8 ms·

Don't Blindly Model Your SaaS Pricing on 37signals

149 points by rgrieselhuber 14y ago

rgrieselhuber 14y ago
Hopefully this is useful. I've seen very little discussion on pricing models for SaaS in the startup community.
- ChuckMcM 14y ago
  I would have liked it better if you had actually talked a bit about business. A lot of people who hang out here are engineers / developers who don't get a lot of exposure to that side of things. Start by explaining a business 'model' which goes like this: Revenue - Cost-to-deliver = Gross Margin Gross-Margin - All-other-costs = Net Margin Its a sad bean countery topic, but really its not that hard to see that if your revenue is less than your burn rate you die. And your revenue has a 'unit', whether its widgets or users, each 'unit' brings you $X in revenue. And somethings are dependent on 'units' (how many servers you have, how many customer support people you need, how many twitter tokens you buy, ...) those go into your Gross Revenue calculation, because growing revenue means growing those costs and Gross Margin remains 'constant'. Then there are things like salaries for engineers, rent on the offices, replacing laptops or servers every 3 years, maintenance, janitorial, lunches. Those stay the same regardless of your revenue so your Net Margin starts low and then gets bigger as you get more revenue. A business "model" takes the Gross Revenue, and then fractionally allocates it to those other expenses. Maybe 20% of the GM is engineering, 10% is is marketing, 10% is sales commissions, 5% is facilities, 3% is swag/giveaways, maybe 10% goes into a bonus pool that you divvy up among your best performers. The remainder is 'net revenue' or 'free cash flow'. If you're a C-level executive and you don't know what every single number on your tax return means, you're running the risk of having a problem staring you in the face that you never "see". If you're an engineer and you see a bunch of patched together spaghetti code that is poorly documented you "see" that there is a huge amount of technical debt that is going to have to be paid before you can move on to V2.0 or what not. If you're looking at your taxes and you see that you're depreciation costs are of the same magnitude as your revenue you need to be able to "see" that a cliff is coming when you're going to need new gear and you'll have no money to buy it. The biggest challenge of "pricing" is that sometimes you realize that you can't sell your product for what it is going to cost you to produce it. You have a choice, either innovate around the costs to make it, or put on a really good show and try to sell it to someone before the truth is out. Hard place to be but knowing your costs will inform you on whether or not your pricing makes sense. The 'best' situation is when you can sell it and your costs scale fractionally with users. That is a very good business to be in.
  - rgrieselhuber 14y ago
    I did make some assumptions about people understanding the core parts of any viable business model but the way you explained it here adds some great points. As you mention, it's hard to know what your costs are going to be when you're just starting out so it's really important to be flexible enough to change your pricing / value prop to your customers as you grow in order to cover your costs and provide room for further growth.
    - iamwil 14y ago
      What is transactional? And how is it different from enterprise?
      - rgrieselhuber 14y ago
        That's explained really well in this ebook: http://chaotic-flow.com/saas-sales-model-and-organization-strategy-the-ebook/ http://chaotic-flow.com/saas-sales-model-and-organization-st... But, briefly, the transactional model is one in which you require some customer communication in order to close the deal and is typically closed via inside sales reps. Enterprise deals are larger, cost more and typically require on the ground reps and a lot more customer facetime in order to close deals.
        18pfsmt 14y ago
        That's interesting. In the freight, and oil services industries, transactional is often used to describe spot market arrangements versus contractual ones. I think that makes sense, but I need to think about it a bit more as it relates to rivalrous goods.
  - drudru11 14y ago
    Agree with most of your point Chuck. However, I think most people on HN are in the startup phase. They are doing customer discovery/development to find something that is actually valuable. This post is really optimization in the execution phase. It is normal for most of the engs/devs to not understand the business side.
jcampbell1 14y ago
The discussion around annual pricing seems misguided. You should charge customers in whatever method they prefer to pay. For some customers, putting $400/month on a card is much easier to deal with than a $4800 check. The oposite is true in other organizations. Requiring pre-payment for software and using customers to fund working capital to pay sales associates seems myopic. Get the working capital from somewhere else and do whatever is best for revenue.
- rgrieselhuber 14y ago
  Very few companies are going to turn down revenue, regardless of the shape it takes, so if customers are unwilling to pre-pay for a year, it's easy to figure out a way to make it work. That being said, the startups we've spoken with who have switched to annual pricing are able to get paid in advance 60-70% of the time. This helps a lot. Some companies prefer this as well as it can reduce their own AP and record-keeping burden.
  - redler 14y ago
    Annual pricing can be a great thing -- simplification and money up front: what's not to like? But anyone being paid long in advance of when a service will be delivered should keep in mind that, from an accounting perspective, some portion of that pool of advance payments may be considered a liability, and can complicate revenue recognition. As soon as you receive a payment, you now owe the customer a year of service instead of, perhaps, them owing you the cost of a month of service.
    - rgrieselhuber 14y ago
      Rev rec definitely gets more complicated, this is a good point. Everything is a tradeoff.
- facorreia 14y ago
  His math is completely skewed. 22 sales a month of a service that charges $200/month will generate $343,200 a year (unless he's assuming 100% churn rate).
GavinB 14y ago
If you want to sell services to large companies--even low cost ones--you need to offer invoice payment. At a big company, the corporate credit card is for meals and travel, not for paying vendors.
- adestefan 14y ago
  This is true even for medium sized companies.
  - tlogan 14y ago
    And for schools or any other organization.
- jwblackwell 14y ago
  Another great point. There's so much obsession with billing credit cards I've never seen this mentioned in any pricing blog.
- jcampbell1 14y ago
  In my experience, if you send a proforma invoice, a W9, a federal tax id, and a soul sourcing statement, at the end of the signup form, many times a check will just show up in the mail. It is possible to do invoice payment without having a high touch sales process. You just have to preemptively provide all the stuff the AP department needs. I really think 37 signals is leaving quite a bit of money on the table by not offering PO payments. I understand they don't want to do a whole bunch of customer hand holding, but it is possible to accept POs without ever talking to a customer.
  - rgrieselhuber 14y ago
    This is a really good idea.
  - kanzure 14y ago
    > You just have to preemptively provide all the stuff the AP department needs. Do you have an example of a SaaS operation doing this well?
jwblackwell 14y ago
I think the OP makes some very important points here. There's definitely a somewhat fixed mentality when it comes to SaaS pricing and it's easy to fall into the trap that you should be charging something akin to 37signals. Pricing isn't actually something that's as easy to change as you'd believe either. It has huge implications on your actual product, your target market and sales strategy - as the OP points out. Imagine you were suddenly told you had to charge 10x more for your product. You might initially think it would kill you but think about what that would change. Would it necessarily be a bad thing? If you're anything like me, it's easy to assume everyone lives in a world where $10 for Spotify is a pretty big deal. My friends moan about that price for unlimited music. $200 a month seems huge to me for anything I'd buy. It's only recently I've fully started to appreciate just how much money enterprise clients willing drop on "simple" products that meet their needs. I really think there is a lack of good advice on pricing and how alternative pricing strategies could be used to open up new markets for SaaS type businesses. Sure, you may need a slightly "less scalable" sales strategy but with increasing competition in the web-app marketplace, moving to a different customer base with more cash may well be worth a few sales phone calls.
- Joeri 14y ago
  "If you're anything like me, it's easy to assume everyone lives in a world where $10 for Spotify is a pretty big deal. My friends moan about that price for unlimited music. $200 a month seems huge to me for anything I'd buy. It's only recently I've fully started to appreciate just how much money enterprise clients willing drop on "simple" products that meet their needs." For businesses those SaaS services are a core need. Leisure services like spotify are the wrong thing to compare prices to. Think about how much of your budget you spend on housing, food, transportation. $200 / month is peanuts for those kinds of things. That gives a better idea about what businesses are willing to spend on software they need for their core activities.
  - thenomad 14y ago
    That's a really good way to put it.
- thenomad 14y ago
dllthomas 14y ago
"Don't take pricing advice from Hacker News" Huh, I've seen more recommendations for higher prices than lower on here lately.
dangrossman 14y ago
Thanks for the post, it was the push I needed to get off my butt and run a pricing test, if only a weak one. I've been told I'm charging too little, and I've been told I'm charging too much. Just to see if I'm leaving money on the table (and hurting my ability to grow by undercharging), I made the one-line CSS tweak to hide the cheapest pricing plan on http://www.improvely.com/pricing http://www.improvely.com/pricing If that doesn't hurt signup rates, I'll have this post to thank for it. If it does, it's easily undone.
- rgrieselhuber 14y ago
  Glad to hear it was helpful. Improvely looks fantastic, btw. I love the UI. http://www.improvely.com/demo http://www.improvely.com/demo
charleshaanel 14y ago
"Once you get a lead, if it takes even a single phone call to close them, you’re no longer doing self-service and Customer Acquisition Costs vs. Self-Service pricing is going to kill you. If you’re not doing that phone call and you’re also not closing those deals, you need to figure out of if you can solve the problem through conversion optimization or if you really do need to be speaking with customers in order to close them. " Wow, can you bold this? Touchless sale/conversion = win. David Skok talks about it brilliantly and has an eagle eye on these metrics when evaluating his SaaS investments - http://www.forentrepreneurs.com/business-models/the-touchless-conversion/ http://www.forentrepreneurs.com/business-models/the-touchles... No one really talks about backing into pricing based on LTV/CAC ratio (affected by for example measurable inbound marketing or cpc/cpm costs). Pay back period (ideally CAC < a year) is also a factor. http://www.forentrepreneurs.com/saas-metrics/ http://www.forentrepreneurs.com/saas-metrics/
JacksonGariety 14y ago
The chart indicates that one can avoid the startup graveyard by raising prices. Is that okay?
rdudekul 14y ago
Pricing is complex in general, but for SaaS companies even more so. Enterprise SaaS companies spend a lot of resources to acquire customers. Annual billing to a large extent helps offset these costs. However a question remains: How does a new unfunded SaaS company acquire customers, when annual billing can be a big obstacle for sign ups?
- rietta 14y ago
  You remove as many barriers to the purchase as possible. Allow monthly credit card billing, but incentivize longer term payments. For example, PivotalTracker.com charges monthly. However, I personally paid them for an entire year to get the 2 month discount! 12 months for the price of 10 months is enough encouragement for me to pay for the entire year.
lackiem 14y ago
Really great article and very refreshing to read. We recently adjusted the pricing on one of our services http://www.advantly.com http://www.advantly.com to include a lower price monthly package and 2 other value added packages that require annual subscriptions. It has proven to be successful for us and the subscriptions to our annual packages have increased.
- sirrocco 14y ago
  Hi, One thing I found really confusing : On the gold package what does select features mean ? What can I select ? ( I later realized that it's the select package features but it took me a few minutes :) )
  - lackiem 14y ago
    Thanks for the feedback on that. Maybe we need to rethink the name for that package. Now that you point that out, I can see how that can be confusing.
jacques_chester 14y ago
Entire books are written about pricing[1]. It's time for me to point out, again, that no other business parameter will affect cashflow and profitability more than your pricing. You can adjust your costs all the time. But prices are sticky. Customers remember that something used to be cheaper. Really, again, let me emphasise this. Pricing is the single most important business decision you can make. Rails vs node.js / Ruby vs Haskell / bootstrap vs foundation / backbone vs sproutcore / trendoid vs hipster / cats vs dogs? Only tangentially relevant to your success. Pricing? Critical. Central. Essential. Do not leave it to gut feelings. [1] http://chester.id.au/2012/09/12/review-the-strategy-and-tactics-of-pricing/ http://chester.id.au/2012/09/12/review-the-strategy-and-tact...
- drudru11 14y ago
  Pricing is secondary to product. If you don't have a good product, nothing else matters. Once you have a good product, then you focus on pricing. Once you figure out the product and pricing, then you ...
bravoyankee 14y ago
Pricing low has nothing to do with being rude. That statement is a major disconnect from reality. I also think that there are many service out there that are buying into this 'high pricing' doctrine and are giving prospective customers sticker shock. These starving young companies can't afford to do that so early in the game. The other day I saw a site on HN selling business ebooks to startups: "how to drive more traffic to your website" $99, a customer segmentation ebook for $39, a copywriting ebook for $49. All this stuff is way overpriced. Dozens of quality articles can be googled up in a few minutes for the same information. I know because I did just that. The people that tell these young startups to jack their prices are not being helpful or even honest. Maybe its a way of trying to justify their own high pricing. I suggest young startups get users by any means possible, even if it means discounting heavily. They need habitual users, and that requires making it affordable enough that the enduser uses the tool / service for a long enough time that it becomes a habit and the tool becomes too entrenched in their workflow. If anything is rude, it's telling young startups how to price their businesses when it looks like they don't have a clue on pricing even their own.
- jacques_chester 14y ago
  You are substituting what you think are acceptable prices for what the market will bear.
  - bravoyankee 14y ago
    There's a little more to it than that. If your not priced to keep users long enough to get addicted to your offering, the cost of churn and marketing spend trying to get fresh customers will kill you. There is a lot of choice out there. Everybody is executing nowadays, and it's the same sort of apps that are flooding the market. The advice in this post is not helpful.
    - jacques_chester 14y ago
      Most of the money in the economy is tied up in the capital structure -- ie, it's not actually in the hands of consumers, it's in the hand of producers. Producers can and do pay a lot more for goods and services if it helps them to make a profit. The market for todo apps and other consumer software is, you're right, absolutely a mad scrabble for volume. The market for intelligently targeted vertical segments is juicy and prime for picking. I know where I'm aiming my current venture.
deleted 14y ago
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deleted 14y ago
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149 points by rgrieselhuber 14y ago

rgrieselhuber 14y ago

Hopefully this is useful. I've seen very little discussion on pricing models for SaaS in the startup community.

ChuckMcM 14y ago
I would have liked it better if you had actually talked a bit about business. A lot of people who hang out here are engineers / developers who don't get a lot of exposure to that side of things. Start by explaining a business 'model' which goes like this: Revenue - Cost-to-deliver = Gross Margin Gross-Margin - All-other-costs = Net Margin Its a sad bean countery topic, but really its not that hard to see that if your revenue is less than your burn rate you die. And your revenue has a 'unit', whether its widgets or users, each 'unit' brings you $X in revenue. And somethings are dependent on 'units' (how many servers you have, how many customer support people you need, how many twitter tokens you buy, ...) those go into your Gross Revenue calculation, because growing revenue means growing those costs and Gross Margin remains 'constant'. Then there are things like salaries for engineers, rent on the offices, replacing laptops or servers every 3 years, maintenance, janitorial, lunches. Those stay the same regardless of your revenue so your Net Margin starts low and then gets bigger as you get more revenue. A business "model" takes the Gross Revenue, and then fractionally allocates it to those other expenses. Maybe 20% of the GM is engineering, 10% is is marketing, 10% is sales commissions, 5% is facilities, 3% is swag/giveaways, maybe 10% goes into a bonus pool that you divvy up among your best performers. The remainder is 'net revenue' or 'free cash flow'. If you're a C-level executive and you don't know what every single number on your tax return means, you're running the risk of having a problem staring you in the face that you never "see". If you're an engineer and you see a bunch of patched together spaghetti code that is poorly documented you "see" that there is a huge amount of technical debt that is going to have to be paid before you can move on to V2.0 or what not. If you're looking at your taxes and you see that you're depreciation costs are of the same magnitude as your revenue you need to be able to "see" that a cliff is coming when you're going to need new gear and you'll have no money to buy it. The biggest challenge of "pricing" is that sometimes you realize that you can't sell your product for what it is going to cost you to produce it. You have a choice, either innovate around the costs to make it, or put on a really good show and try to sell it to someone before the truth is out. Hard place to be but knowing your costs will inform you on whether or not your pricing makes sense. The 'best' situation is when you can sell it and your costs scale fractionally with users. That is a very good business to be in.
- rgrieselhuber 14y ago
  I did make some assumptions about people understanding the core parts of any viable business model but the way you explained it here adds some great points. As you mention, it's hard to know what your costs are going to be when you're just starting out so it's really important to be flexible enough to change your pricing / value prop to your customers as you grow in order to cover your costs and provide room for further growth.
  - iamwil 14y ago
    What is transactional? And how is it different from enterprise?
    - rgrieselhuber 14y ago
      That's explained really well in this ebook: http://chaotic-flow.com/saas-sales-model-and-organization-strategy-the-ebook/ http://chaotic-flow.com/saas-sales-model-and-organization-st... But, briefly, the transactional model is one in which you require some customer communication in order to close the deal and is typically closed via inside sales reps. Enterprise deals are larger, cost more and typically require on the ground reps and a lot more customer facetime in order to close deals.
      - 18pfsmt 14y ago
        That's interesting. In the freight, and oil services industries, transactional is often used to describe spot market arrangements versus contractual ones. I think that makes sense, but I need to think about it a bit more as it relates to rivalrous goods.
- drudru11 14y ago
  Agree with most of your point Chuck. However, I think most people on HN are in the startup phase. They are doing customer discovery/development to find something that is actually valuable. This post is really optimization in the execution phase. It is normal for most of the engs/devs to not understand the business side.

jcampbell1 14y ago

The discussion around annual pricing seems misguided. You should charge customers in whatever method they prefer to pay. For some customers, putting $400/month on a card is much easier to deal with than a $4800 check. The oposite is true in other organizations. Requiring pre-payment for software and using customers to fund working capital to pay sales associates seems myopic. Get the working capital from somewhere else and do whatever is best for revenue.

rgrieselhuber 14y ago
Very few companies are going to turn down revenue, regardless of the shape it takes, so if customers are unwilling to pre-pay for a year, it's easy to figure out a way to make it work. That being said, the startups we've spoken with who have switched to annual pricing are able to get paid in advance 60-70% of the time. This helps a lot. Some companies prefer this as well as it can reduce their own AP and record-keeping burden.
- redler 14y ago
  Annual pricing can be a great thing -- simplification and money up front: what's not to like? But anyone being paid long in advance of when a service will be delivered should keep in mind that, from an accounting perspective, some portion of that pool of advance payments may be considered a liability, and can complicate revenue recognition. As soon as you receive a payment, you now owe the customer a year of service instead of, perhaps, them owing you the cost of a month of service.
  - rgrieselhuber 14y ago
    Rev rec definitely gets more complicated, this is a good point. Everything is a tradeoff.
facorreia 14y ago
His math is completely skewed. 22 sales a month of a service that charges $200/month will generate $343,200 a year (unless he's assuming 100% churn rate).

GavinB 14y ago

If you want to sell services to large companies--even low cost ones--you need to offer invoice payment. At a big company, the corporate credit card is for meals and travel, not for paying vendors.

adestefan 14y ago
This is true even for medium sized companies.
- tlogan 14y ago
  And for schools or any other organization.
jwblackwell 14y ago
Another great point. There's so much obsession with billing credit cards I've never seen this mentioned in any pricing blog.
jcampbell1 14y ago
In my experience, if you send a proforma invoice, a W9, a federal tax id, and a soul sourcing statement, at the end of the signup form, many times a check will just show up in the mail. It is possible to do invoice payment without having a high touch sales process. You just have to preemptively provide all the stuff the AP department needs. I really think 37 signals is leaving quite a bit of money on the table by not offering PO payments. I understand they don't want to do a whole bunch of customer hand holding, but it is possible to accept POs without ever talking to a customer.
- rgrieselhuber 14y ago
  This is a really good idea.
- kanzure 14y ago
  > You just have to preemptively provide all the stuff the AP department needs. Do you have an example of a SaaS operation doing this well?

jwblackwell 14y ago

I think the OP makes some very important points here. There's definitely a somewhat fixed mentality when it comes to SaaS pricing and it's easy to fall into the trap that you should be charging something akin to 37signals. Pricing isn't actually something that's as easy to change as you'd believe either. It has huge implications on your actual product, your target market and sales strategy - as the OP points out. Imagine you were suddenly told you had to charge 10x more for your product. You might initially think it would kill you but think about what that would change. Would it necessarily be a bad thing? If you're anything like me, it's easy to assume everyone lives in a world where $10 for Spotify is a pretty big deal. My friends moan about that price for unlimited music. $200 a month seems huge to me for anything I'd buy. It's only recently I've fully started to appreciate just how much money enterprise clients willing drop on "simple" products that meet their needs. I really think there is a lack of good advice on pricing and how alternative pricing strategies could be used to open up new markets for SaaS type businesses. Sure, you may need a slightly "less scalable" sales strategy but with increasing competition in the web-app marketplace, moving to a different customer base with more cash may well be worth a few sales phone calls.

Joeri 14y ago
"If you're anything like me, it's easy to assume everyone lives in a world where $10 for Spotify is a pretty big deal. My friends moan about that price for unlimited music. $200 a month seems huge to me for anything I'd buy. It's only recently I've fully started to appreciate just how much money enterprise clients willing drop on "simple" products that meet their needs." For businesses those SaaS services are a core need. Leisure services like spotify are the wrong thing to compare prices to. Think about how much of your budget you spend on housing, food, transportation. $200 / month is peanuts for those kinds of things. That gives a better idea about what businesses are willing to spend on software they need for their core activities.
- thenomad 14y ago
  That's a really good way to put it.
thenomad 14y ago

dllthomas 14y ago

"Don't take pricing advice from Hacker News" Huh, I've seen more recommendations for higher prices than lower on here lately.

dangrossman 14y ago

Thanks for the post, it was the push I needed to get off my butt and run a pricing test, if only a weak one. I've been told I'm charging too little, and I've been told I'm charging too much. Just to see if I'm leaving money on the table (and hurting my ability to grow by undercharging), I made the one-line CSS tweak to hide the cheapest pricing plan on http://www.improvely.com/pricing http://www.improvely.com/pricing If that doesn't hurt signup rates, I'll have this post to thank for it. If it does, it's easily undone.

rgrieselhuber 14y ago
Glad to hear it was helpful. Improvely looks fantastic, btw. I love the UI. http://www.improvely.com/demo http://www.improvely.com/demo

charleshaanel 14y ago

"Once you get a lead, if it takes even a single phone call to close them, you’re no longer doing self-service and Customer Acquisition Costs vs. Self-Service pricing is going to kill you. If you’re not doing that phone call and you’re also not closing those deals, you need to figure out of if you can solve the problem through conversion optimization or if you really do need to be speaking with customers in order to close them. " Wow, can you bold this? Touchless sale/conversion = win. David Skok talks about it brilliantly and has an eagle eye on these metrics when evaluating his SaaS investments - http://www.forentrepreneurs.com/business-models/the-touchless-conversion/ http://www.forentrepreneurs.com/business-models/the-touchles... No one really talks about backing into pricing based on LTV/CAC ratio (affected by for example measurable inbound marketing or cpc/cpm costs). Pay back period (ideally CAC < a year) is also a factor. http://www.forentrepreneurs.com/saas-metrics/ http://www.forentrepreneurs.com/saas-metrics/

JacksonGariety 14y ago

The chart indicates that one can avoid the startup graveyard by raising prices. Is that okay?

rdudekul 14y ago

Pricing is complex in general, but for SaaS companies even more so. Enterprise SaaS companies spend a lot of resources to acquire customers. Annual billing to a large extent helps offset these costs. However a question remains: How does a new unfunded SaaS company acquire customers, when annual billing can be a big obstacle for sign ups?

rietta 14y ago
You remove as many barriers to the purchase as possible. Allow monthly credit card billing, but incentivize longer term payments. For example, PivotalTracker.com charges monthly. However, I personally paid them for an entire year to get the 2 month discount! 12 months for the price of 10 months is enough encouragement for me to pay for the entire year.

lackiem 14y ago

Really great article and very refreshing to read. We recently adjusted the pricing on one of our services http://www.advantly.com http://www.advantly.com to include a lower price monthly package and 2 other value added packages that require annual subscriptions. It has proven to be successful for us and the subscriptions to our annual packages have increased.

sirrocco 14y ago
Hi, One thing I found really confusing : On the gold package what does select features mean ? What can I select ? ( I later realized that it's the select package features but it took me a few minutes :) )
- lackiem 14y ago
  Thanks for the feedback on that. Maybe we need to rethink the name for that package. Now that you point that out, I can see how that can be confusing.

jacques_chester 14y ago

Entire books are written about pricing[1]. It's time for me to point out, again, that no other business parameter will affect cashflow and profitability more than your pricing. You can adjust your costs all the time. But prices are sticky. Customers remember that something used to be cheaper. Really, again, let me emphasise this. Pricing is the single most important business decision you can make. Rails vs node.js / Ruby vs Haskell / bootstrap vs foundation / backbone vs sproutcore / trendoid vs hipster / cats vs dogs? Only tangentially relevant to your success. Pricing? Critical. Central. Essential. Do not leave it to gut feelings. [1] http://chester.id.au/2012/09/12/review-the-strategy-and-tactics-of-pricing/ http://chester.id.au/2012/09/12/review-the-strategy-and-tact...

drudru11 14y ago
Pricing is secondary to product. If you don't have a good product, nothing else matters. Once you have a good product, then you focus on pricing. Once you figure out the product and pricing, then you ...

bravoyankee 14y ago

Pricing low has nothing to do with being rude. That statement is a major disconnect from reality. I also think that there are many service out there that are buying into this 'high pricing' doctrine and are giving prospective customers sticker shock. These starving young companies can't afford to do that so early in the game. The other day I saw a site on HN selling business ebooks to startups: "how to drive more traffic to your website" $99, a customer segmentation ebook for $39, a copywriting ebook for $49. All this stuff is way overpriced. Dozens of quality articles can be googled up in a few minutes for the same information. I know because I did just that. The people that tell these young startups to jack their prices are not being helpful or even honest. Maybe its a way of trying to justify their own high pricing. I suggest young startups get users by any means possible, even if it means discounting heavily. They need habitual users, and that requires making it affordable enough that the enduser uses the tool / service for a long enough time that it becomes a habit and the tool becomes too entrenched in their workflow. If anything is rude, it's telling young startups how to price their businesses when it looks like they don't have a clue on pricing even their own.

jacques_chester 14y ago
You are substituting what you think are acceptable prices for what the market will bear.
- bravoyankee 14y ago
  There's a little more to it than that. If your not priced to keep users long enough to get addicted to your offering, the cost of churn and marketing spend trying to get fresh customers will kill you. There is a lot of choice out there. Everybody is executing nowadays, and it's the same sort of apps that are flooding the market. The advice in this post is not helpful.
  - jacques_chester 14y ago
    Most of the money in the economy is tied up in the capital structure -- ie, it's not actually in the hands of consumers, it's in the hand of producers. Producers can and do pay a lot more for goods and services if it helps them to make a profit. The market for todo apps and other consumer software is, you're right, absolutely a mad scrabble for volume. The market for intelligently targeted vertical segments is juicy and prime for picking. I know where I'm aiming my current venture.

deleted 14y ago

[deleted]

deleted 14y ago

[deleted]