4 ms·

Freemium business model pricing

12 points by mattfrench 16y ago

When you are making up a freemium business model pricing plan, what is a good way to come up with the difference in prices between each tier? It obviously has to include features that entice a buyer to pay more for the product, but what level of price increase is too much?

fookyong 16y ago
Pricing is something that you're never going to get perfect right off the bat. Start high, then figure things out with your customers. Remember that it's easier to lower prices than it is to raise them. I will say that it's quite common to have a super-high price tier that hardly anyone buys, that is there to make the other tiers look cheaper by comparison. Not saying that it's a tactic that works 100% of the time, but anecdotally speaking, I see it around on SaaS websites. e.g. Basic - $30 Premium - $50 most popular! Corporate - $200 (comes with super-duper feature that 99% of people don't need)
- mattfrench 16y ago
  I agree with everything you say. It is the usual best practices with this type of pricing model. Let's just compare these two services and the somewhat different take they have between the tiers of pricing. http://www.chompstack.com/pricing/ http://www.chompstack.com/pricing/ -only differentiation is if you need 11 restaurant. The upsell is only $15. http://letsfreckle.com/plans/ http://letsfreckle.com/plans/ -Freckle obviously plays better with the "idiot package" by upselling 10 more accounts instead of 1 restaurant like chompstack They both had different pricing strategies I see when sorting through the tiers: -Chompstack just went up $15 each tier -Freckle doubled each time instead of sticking with a fixed rate Any feedback on those thoughts?
  - ahoyhere 16y ago
    Yep, hi, I'm the chief everything of Freckle. ;) (Except chief code monkey.) So, pricing wise, we had a particular strategy and we add very particular, measurable value. The value for a team is honestly more than double the value for an individual because value increases directly with the number of people who track time. I've actually hired a pricing consultant to talk about whether our pricing strategy (the chunking of user seats, the size of price increases) is the best for us. Til that process is wrapped up, it's a bit hard to weigh in! I will say that we priced our base plan higher than our "competitors", based on the difference between Basecamp and Basecamp With Time Tracking, although it looks now like our "competitors" have increased their prices as well. (I say "competitors" because we really serve different markets.) Also: we have as many Solo account members as all other paid accounts combined. We're not hurting for money either ;) and growing about 20% month over month since I've started serious promotion strategies. Hope this helps!
    - stevenwei 16y ago
      I noticed that you guys have a free plan. Is that a significant percentage of your user base? It's a little bit hidden and I didn't see it at first (which I guess is the point).
      - ahoyhere 16y ago
        You're asking the wrong questions :) Is it a significant portion of accounts? Yes. There are thousands of free accounts and about 600 paying. But do people who actually use their free accounts stay free? No, at an overwhelming rate, they upgrade. Something like 30-50% of all free accounts with more than 5 time entries upgrade. Most free accounts are drive-bys or people who are merely curious. I'm also looking into ways to capture some of them, convince them to get over the hump to actually trying it, but I don't worry about how many accounts are free vs paid any more.
        kirvyteo 16y ago
        Interesting! I am trying to work out the price plan for my startup as well. Can I ask if you got people signing up for paid accounts directly or they did the free plans first and convert later?
        ahoyhere 16y ago
        Lots sign up for the paid accounts directly. We have a standard 3-6% monthly conversion rate from free -> paid. But, if you look at it in detail, the numbers get more interesting: About 17-25% of those each month have 5 or more time entries, which is our bar for an "active" account. (A low, sorta primitive bar, but still.) Of those, 35-55% upgrade to paid :) Thing is, unless you are in a very similar field with a similar interaction design quality / providing similar value, to people who "get" value for money, my experience on these points probably won't help you. That's why our sign up page de-emphasizes the free plan regardless, it's just an easier route :)
        mattfrench 16y ago
        ahoyhere, thanks for the insight. I am working on pricing for our startup right now. We serve different markets, but I found your pricing structure interesting, that is why I used it as an example. Is there something to be said for offering a very cheap package instead of free (similar to the Chompstack pricing)? Have you guys tried that at Freckle?
- petercooper 16y ago
  Not saying that it's a tactic that works 100% of the time, but anecdotally speaking, I see it around on SaaS websites. It's proven to work. A couple years back there was an article about how Carl's Jr introduced a new expensive burger. Sales of the second most expensive burger jumped up, yet the expensive burger didn't sell well. They removed the expensive burger from the line up, and the previous best seller's sales fell. Having a highly priced "top" plan/product is a tide that raises all boats, it seems.
ABR 16y ago
I recommend reading Don't Just Roll The Dice, by Neil Davidson. http://scr.bi/c9n8Gu http://scr.bi/c9n8Gu (via Scribd) Great content, and gives insight to the understanding of customer perceptions in pricing decisions. I found it useful for non-software products as well. Also, can you share what type of business the freemium model would be used for?
cjg 16y ago
One thing to consider. Some people will be relatively price-insensitive and will buy the most expensive option regardless just to ensure they get all the features. So, make your top price point higher than you might initially think.

12 points by mattfrench 16y ago

fookyong 16y ago

Pricing is something that you're never going to get perfect right off the bat. Start high, then figure things out with your customers. Remember that it's easier to lower prices than it is to raise them. I will say that it's quite common to have a super-high price tier that hardly anyone buys, that is there to make the other tiers look cheaper by comparison. Not saying that it's a tactic that works 100% of the time, but anecdotally speaking, I see it around on SaaS websites. e.g. Basic - $30 Premium - $50 most popular! Corporate - $200 (comes with super-duper feature that 99% of people don't need)

mattfrench 16y ago
I agree with everything you say. It is the usual best practices with this type of pricing model. Let's just compare these two services and the somewhat different take they have between the tiers of pricing. http://www.chompstack.com/pricing/ http://www.chompstack.com/pricing/ -only differentiation is if you need 11 restaurant. The upsell is only $15. http://letsfreckle.com/plans/ http://letsfreckle.com/plans/ -Freckle obviously plays better with the "idiot package" by upselling 10 more accounts instead of 1 restaurant like chompstack They both had different pricing strategies I see when sorting through the tiers: -Chompstack just went up $15 each tier -Freckle doubled each time instead of sticking with a fixed rate Any feedback on those thoughts?
- ahoyhere 16y ago
  Yep, hi, I'm the chief everything of Freckle. ;) (Except chief code monkey.) So, pricing wise, we had a particular strategy and we add very particular, measurable value. The value for a team is honestly more than double the value for an individual because value increases directly with the number of people who track time. I've actually hired a pricing consultant to talk about whether our pricing strategy (the chunking of user seats, the size of price increases) is the best for us. Til that process is wrapped up, it's a bit hard to weigh in! I will say that we priced our base plan higher than our "competitors", based on the difference between Basecamp and Basecamp With Time Tracking, although it looks now like our "competitors" have increased their prices as well. (I say "competitors" because we really serve different markets.) Also: we have as many Solo account members as all other paid accounts combined. We're not hurting for money either ;) and growing about 20% month over month since I've started serious promotion strategies. Hope this helps!
  - stevenwei 16y ago
    I noticed that you guys have a free plan. Is that a significant percentage of your user base? It's a little bit hidden and I didn't see it at first (which I guess is the point).
    - ahoyhere 16y ago
      You're asking the wrong questions :) Is it a significant portion of accounts? Yes. There are thousands of free accounts and about 600 paying. But do people who actually use their free accounts stay free? No, at an overwhelming rate, they upgrade. Something like 30-50% of all free accounts with more than 5 time entries upgrade. Most free accounts are drive-bys or people who are merely curious. I'm also looking into ways to capture some of them, convince them to get over the hump to actually trying it, but I don't worry about how many accounts are free vs paid any more.
      - kirvyteo 16y ago
        Interesting! I am trying to work out the price plan for my startup as well. Can I ask if you got people signing up for paid accounts directly or they did the free plans first and convert later?
        ahoyhere 16y ago
        Lots sign up for the paid accounts directly. We have a standard 3-6% monthly conversion rate from free -> paid. But, if you look at it in detail, the numbers get more interesting: About 17-25% of those each month have 5 or more time entries, which is our bar for an "active" account. (A low, sorta primitive bar, but still.) Of those, 35-55% upgrade to paid :) Thing is, unless you are in a very similar field with a similar interaction design quality / providing similar value, to people who "get" value for money, my experience on these points probably won't help you. That's why our sign up page de-emphasizes the free plan regardless, it's just an easier route :)
      - mattfrench 16y ago
        ahoyhere, thanks for the insight. I am working on pricing for our startup right now. We serve different markets, but I found your pricing structure interesting, that is why I used it as an example. Is there something to be said for offering a very cheap package instead of free (similar to the Chompstack pricing)? Have you guys tried that at Freckle?
petercooper 16y ago
Not saying that it's a tactic that works 100% of the time, but anecdotally speaking, I see it around on SaaS websites. It's proven to work. A couple years back there was an article about how Carl's Jr introduced a new expensive burger. Sales of the second most expensive burger jumped up, yet the expensive burger didn't sell well. They removed the expensive burger from the line up, and the previous best seller's sales fell. Having a highly priced "top" plan/product is a tide that raises all boats, it seems.

ABR 16y ago

I recommend reading Don't Just Roll The Dice, by Neil Davidson. http://scr.bi/c9n8Gu http://scr.bi/c9n8Gu (via Scribd) Great content, and gives insight to the understanding of customer perceptions in pricing decisions. I found it useful for non-software products as well. Also, can you share what type of business the freemium model would be used for?

cjg 16y ago

One thing to consider. Some people will be relatively price-insensitive and will buy the most expensive option regardless just to ensure they get all the features. So, make your top price point higher than you might initially think.