became much better, and that's the hardest figure to tune in any online service. If you give me your daily signups and your charge rate I can basically tell you what your annual turnover will be when I have the first week of statistics. It's scary how predictable that is. Say n is your number of signups per day, your retention is 'industry average' (3 months or so for most consumer stuff, 12 months for b2b) and you charge 22.95, then for a consumer product you will make roughly (say 10 signups / day average across a month) 10 * 90 * 22.95 / month after 3 months of ramping up, for a b2b product you'll make 10 * 365 * 22.95 per month after 12 months of ramping up. The retention is very important because it determines how far you can grow, a 1 month increase in retention in the above (b2c) scheme is 33% more turnover, but retention is the hardest of all the variables to get under control. It is related to customer satisfaction, card expiry, product life cycle and so on, the signup rate is only affected by the quality of your marketing and your presentation. edit: When people launch a for-pay service and they see their first stats they usually think that the income is going to grow unbounded, but every product has a life-cycle and you really need to factor that in to get any realistic amounts. This mistake is also present in the business plans of many start-ups, you have to assume some upper limit to the life cycle of a customer to get realistic figures. It is usually a safe bet to plug the industry averages (3, respective 12 months for b2c or b2b) in, you may be a bit better but usually not much unless you have a very addictive/compelling product. It is also good practice to over-deliver by a bit compared to your plans, if you have investors it keeps them happy.
ciex 17y ago
I found the following approach very interesting: * Generate a random price in the acceptable range (but don't tell the user about it) * Let the user know that you made up a price and let him enter what he would pay * If the user entered a higher price than the random one he gets the product, otherwise he doesn't Of course this only works if you keep the user from trying to do this multiple times, for example by offering an invite-only system and giving every invitee only one chance.
gcheong 17y ago
"The PWYW scheme did a good job in helping us gather invaluable data on our customers, but may not be sustainable over a long run. This is due in part to the fact that although we ask people to be Fair, not everyone is." When fair is defined as "pay what you want", how do you define unfair?

68 points by chanux 17y ago

I'm torn. On the one hand, it clearly succeeded as a publicity stunt. On the other hand, in terms of discovering what users will pay for Creately, the experiment was a failure. By essentially structuring the system as "donate us money", you prime the users to think "Hmm, even $1 is being generous to them. I'm a big spender... I'll go as high as $3." That is, ahem, an insane price point for any service. You have to convince someone to dig out their credit card to pay you money. There is essentially no differentiation between $3 and $9 at that point, since neither amount is an appreciable amount of money to working professionals. (Students are another case. Since they're going to complain long and loudly about being made to pay, and are going to do their level best to steal your service anyhow, I think you can quite rationally make the decision just not seek their custom. Alternatively, you can segment your plans such that one which is free but helps your marketing meets their needs.) There are tremendous advantages to the business, however, from moving from $3 to $9. (Revenues net of Paypal fees just increased by a factor of four.) Note that $9 is still VERY VERY cheap. The fully loaded cost of a professional exceeds that for every ten minutes. Also, if you look at any SAAS business they'll tend to tell you the same thing: the most expensive plan, which is typically bought by employed professionals spending other people's money, brings in more revenue than any other plan. This has been mentioned by Wufoo in interviews, it was true of DropSend when they published their numbers, and I know it to be true of three other companies who have not given me explicit permission to make the fact known. Additionally, as Creately noticed, the kind of people who are attracted by "This only costs a buck!" are the worst customers in the known universe. They cause hugely disproportionate loads on your support resources, and feel entitled to do so because they're Paying Good Money For This, Damn It. They tend to churn like crazy. They'll fail at the most trivial of tasks (like typing in their credit card details) and then blame you for it. (When you spend a buck on something, if something goes wrong it is the merchants fault, the lazy bum. When you spend hundreds on something, you darn well check to make sure it went through alright.)

thegeekster 17y ago
Perhaps now that we are moving into an age of micropayments the smaller dollar amounts have regained their separation. i.e. a buck vs a fiver.
- patio11 17y ago
  I understand how someone typing a blog post on their $2,000 Mac while listening to music on their $300 iPod could perhaps think that we are moving into a new age of micropayments because he paid $1 for a fart app on the the $600 iPhone in the pocket of his $100 jeans, but I don't agree with him.
  - ohashi 17y ago
    But those are physical products and these are virtual services. In the user's mind there is (or starting to be?) a huge distinction between the two. I am not saying it's right or wrong, but would you agree you see a distinction?
    - potatolicious 17y ago
      "In the user's mind there is (or starting to be?) a huge distinction between the two." Actually, I'd venture to say that the distinction between the two is shrinking, and will continue to do so in the future.
      - ohashi 17y ago
        Why do you think that?
        jackowayed 17y ago
        Because if you go back, say, 20 years, no one would pay anything that wasn't physical. It just didn't make sense to people back then. There was no reason to. Now computers are so ubiquitous and powerful that people pay for "virtual" things all the time. They pay to download that song off of iTunes. They pay to download that iPhone app. Hell, they pay for "land" in Second Life and "money" in Farmville.

ohashi 17y ago

What if this were done iteratively? As they add more features to the premium, one could try creating different tiers with higher and higher starting points, you could then really start to see and breakdown where different segment's fall in the value scale. Anyone that paid more than the next tier, automatically gets in(can donate more if they want)? I am sure this would lead to too many plans (would probably need a moving bar to keep the numbers of plans reasonable).

robryan 17y ago

Given the prices listed of comparable products if they deliver more value than there competition they should be charging at in the same range. If your app gets the job done better than visio for a company why shouldn't they pay you a comparable amount?

trevelyan 17y ago
Because you are working to put the competition out of business?
- piotrSikora 17y ago
  But, in my humble opinion, fighting with lower price isn't good option (for anyone, in the long run). You should fight with features and/or better quality.
  - sunir 17y ago
    Depends on your market position. You can create a lot of value in the marketplace by commoditizing and simplifying an over-serviced, over-delivered, over-matched product. This works in software too. For instance, Gmail and Amazon Web Services pull prices down on webmail and cloud services respectfully. If the competition's strength is excellent service for more, provide no service for less. I know it sounds weird, but it has often worked. In a maturing market, many pragmatic and conservative customers will prefer the cheaper, simpler packaged product. The key is that you cut prices by far less than the actual cost of service of the premium competition, so you can make more profit across a wider base of customers.
  - robryan 17y ago
    Well there trying to say that they have a better feature set than a product that's worth over $200 but the average price there getting is $5, it's just devaluing the product.

jacquesm 17y ago

I have a funny story about this subject. A while ago when we were charging $9.95 per month for the site and I felt pretty good (several thousand members) I was visiting someone that also runs a large for pay website. He looked at what we were doing and he said 'double your price'. I laughed at him, and said no way, people will cancel in droves, if more than half cancel it'll be a net loss. Sales went up. We basically doubled our income overnight.

jules 17y ago
Wow. Did you get complaints from existing customers?
- jacquesm 17y ago
  No, the opposite, they made sure that their credit cards were updated well in time for fear of losing the good rates. The really interesting thing about the whole affair I think is that our retention became much better, and that's the hardest figure to tune in any online service. If you give me your daily signups and your charge rate I can basically tell you what your annual turnover will be when I have the first week of statistics. It's scary how predictable that is. Say n is your number of signups per day, your retention is 'industry average' (3 months or so for most consumer stuff, 12 months for b2b) and you charge 22.95, then for a consumer product you will make roughly (say 10 signups / day average across a month) 10 * 90 * 22.95 / month after 3 months of ramping up, for a b2b product you'll make 10 * 365 * 22.95 per month after 12 months of ramping up. The retention is very important because it determines how far you can grow, a 1 month increase in retention in the above (b2c) scheme is 33% more turnover, but retention is the hardest of all the variables to get under control. It is related to customer satisfaction, card expiry, product life cycle and so on, the signup rate is only affected by the quality of your marketing and your presentation. edit: When people launch a for-pay service and they see their first stats they usually think that the income is going to grow unbounded, but every product has a life-cycle and you really need to factor that in to get any realistic amounts. This mistake is also present in the business plans of many start-ups, you have to assume some upper limit to the life cycle of a customer to get realistic figures. It is usually a safe bet to plug the industry averages (3, respective 12 months for b2c or b2b) in, you may be a bit better but usually not much unless you have a very addictive/compelling product. It is also good practice to over-deliver by a bit compared to your plans, if you have investors it keeps them happy.

ciex 17y ago

I found the following approach very interesting: * Generate a random price in the acceptable range (but don't tell the user about it) * Let the user know that you made up a price and let him enter what he would pay * If the user entered a higher price than the random one he gets the product, otherwise he doesn't Of course this only works if you keep the user from trying to do this multiple times, for example by offering an invite-only system and giving every invitee only one chance.

gcheong 17y ago

"The PWYW scheme did a good job in helping us gather invaluable data on our customers, but may not be sustainable over a long run. This is due in part to the fact that although we ask people to be Fair, not everyone is." When fair is defined as "pay what you want", how do you define unfair?