9 ms·

Doubling SaaS Revenue By Changing The Pricing Model

216 points by illdave 14y ago

patio11 14y ago
Happy to answer questions to the extent that I can. Speaking of which: if it isn't transparently obvious by now, I really, really like getting feedback about how my advice worked out. If you ever implement a suggestion from me (particularly with an A/B test), please, drop me an email. Even if the result was "Well, that was sure an epic failure", because negative confirmation is useful, too. (If you want to share results I can write up for the blog, I appreciate that, too, but I'd be just as pleased with a "Keep this under your hat but we did a first-experience tour and, yikes, engagement +20%.")
- bdunn 14y ago
  Patrick, I've recently doubled my pricing across the board. To confirm Ruben's results, no change in trial/paid conversions. Next step is disconnecting from "usage" (right now, plans are based on # of employees using the software, all plans have the same features) and moving towards plans based on the goals of the business: Do they need reporting? Are they comfortable being a solo freelancer working from Starbucks, or is the customer (or wants to look like) a big agency that needs a lot more flexibility?
  - dchuk 14y ago
    This is the exact path I'm taking with my company very soon (I refer to it as persona based pricing, not sure if that's the correct technical term or not). We've found that increased usage is not what differentiates our users (no one hits the imposed limits on their plans). So we're switching to plans that users should be able to read and immediately identify themselves with (Solo, Consultant, Agency) Would love to chat with you about your thoughts and results if you're interested.
    - bdunn 14y ago
      Absolutely. brennan at planscope.io
    - glimcat 14y ago
      I refer to it as persona-based pricing I hereby declare this to be the correct technical term for it. The guys in marketing may be calling it something else, but I don't think you'll find a more succinct description of the strategy.
      - jbigelow76 14y ago
        The guys in marketing may be calling it something else... I have a suspicion the marketing guys might come up with that terminology as well (sorry I couldn't resist a little off topic inside baseball)
- mootothemax 14y ago
  What are your thoughts on trimming down the price options even further, e.g. one plan around $200/month, plus a "need more? we do custom plans, call us!" option? Oh, and thanks for writing this, there's some really useful information here.
  - patio11 14y ago
    The notion of keeping customers from having to make multiple decisions at once appeals to me, but you hugely gain by ability to price discriminate against customers who are less sensitive. There's a reason almost everyone you can think of has more than one price for their offering. Can I give you a suggestion that's halfway there? There's no reason that your /pricing page has to be the only channel anywhere for getting signups. You might have a particular recommendation specific to a particular audience and give that particular audience just a single option. For example, when I write drip marketing campaigns, I often pitch the #3 out of 4 plan semi-exclusively, and send folks to pages which plug it and only it. (If you want to hear more about drip marketing get on my email list. August will be a fun month for you. If you don't want to hear about email marketing optimization my email list is a very bad place to be for the next couple of weeks.)
    - mootothemax 14y ago
      Thanks, that's really good advice. I'm planning on launching a new product at some point next month, and am preparing the initial pricing plans now. I hadn't thought of offering custom pages for specific audiences like that - I'm already on your list, and looking forward to seeing what turns up :)
- mamcx 14y ago
  Any info in the best price strategy for online backup software, for companies? Price per server, GB or what?
  - patio11 14y ago
    I haven't worked directly with any online backup software companies (and wouldn't give you their secrets if I had). In general, I'd try to align pricing with customer success, such that e.g. a big enterprise doing online backup of a mission critical application would end up paying a heck of a lot more per anything than a bride backing up her wedding photos. This would tend to suggest not pricing backups by weight at all because, crucially, businesses do not value data by weight. 8 GB of bingo cards: doesn't matter if they get rm -rf'ed, I can regenerate them trivially. 200kb gzipped of Appointment Reminder database backups: that literally represents more than half my net worth. The production database for a large enterprise customer? That might trivially be worth $20k+ per month, totally no-brainer, regardless of size. My most specific recommendation: if the pricing page includes "picodollars", it really shouldn't. (Much love for Tarsnap but darn it I'm right.)
    - cperciva 14y ago
      if the pricing page includes "picodollars", it really shouldn't I knew that was coming as soon as I read the question. :-)
      - statictype 14y ago
        Have you considered running tests on your marketing copy and doing the math on the hard data you get out of it? I think I understand your point that you're not interested in having the type of customer who would be scared away by 'picodollars' (as opposed to finding it amusing) but you should at least test it out and get the numbers to verify your hypothesis right? (As a bonus, if you're right, you get to shove it in the faces of everyone else. If you're wrong - well congratulations - you just increased sales) Unless you're doing this more as a principled stand (which is fine I guess).
    - 14y ago
- gav 14y ago
  If you are targeting non-technical people, I wonder what improvement the change from "∞ users" to "unlimited users" would be.
  - patio11 14y ago
    Non-technical is not a synonym for uneducated. Many of my non-technical customers have masters degrees, and substantially all passed high school math. The typical non-technical decisionmaker trying to buy server-monitoring software has a title like Purchasing Director or Team Lead and a four-year degree or better. (I'd also tend to avoid that A/B test because the pricing grid looks very clear in context.) There's a semi-related issue where talking in a particular way can make you seem like The Other to someone, and you don't want to do that, but I doubt the person with purchasing authority is so scared of math that this qualifies. (I might avoid putting a D&D joke on that page, where I would totally do that when talking directly to a geeky audience, if that fits the company culture.)
    - gav 14y ago
      That wasn't a dig at non-technical people, more so that I've always (and seen results) from being a clear as possible. It took me a couple of seconds between reading "infinity" and realizing what you meant.
- rodolphoarruda 14y ago
  Patrick et al. I work in the e-commerce "ecosystem". What's your opinion about offering all software functionality for free, but charge for support and other side services like "product catalog management", "product image treatment", "e-mail marketing campaigns management" etc? Do you think customers may like the idea?
  - patio11 14y ago
    I think that the kind of customers who think "Oh, you know what, I want to run my business on a platform put out by a company with no clear way of keeping the lights on" are absolutely not the customers which you want to get. They're disproportionately going to be people who aspire to make money on the Internet rather than people who actually run businesses. People who actually run businesses are much better prospects: they have money and are willing to spend as much of it as you'd care to take if you can generate positive ROI. They'll be much more positively inclined to upsells like e.g. improved photography for their goods because they know that will directly make them money, whereas someone who a) has no orders and b) has no goods won't understand why on earth they'd pay for a professional photographer. These very desirable business customers will run screaming from the impending trainwreck of a company which is proposing a) tie your business at the hip to ours and b) we could fold at any stiff breeze.
- 147 14y ago
  What about pricing a B2C SaaS? It seems to me that all of the advice I've found leans towards pricing B2C and charging a lot more money. Will applying the same techniques work for B2C where customers will be more stingy with their money?
  - Silhouette 14y ago
    Will applying the same techniques work for B2C where customers will be more stingy with their money? Which techniques? Market segmentation and pricing by features? Sure, absolutely. Some people value a certain service more than other people depending on their circumstances, just as some businesses do. Doubling/trebling your prices overnight and hoping you'll get a similar number of customers all paying several times as much? ROFLOLWAT. These customers are spending their own money, and not only will many of them take their business elsewhere if you try to charge insulting prices, they'll tell all their friends that your service is a rip-off, too. Obviously it's not really as simple as that. For example, a lot of businesses pitch their prices far lower than market value would support at first. In those cases, increasing the prices to something higher but still reasonable is fine and often quite lucrative. But you're absolutely right that advice that holds for B2B environments doesn't necessarily work the same way in a B2C context. The starting point and assumptions simply aren't the same.
- bravura 14y ago
  Here's what I find really surprising: Making the word "Free" in the call-to-action much less prominent did not reduce conversion by very much. The original page prominently says: "Sign up for a free trial" and gets a 6.9% conversion from visitor to trial user. The new page unprominently says: "Money back guarantee" and "Free Sign Up" in the top right corner. Conversion is 5.2%, which is almost the same considering the scope of the change, even though there was much less use of the word "Free". This is surprising in itself. I'm also curious about how the next stage of the funnel is converting users from the trial to entering their credit cards. Also you say that credit card signup is not mandatory. When does the CC enter the picture? Does the service wait a while (e.g. one month ) and ask you to enter you credit card? How does this compare to taking a credit-card upfront and offering a one-month money-back guarantee?
  - hythloday 14y ago
    I don't want to be pedantic, but 25% fewer conversions is not "almost the same", it's quite the loss. You need to increase your funnel 33% somewhere down the line to make up for it (which I'm sure they did - I'm just making the point that X% -> X-d% is significant if X and d are small).
    - dmytton 14y ago
      Depends if you're maximising for revenue or signups. The number of signups decreased but the revenue increased significantly, making up for the loss in signups. Of course if you can increase signups now with the new pricing then that would also show revenue increase.
  - robryan 14y ago
    I think this might be because of the product. Most people probably don't want free server monitoring, as the perceived reliability and performance would be worse.
  - dmytton 14y ago
    We request a credit card when the trial expires.
salman89 14y ago
I always wondered how volatile your pricing scheme can be. Suppose you wanted to A/B test a pricing scheme - is there any potential impact/backlash from customers? And when a company changes their pricing scheme, what happens to customers who were paying a former price/scheme?
- dmytton 14y ago
  We had a few people pick up on this test (colleagues browsing on different machines) and they understood when we explained we were running a test. I think so long as you don't try and cover it up and offer those who discover the choice between the new/old pricing, it shouldn't cause any problems.
  - zcvosdfdgj 14y ago
    that's just because you aren't big enough. Amazon has been caught testing prices previously, and there were a lot of upset people. Noticing the test isn't what caused the outrage.. wait until you have thousands of people who find out they paid more than another person for the same item (ie in their minds: were ripped off). Then you'll see how consumers feel about your test.
  - simonbrown 14y ago
    zcvosdfdgj (hellbanned) posted: that's just because you aren't big enough. Amazon has been caught testing prices previously, and there were a lot of upset people. Noticing the test isn't what caused the outrage.. wait until you have thousands of people who find out they paid more than another person for the same item (ie in their minds: were ripped off). Then you'll see how consumers feel about your test.
    - Evbn 14y ago
      Much better to honor the lower price for A and B, but promote the lower price to only B via special codes or something.
- patio11 14y ago
cfn 14y ago
When I change pricing I always worry that current customers will be unhappy because they might have saved some money had they bought it later (I sell a desktop product). Is this a problem you have seen youself when you sold desktop software?
- tnorthcutt 14y ago
  Why would you be lowering the price? Regardless, just refund the difference for anyone who asks.
  - ricardobeat 14y ago
    This is the kind of behaviour we all deeply hate from TelCos, why would you do the same? I'd say offer the new price to all and get happier clients. If you can't afford that then why are you lowering prices in the first place?
    - kkowalczyk 14y ago
      We hate TelCos who lower the prices and even apply them retro-actively? That's news to me. But more to the point: the logistics of making refunds on purchases like software are complicated. Most payment processors don't even have the notion of partial refunds. Making a full refund is costly to you (payment processor took their cut of the transaction; they aren't too eager to give it back to you so either they charge you (and now you have a loss) or they swallow the charge but will kick you out of the system if they have to do it too frequently). There might be more bad will generated by contacting the customers and offering them refund because that makes them aware of some event that they might not like. Most people don't monitor the price of software they bought over time so they are not aware of changes so they are not upset about changes. I've bought a bunch of software over time and I can't tell how much any of it cost - I just don't keep track.
      - ricardobeat 14y ago
        One day you find out that your parents are still paying $100/month for a 1mbps plan that doesn't even exist anymore, while they could pay $50 for 10mbps after a 2 min phone call. That's what we hate. Not everyone knows to check every couple months to verify that they're paying current prices. This is on SaaS, so no refunds needed, just a price/plan change for the next billing cycle.
jessep 14y ago
Regarding the question of estimating the error: I don't know a ton about stats, but can't you use bootstrapping to get a valid sense of the variability/margin of error of your dataset for non normal distributions? http://en.wikipedia.org/wiki/Bootstrapping_(statistics) http://en.wikipedia.org/wiki/Bootstrapping_(statistics)
true_religion 14y ago
> The minimum buy-in for the service is now $99 a month, which should scare away the idiots. I'm scared, and as a potential customer I hate to be labeled an idiot. I'm very happy with New Relics system even though they're priced higher than you per server, they at least offer a price PER server instead of tiers.
- the_bear 14y ago
  Agreed. I don't doubt that being ruthless about A/B testing pricing increases revenue, but I'm not wild about the implied attitude that customers only exist so that we can extract as much money as possible from them. The user experience should definitely be a factor as well. I don't think it's possible to support this claim with data, but I'm convinced that being ruthless and unfriendly with pricing can have a negative impact on the business in the long term. As a customer, I much prefer usage based pricing to arbitrary plans.
  - adrianhoward 14y ago
    I'm convinced that being ruthless and unfriendly with pricing can have a negative impact on the business in the long term Optimising for price isn't necessarily being ruthless and unfriendly to customers. In my experience more people like pricing models like these. It's easier to understand. They know what they'll be spending each month. It saves them effort and work. I worked with one organisation who just killed out of hand any service that had variable pricing since it played merry hell with their accounting processes. They would much rather pay $99 a month every month than deal with the hassle of figuring out what this random number was on the invoice (because you had to check that that number was the right number somehow - which cost them money in admin, tracking, etc.). Yes - models like this make some customers unhappy. Some of those customers will be good customers. That doesn't mean that other who go for the new model are unhappy - or being screwed. Changing pricing models like this are in many cases more a way to resegment / target your market. The revenue increase is just evidence that you're doing it well :-) Also - money for the company should mean more resources for building a better product for the customer, so a long term win for the customer.
ricardobeat 14y ago
> The minimum buy-in for the service is now $99 a month, which should scare away the idiots And bootstrapped startups, etc. This isn't just a pricing change but a market repositioning?
- Retric 14y ago
  99$ a month is reasonable for bootstrapped company's. It's not reasonable for most hobby's, but 50$/month or 100$ / month are both rather high for a hobby website so there is little real loss.
  - ricardobeat 14y ago
    Yeah, in the US where that's 0.01% of a salary. Not so almost everywhere else in the world.
    - alphamale3000 14y ago
      Happy you're earning 1 million dollars per MONTH in salary. You didn't do the math, did you?
  - Silhouette 14y ago
    99$ a month is reasonable for bootstrapped company's. I think HN has been collectively in denial on this kind of point lately. Yes, services offering real value should charge commensurate with that value. Yes, it's lovely if you're Patrick or Thomas and in B2B world where you can whack up your prices and hope whoever is paying the bill isn't spending their own money. Newsflash: If you're dealing with a bootstrapped business, it might well be that the person paying the bill is spending their own money. Newsflash #2: There are dozens of companies pitching useful-but-not-that-useful tools and services to these bootstrapped businesses. If you spend $100/month on this one, and $300 over there, and $150 on the next one, and ten more after that, and then you multiply it by 12... Well, before long you're spending on the same kind of level that it takes to hire some office help or to run a long-term marketing campaign with a significant level of funding or for that matter to hire in a guy who knows what he's doing for a few days to build your own customised versions of a lot of these services. In short, if you think the ability to monitor a couple of production servers is worth $1,000+/year to a bootstrapped company, you're crazy. Yes, it's a convenience, but you're talking about a service that could be built using a couple of widely available building blocks with a tiny fraction of the running costs, and frankly to a business at that stage in its development it is highly unlikely that a server falling over until the morning is going to cause any real long-term damage anyway. When you're dealing with relatively time-rich and cash-poor early stage businesses (OK, time-poor as well because they're trying to build the business, but that's not really the point here) you can't just dismiss the cumulative effect of all these SaaS gadgets. They add up, and if you want to know why so many small businesses fail, I expect not controlling costs is probably somewhere around #2 or #3 on the list. Does that mean bootstrapped companies are bad customers for these kinds of services? Sure, maybe it does. If there isn't enough in it for both sides to make it a deal worth doing, it's not time to do the deal yet.
plasma 14y ago
> "The minimum buy-in for the service is now $99 a month, which will segment away customers who are less serious about their server uptime." I use Server Density (and even blogged about it, http://cherrypopapp.com/blog#Server_Provisioning http://cherrypopapp.com/blog#Server_Provisioning) and would not pay $99/month to monitor 1-2 servers. I don't see how paying more or less reflects a level of seriousness.
- robryan 14y ago
  With the new pricing though you are no longer a targeted customer.
chermanowicz 14y ago
Someone shared a couple links on this topic before but I didn't see them here http://www.erica.biz/2012/pricing-strategies/ http://www.erica.biz/2012/pricing-strategies/ http://conversionxl.com/pricing-experiments-you-might-not-know-but-can-learn-from/ http://conversionxl.com/pricing-experiments-you-might-not-kn...
gizzlon 14y ago
Couldn't lower pricing be seen as marketing? For example to sell in to companies that are now poor, but could be successful and profitable later. If they can't afford SD and pick something else, how likely is it they'll switch to SD later?
mooktakim 14y ago
Server Density is a UK company. They use to have pricing in pounds. They seem to have switched to dollar pricing. My question: Are they taking payment in dollars? or are they converting the amount to pound equivalent in last moment and taking that payment? I've been thinking about pricing on the internet, whether its good to price in dollars to make it more convenient for the american customers. I feel like customers from UK are alright with paying dollars, but americans don't like to pay in pounds.

216 points by illdave 14y ago

Happy to answer questions to the extent that I can. Speaking of which: if it isn't transparently obvious by now, I really, really like getting feedback about how my advice worked out. If you ever implement a suggestion from me (particularly with an A/B test), please, drop me an email. Even if the result was "Well, that was sure an epic failure", because negative confirmation is useful, too. (If you want to share results I can write up for the blog, I appreciate that, too, but I'd be just as pleased with a "Keep this under your hat but we did a first-experience tour and, yikes, engagement +20%.")

bdunn 14y ago
Patrick, I've recently doubled my pricing across the board. To confirm Ruben's results, no change in trial/paid conversions. Next step is disconnecting from "usage" (right now, plans are based on # of employees using the software, all plans have the same features) and moving towards plans based on the goals of the business: Do they need reporting? Are they comfortable being a solo freelancer working from Starbucks, or is the customer (or wants to look like) a big agency that needs a lot more flexibility?
- dchuk 14y ago
  This is the exact path I'm taking with my company very soon (I refer to it as persona based pricing, not sure if that's the correct technical term or not). We've found that increased usage is not what differentiates our users (no one hits the imposed limits on their plans). So we're switching to plans that users should be able to read and immediately identify themselves with (Solo, Consultant, Agency) Would love to chat with you about your thoughts and results if you're interested.
  - bdunn 14y ago
    Absolutely. brennan at planscope.io
  - glimcat 14y ago
    I refer to it as persona-based pricing I hereby declare this to be the correct technical term for it. The guys in marketing may be calling it something else, but I don't think you'll find a more succinct description of the strategy.
    - jbigelow76 14y ago
      The guys in marketing may be calling it something else... I have a suspicion the marketing guys might come up with that terminology as well (sorry I couldn't resist a little off topic inside baseball)
mootothemax 14y ago
What are your thoughts on trimming down the price options even further, e.g. one plan around $200/month, plus a "need more? we do custom plans, call us!" option? Oh, and thanks for writing this, there's some really useful information here.
- patio11 14y ago
  The notion of keeping customers from having to make multiple decisions at once appeals to me, but you hugely gain by ability to price discriminate against customers who are less sensitive. There's a reason almost everyone you can think of has more than one price for their offering. Can I give you a suggestion that's halfway there? There's no reason that your /pricing page has to be the only channel anywhere for getting signups. You might have a particular recommendation specific to a particular audience and give that particular audience just a single option. For example, when I write drip marketing campaigns, I often pitch the #3 out of 4 plan semi-exclusively, and send folks to pages which plug it and only it. (If you want to hear more about drip marketing get on my email list. August will be a fun month for you. If you don't want to hear about email marketing optimization my email list is a very bad place to be for the next couple of weeks.)
  - mootothemax 14y ago
    Thanks, that's really good advice. I'm planning on launching a new product at some point next month, and am preparing the initial pricing plans now. I hadn't thought of offering custom pages for specific audiences like that - I'm already on your list, and looking forward to seeing what turns up :)
mamcx 14y ago
Any info in the best price strategy for online backup software, for companies? Price per server, GB or what?
- patio11 14y ago
  I haven't worked directly with any online backup software companies (and wouldn't give you their secrets if I had). In general, I'd try to align pricing with customer success, such that e.g. a big enterprise doing online backup of a mission critical application would end up paying a heck of a lot more per anything than a bride backing up her wedding photos. This would tend to suggest not pricing backups by weight at all because, crucially, businesses do not value data by weight. 8 GB of bingo cards: doesn't matter if they get rm -rf'ed, I can regenerate them trivially. 200kb gzipped of Appointment Reminder database backups: that literally represents more than half my net worth. The production database for a large enterprise customer? That might trivially be worth $20k+ per month, totally no-brainer, regardless of size. My most specific recommendation: if the pricing page includes "picodollars", it really shouldn't. (Much love for Tarsnap but darn it I'm right.)
  - cperciva 14y ago
    if the pricing page includes "picodollars", it really shouldn't I knew that was coming as soon as I read the question. :-)
    - statictype 14y ago
      Have you considered running tests on your marketing copy and doing the math on the hard data you get out of it? I think I understand your point that you're not interested in having the type of customer who would be scared away by 'picodollars' (as opposed to finding it amusing) but you should at least test it out and get the numbers to verify your hypothesis right? (As a bonus, if you're right, you get to shove it in the faces of everyone else. If you're wrong - well congratulations - you just increased sales) Unless you're doing this more as a principled stand (which is fine I guess).
  - 14y ago
gav 14y ago
If you are targeting non-technical people, I wonder what improvement the change from "∞ users" to "unlimited users" would be.
- patio11 14y ago
  Non-technical is not a synonym for uneducated. Many of my non-technical customers have masters degrees, and substantially all passed high school math. The typical non-technical decisionmaker trying to buy server-monitoring software has a title like Purchasing Director or Team Lead and a four-year degree or better. (I'd also tend to avoid that A/B test because the pricing grid looks very clear in context.) There's a semi-related issue where talking in a particular way can make you seem like The Other to someone, and you don't want to do that, but I doubt the person with purchasing authority is so scared of math that this qualifies. (I might avoid putting a D&D joke on that page, where I would totally do that when talking directly to a geeky audience, if that fits the company culture.)
  - gav 14y ago
    That wasn't a dig at non-technical people, more so that I've always (and seen results) from being a clear as possible. It took me a couple of seconds between reading "infinity" and realizing what you meant.
rodolphoarruda 14y ago
Patrick et al. I work in the e-commerce "ecosystem". What's your opinion about offering all software functionality for free, but charge for support and other side services like "product catalog management", "product image treatment", "e-mail marketing campaigns management" etc? Do you think customers may like the idea?
- patio11 14y ago
  I think that the kind of customers who think "Oh, you know what, I want to run my business on a platform put out by a company with no clear way of keeping the lights on" are absolutely not the customers which you want to get. They're disproportionately going to be people who aspire to make money on the Internet rather than people who actually run businesses. People who actually run businesses are much better prospects: they have money and are willing to spend as much of it as you'd care to take if you can generate positive ROI. They'll be much more positively inclined to upsells like e.g. improved photography for their goods because they know that will directly make them money, whereas someone who a) has no orders and b) has no goods won't understand why on earth they'd pay for a professional photographer. These very desirable business customers will run screaming from the impending trainwreck of a company which is proposing a) tie your business at the hip to ours and b) we could fold at any stiff breeze.
147 14y ago
What about pricing a B2C SaaS? It seems to me that all of the advice I've found leans towards pricing B2C and charging a lot more money. Will applying the same techniques work for B2C where customers will be more stingy with their money?
- Silhouette 14y ago
  Will applying the same techniques work for B2C where customers will be more stingy with their money? Which techniques? Market segmentation and pricing by features? Sure, absolutely. Some people value a certain service more than other people depending on their circumstances, just as some businesses do. Doubling/trebling your prices overnight and hoping you'll get a similar number of customers all paying several times as much? ROFLOLWAT. These customers are spending their own money, and not only will many of them take their business elsewhere if you try to charge insulting prices, they'll tell all their friends that your service is a rip-off, too. Obviously it's not really as simple as that. For example, a lot of businesses pitch their prices far lower than market value would support at first. In those cases, increasing the prices to something higher but still reasonable is fine and often quite lucrative. But you're absolutely right that advice that holds for B2B environments doesn't necessarily work the same way in a B2C context. The starting point and assumptions simply aren't the same.
bravura 14y ago
Here's what I find really surprising: Making the word "Free" in the call-to-action much less prominent did not reduce conversion by very much. The original page prominently says: "Sign up for a free trial" and gets a 6.9% conversion from visitor to trial user. The new page unprominently says: "Money back guarantee" and "Free Sign Up" in the top right corner. Conversion is 5.2%, which is almost the same considering the scope of the change, even though there was much less use of the word "Free". This is surprising in itself. I'm also curious about how the next stage of the funnel is converting users from the trial to entering their credit cards. Also you say that credit card signup is not mandatory. When does the CC enter the picture? Does the service wait a while (e.g. one month ) and ask you to enter you credit card? How does this compare to taking a credit-card upfront and offering a one-month money-back guarantee?
- hythloday 14y ago
  I don't want to be pedantic, but 25% fewer conversions is not "almost the same", it's quite the loss. You need to increase your funnel 33% somewhere down the line to make up for it (which I'm sure they did - I'm just making the point that X% -> X-d% is significant if X and d are small).
  - dmytton 14y ago
    Depends if you're maximising for revenue or signups. The number of signups decreased but the revenue increased significantly, making up for the loss in signups. Of course if you can increase signups now with the new pricing then that would also show revenue increase.
- robryan 14y ago
  I think this might be because of the product. Most people probably don't want free server monitoring, as the perceived reliability and performance would be worse.
- dmytton 14y ago
  We request a credit card when the trial expires.

salman89 14y ago

I always wondered how volatile your pricing scheme can be. Suppose you wanted to A/B test a pricing scheme - is there any potential impact/backlash from customers? And when a company changes their pricing scheme, what happens to customers who were paying a former price/scheme?

dmytton 14y ago
We had a few people pick up on this test (colleagues browsing on different machines) and they understood when we explained we were running a test. I think so long as you don't try and cover it up and offer those who discover the choice between the new/old pricing, it shouldn't cause any problems.
- zcvosdfdgj 14y ago
  that's just because you aren't big enough. Amazon has been caught testing prices previously, and there were a lot of upset people. Noticing the test isn't what caused the outrage.. wait until you have thousands of people who find out they paid more than another person for the same item (ie in their minds: were ripped off). Then you'll see how consumers feel about your test.
- simonbrown 14y ago
  zcvosdfdgj (hellbanned) posted: that's just because you aren't big enough. Amazon has been caught testing prices previously, and there were a lot of upset people. Noticing the test isn't what caused the outrage.. wait until you have thousands of people who find out they paid more than another person for the same item (ie in their minds: were ripped off). Then you'll see how consumers feel about your test.
  - Evbn 14y ago
    Much better to honor the lower price for A and B, but promote the lower price to only B via special codes or something.
patio11 14y ago

cfn 14y ago

When I change pricing I always worry that current customers will be unhappy because they might have saved some money had they bought it later (I sell a desktop product). Is this a problem you have seen youself when you sold desktop software?

tnorthcutt 14y ago
Why would you be lowering the price? Regardless, just refund the difference for anyone who asks.
- ricardobeat 14y ago
  This is the kind of behaviour we all deeply hate from TelCos, why would you do the same? I'd say offer the new price to all and get happier clients. If you can't afford that then why are you lowering prices in the first place?
  - kkowalczyk 14y ago
    We hate TelCos who lower the prices and even apply them retro-actively? That's news to me. But more to the point: the logistics of making refunds on purchases like software are complicated. Most payment processors don't even have the notion of partial refunds. Making a full refund is costly to you (payment processor took their cut of the transaction; they aren't too eager to give it back to you so either they charge you (and now you have a loss) or they swallow the charge but will kick you out of the system if they have to do it too frequently). There might be more bad will generated by contacting the customers and offering them refund because that makes them aware of some event that they might not like. Most people don't monitor the price of software they bought over time so they are not aware of changes so they are not upset about changes. I've bought a bunch of software over time and I can't tell how much any of it cost - I just don't keep track.
    - ricardobeat 14y ago
      One day you find out that your parents are still paying $100/month for a 1mbps plan that doesn't even exist anymore, while they could pay $50 for 10mbps after a 2 min phone call. That's what we hate. Not everyone knows to check every couple months to verify that they're paying current prices. This is on SaaS, so no refunds needed, just a price/plan change for the next billing cycle.

jessep 14y ago

Regarding the question of estimating the error: I don't know a ton about stats, but can't you use bootstrapping to get a valid sense of the variability/margin of error of your dataset for non normal distributions? http://en.wikipedia.org/wiki/Bootstrapping_(statistics) http://en.wikipedia.org/wiki/Bootstrapping_(statistics)

true_religion 14y ago

> The minimum buy-in for the service is now $99 a month, which should scare away the idiots. I'm scared, and as a potential customer I hate to be labeled an idiot. I'm very happy with New Relics system even though they're priced higher than you per server, they at least offer a price PER server instead of tiers.

the_bear 14y ago
Agreed. I don't doubt that being ruthless about A/B testing pricing increases revenue, but I'm not wild about the implied attitude that customers only exist so that we can extract as much money as possible from them. The user experience should definitely be a factor as well. I don't think it's possible to support this claim with data, but I'm convinced that being ruthless and unfriendly with pricing can have a negative impact on the business in the long term. As a customer, I much prefer usage based pricing to arbitrary plans.
- adrianhoward 14y ago
  I'm convinced that being ruthless and unfriendly with pricing can have a negative impact on the business in the long term Optimising for price isn't necessarily being ruthless and unfriendly to customers. In my experience more people like pricing models like these. It's easier to understand. They know what they'll be spending each month. It saves them effort and work. I worked with one organisation who just killed out of hand any service that had variable pricing since it played merry hell with their accounting processes. They would much rather pay $99 a month every month than deal with the hassle of figuring out what this random number was on the invoice (because you had to check that that number was the right number somehow - which cost them money in admin, tracking, etc.). Yes - models like this make some customers unhappy. Some of those customers will be good customers. That doesn't mean that other who go for the new model are unhappy - or being screwed. Changing pricing models like this are in many cases more a way to resegment / target your market. The revenue increase is just evidence that you're doing it well :-) Also - money for the company should mean more resources for building a better product for the customer, so a long term win for the customer.

ricardobeat 14y ago

> The minimum buy-in for the service is now $99 a month, which should scare away the idiots And bootstrapped startups, etc. This isn't just a pricing change but a market repositioning?

Retric 14y ago
99$ a month is reasonable for bootstrapped company's. It's not reasonable for most hobby's, but 50$/month or 100$ / month are both rather high for a hobby website so there is little real loss.
- ricardobeat 14y ago
  Yeah, in the US where that's 0.01% of a salary. Not so almost everywhere else in the world.
  - alphamale3000 14y ago
    Happy you're earning 1 million dollars per MONTH in salary. You didn't do the math, did you?
- Silhouette 14y ago
  99$ a month is reasonable for bootstrapped company's. I think HN has been collectively in denial on this kind of point lately. Yes, services offering real value should charge commensurate with that value. Yes, it's lovely if you're Patrick or Thomas and in B2B world where you can whack up your prices and hope whoever is paying the bill isn't spending their own money. Newsflash: If you're dealing with a bootstrapped business, it might well be that the person paying the bill is spending their own money. Newsflash #2: There are dozens of companies pitching useful-but-not-that-useful tools and services to these bootstrapped businesses. If you spend $100/month on this one, and $300 over there, and $150 on the next one, and ten more after that, and then you multiply it by 12... Well, before long you're spending on the same kind of level that it takes to hire some office help or to run a long-term marketing campaign with a significant level of funding or for that matter to hire in a guy who knows what he's doing for a few days to build your own customised versions of a lot of these services. In short, if you think the ability to monitor a couple of production servers is worth $1,000+/year to a bootstrapped company, you're crazy. Yes, it's a convenience, but you're talking about a service that could be built using a couple of widely available building blocks with a tiny fraction of the running costs, and frankly to a business at that stage in its development it is highly unlikely that a server falling over until the morning is going to cause any real long-term damage anyway. When you're dealing with relatively time-rich and cash-poor early stage businesses (OK, time-poor as well because they're trying to build the business, but that's not really the point here) you can't just dismiss the cumulative effect of all these SaaS gadgets. They add up, and if you want to know why so many small businesses fail, I expect not controlling costs is probably somewhere around #2 or #3 on the list. Does that mean bootstrapped companies are bad customers for these kinds of services? Sure, maybe it does. If there isn't enough in it for both sides to make it a deal worth doing, it's not time to do the deal yet.

plasma 14y ago

> "The minimum buy-in for the service is now $99 a month, which will segment away customers who are less serious about their server uptime." I use Server Density (and even blogged about it, http://cherrypopapp.com/blog#Server_Provisioning http://cherrypopapp.com/blog#Server_Provisioning) and would not pay $99/month to monitor 1-2 servers. I don't see how paying more or less reflects a level of seriousness.

robryan 14y ago
With the new pricing though you are no longer a targeted customer.

chermanowicz 14y ago

Someone shared a couple links on this topic before but I didn't see them here http://www.erica.biz/2012/pricing-strategies/ http://www.erica.biz/2012/pricing-strategies/ http://conversionxl.com/pricing-experiments-you-might-not-know-but-can-learn-from/ http://conversionxl.com/pricing-experiments-you-might-not-kn...

gizzlon 14y ago

Couldn't lower pricing be seen as marketing? For example to sell in to companies that are now poor, but could be successful and profitable later. If they can't afford SD and pick something else, how likely is it they'll switch to SD later?

mooktakim 14y ago

Server Density is a UK company. They use to have pricing in pounds. They seem to have switched to dollar pricing. My question: Are they taking payment in dollars? or are they converting the amount to pound equivalent in last moment and taking that payment? I've been thinking about pricing on the internet, whether its good to price in dollars to make it more convenient for the american customers. I feel like customers from UK are alright with paying dollars, but americans don't like to pay in pounds.