9 ms·

Pricing Principles

252 points by craigkerstiens 13y ago

atte 13y ago
Here's my situation: I have a product that I know 6% of 2000 users who have given me their email address will take for "free," though it requires 15-20 minutes of work for them to participate (so they must see some value here). I originally priced it at $99, but I haven't been able to get anyone to pay that amount or $19. Do I just keep dropping prices until I can get someone to pay? Is it a fair test to email out varying "discounts" to groups of users to determine a price?
- monkeyspaw 13y ago
  I'd work on your marketing. Do you have a series of case studies explaining the benefits? Is their ROI calculated for them? If you're providing them with that much value, maybe you just need to bring their attention to that value. That goes double if this is a b2b.
  - atte 13y ago
    Thanks for the tip. I don't have case studies or even testimonials yet, so that may be hurting me. This is what my sales page looks like: http://cl.ly/image/1a21191A2U16 http://cl.ly/image/1a21191A2U16
    - rallison 13y ago
      Run your copy through a spell checker! Misspellings can easily make a professional looking site not look professional.
      - atte 13y ago
        Thanks and good eye (before 'e' except after 'c') - that was a slightly outdated version :)
    - alok-g 13y ago
      My gut feeling is that you should not reduce the price at all, and instead work on proving the value you provide, just as you have identified too. If I am working on a project that I need feedback on, and I am convinced that your solution will provide me that feedback, I'll happily pay $100. At $40, I'll be happy to take risk too. At $20, it sounds like the price is so low because the results would not be worth anything. If the question is how to bootstrap, the best I can think of is to work closely with those 6% people and refine your product to the needed extent, proving value and getting testimonials.
      - timv 13y ago
        I agree that $19 is too low. That page is trying to convince me that I will get ~20 comments from smart & knowledgeable people at a cost per comment of <$1. I simply don't believe that pitch. Anyone who is willing to do that for <$1 doesn't value their time, so why would I value their opinion? I'd increase the price, add some case study/ROI, and provide more detail about how it works (not necessarily on the landing page, but clearly linked)
        Robin_Message 13y ago
        Worth pointing out what's in it for the advisors – namely, a chance to hear about early products.
- destraynor 13y ago
  Honestly, I'd question whether you've hit product market fit yet. That might sound bad, but just consider it an opportunity. Lots of products start here and go on to make (b|m)illions The best thing you can do here is talk with some customers that you don't personally know and aren't connected with. Tell them you're going to give them 3 months free in exchange for a frank conversation about how they use your product and what they actually value. That will guide you.
- marcosdumay 13y ago
  Think about monkeyspaw's answer, but also think about changing your users or the product. But first think about monkeyspaw's answer, not mine.
- tptacek 13y ago
  Are you generating $99 dollars worth of value? What makes you say that? And, are you sure it isn't higher? If your starting point on pricing is too low, you're going to be measuring below your noise floor. Running what is effectively a reverse auction on your price won't help you, because your prices are already arbitrary. If that's the case, consider solving the problem with some mechanism other than pricing.
thezach 13y ago
As a person who just launched their first two Android Applications this was an excellent read. My biggest question is do you think its best for applications to charge a one time large fee or a monthly smaller fee?
- aaronbrethorst 13y ago
  What kind of fees are we talking about? Recurring revenue is the best revenue in my opinion, but if you were talking about a $1000 one-time fee vs. $5/month, it's pretty clear which avenue you should take. Also, if you're talking about offering a service, you're going to have ongoing operational expenses. If your customers pay you only once there will come a time when the profit you've derived from them is exceeded by their ongoing cost.
- destraynor 13y ago
  It depends on how often you deliver value and what costs you have. If you have recurring costs that increase in size with your user base, then charge a proportionate recurring fee. If it's a game that someone buys, plays for a week and moves on to the next, a subscription won't work, because there's no continuous value. So you charge up front, deliver all your value up front, and get busy working on your second game. If you're thinking big applications (e.g. Photoshop) then your question becomes about things like distribution, retention, sales channels, competitors etc. Bluntly You can take $2k every 2-3 years assuming people upgrade to your latest release, or you can take $50 per month every month assuming people stay. Both work out similar. The advantage of the $2k model is that you get big money up front which you can re-invest in more customer acquisition (or your next release). The drawback is that $2k isn't a "no-brainer" sale, it needs approval, you need a good brand, and you're limiting your addressable market a good bit. The advantage of the $49 per month is that it's a zero risk try-out, people will convert far far easier. The disadvantage is retention. Product to product I'd give different advice, but in general, recurring is easier to plan a business on.
kunle 13y ago
Solid read. This is one of my favorite blogs about Saas businesses/services.
- _neil 13y ago
  Agreed, one of my favorite product blogs as well. It's also prime example of using your blog to educate, demonstrate domain knowledge, and eventually win customers (worked on me, anyways).
jonnathanson 13y ago
Great read. Obviously there's a lot more to pricing -- which is as much science as it is art -- than can be covered in an article. For those interested, I would suggest an approachable, but comprehensive text on pricing theory and analytics. "The Strategy and Tactics of Pricing" by Nagle, Hogan and Zale is a great resource. (And speaking of pricing: buy it used, if possible; like most textbooks, it's fairly expensive). One word of caution: tiered and freemium models are, once again, all the rage in software. And that's great. It's good to see people actually trying to make a profit, and many of them succeeding. But it's very easy to go overboard on tiering. Too much tiering and too much customization in your pricing model will create two big problems: 1) customer confusion and resentment, 2) hidden operational and opportunity costs in managing the tiers and customization. Segmented pricing is great if you can do it, but it needs to be simple, manageable, and transparent.
- destraynor 13y ago
  Absolutely - if you find yourself having to tier lots & lots , it's a good argument for utility pricing instead. Re: Pricing, thanks will check it out.
dvt 13y ago
Awesome read. Everyone planning to run a SASSy start-up should read this. I would add that when I ran one of my first start-ups, we were sort of scared about whether or not we're charging too much. After our first influx of clients, that fear quickly diluted. (As it turns out, we could have charged a lot more and people were still willing to pay.) Generally speaking, you ought to charge more than what you think you should. For example, you may think that $25 dollars a month may be too much, but, in reality, you should probably be charging $40 or $50 a month. This isn't a silver-bullet, but, as developers and given the insane ROI (barring development which you most likely did yourself) you get out of running a tech start-up, we heavily tend to undervalue our products.
logicallee 13y ago
there's great danger in leaving value on the table. I suggest you survey no fewer than 150 decision makers and start quoting them different pricing amounts. So that you're thorough, do your survey all hte way from $150M (anually) down to whatever's silly (like a few bucks, you don't have to do those.). For example: Quote decision maker #1, decision maker #2, and decision maker #3: $78213333.33 Quote decision maker #4, decision maker #5, and decision maker #6: $38471111.11 Quote decision maker #7, decision maker #8, and decision maker #9: $26702222.22 Quote decision maker #10, decision maker #11, and decision maker #12: $20298271.60 Quote decision maker #13, decision maker #14, and decision maker #15: $15549629.63 Quote decision maker #16, decision maker #17, and decision maker #18: $7051412.89 Quote decision maker #19, decision maker #20, and decision maker #21: $6571486.05 Quote decision maker #22, decision maker #23, and decision maker #24: $3755915.26 Quote decision maker #25, decision maker #26, and decision maker #27: $2857190.47 Quote decision maker #28, decision maker #29, and decision maker #30: $2011964.30 Quote decision maker #31, decision maker #32, and decision maker #33: $955402.69 Quote decision maker #34, decision maker #35, and decision maker #36: $812816.78 Quote decision maker #37, decision maker #38, and decision maker #39: $516906.05 Quote decision maker #40, decision maker #41, and decision maker #42: $322132.83 Quote decision maker #43, decision maker #44, and decision maker #45: $231654.29 Quote decision maker #46, decision maker #47, and decision maker #48: $157176.59 Quote decision maker #49, decision maker #50, and decision maker #51: $104682.89 Quote decision maker #52, decision maker #53, and decision maker #54: $67406.83 Quote decision maker #55, decision maker #56, and decision maker #57: $40156.30 Quote decision maker #58, decision maker #59, and decision maker #60: $34938.66 Quote decision maker #61, decision maker #62, and decision maker #63: $17201.68 Quote decision maker #64, decision maker #65, and decision maker #66: $10708.61 Quote decision maker #67, decision maker #68, and decision maker #69: $7962.40 Quote decision maker #70, decision maker #71, and decision maker #72: $5854.78 Quote decision maker #73, decision maker #74, and decision maker #75: $3738.44 Quote decision maker #76, decision maker #77, and decision maker #78: $2609.52 Quote decision maker #79, decision maker #80, and decision maker #81: $1678.07 Quote decision maker #82, decision maker #83, and decision maker #84: $1169.41 Quote decision maker #85, decision maker #86, and decision maker #87: $852.98 Quote decision maker #88, decision maker #89, and decision maker #90: $504.30 Quote decision maker #91, decision maker #92, and decision maker #93: $403.51 Quote decision maker #94, decision maker #95, and decision maker #96: $217.04 Quote decision maker #97, decision maker #98, and decision maker #99: $180.79 Quote decision maker #100, decision maker #101, and decision maker #102: $100.46 In this case 102 decision makers is plenty. If you chart it you should see a precipitious drop in interest somewhere. Where is that? If you DON'T do the above you'll NEVER know!! :) By the way if anyone's interested, this is made by a script that decays from 100M by 2/3 each go, then fudges +/- 20% to make it a bit more organic.
DenisM 13y ago
Good stuff. I would add that one exercise which should really help is sitting down and actually quantifying the value customer receives - dollars saved, dollars earned, time saved, all broken down by type of customer (however you chose to define that), and by the aspect of their workflow you aim to improve. What this will do is anchor your pricing gu feel to the right range. Besides, you can show it to the users and get valuable push back where you're off. My mentors spent countless hours convincing me of the value of this exercise and it's finally sinking in now, so I am in a hurry to share the wisdom. :)
nubela 13y ago
Mirror: http://webcache.googleusercontent.com/search?q=cache:http://insideintercom.io/four-pricing-principals-to-never-forget/ http://webcache.googleusercontent.com/search?q=cache:http://...
tlogan 13y ago
A few more tricks (I call it "red flags") I learned while running my small SaaS: - if you sell service for $10/month and user says "I would buy it for $5/month" - that means he/she will not buy. Just do an experiment: for each customer which does that just give them discount for $5/month (even $2/month): nobody will come back and pay. - if you sell service for $10/month and user needs to "to talk to somebody" before committing purchase: he/she will not buy. On other hand, if you have business / enterprise plan (which is like $3000/year) that is a good sign. - lowering prices will not get you more paying customers - start with "low" prices and rise it during lifetime of your company. Never go back.
- pkmehta 13y ago
  Whoa - this is so spot on. We get lots of I'd be willing to pay X and we always send them a link for exactly that amount. And they never pay. We even follow-up just to give them the benefit of the doubt and they still never do. Being the low cost provider for software (at least those targeted at corporates) is not the way to go. When people are spending OPM, it's more about the problem you solve for them then the cost. (note: of course, cost can't be insane but you get the idea. OPM = other people's money)
  - destraynor 13y ago
    I agree with this and the parent comment. "Conditional" purchases are BS. The people who buy don't give you conditions. The people who give you conditions never buy.
- andrewflnr 13y ago
  Does that last point include grandfathering in existing users on cheaper plans? If I'm an existing user, I'll be annoyed if my bill goes up, especially if it's a really big jump. But if prices go down, everyone is happy. If you start high, how big of a problem is it to go down? How much of my objection is just because I'm spoiled by the internet and haven't run a business?
  - nedwin 13y ago
stevesaldana 13y ago
One of the biggest problems I face is determining when the time is right to shift from free to paid. I originally slapped a subscription page on my app[1] thinking "we'll see how this goes". But after a few weeks of 0 conversions, I had a tough time justifying turning down folks who would have at least signed up if there wasn't a payment required - so I made it free. The way I look at it is that any feedback with a free plan is better than zero feedback with a subscription. I gain a lot of valuable insight observing how users actually use the service. I'm hesitant to give that up by switching back to a subscription plan and watching new signups die again. I know there's no magic bullet. I suppose this could be solved quickly if I had more time to devote to selling and marketing - admittedly I've been slacking in that department. Any words of wisdom would be much appreciated. [1] https://beanjockey.com https://beanjockey.com
- alanbyrne 13y ago
  Stop coding, pick up the phone and call some of your free users. Ask them if they'd pay for your product and why/why not. If none of your free customers are willing to pay, then it might be time for a pivot. Such as licensing your app to financial providers as a value add.
  - timv 13y ago
    If you do pivot, there might be enough return in acting as a broker (/lead generator) for selling financial products to your users. Once they're paid down their loans (and even before then) you should have a pretty good picture of their financial situation. What are they going to do with that extra cash they have now that their loans repayments are done? * Take out a loan for a car/holiday? * Open a share trading account? * While they're paying down their debts can you get them a better deal on their credit card?
    - stevesaldana 13y ago
      You are spot on. There are so many alternative fee-generating sources and maybe I've been too stubborn at ignoring them. My motivation going into this was that I wanted to create something that provided a definitive value of x, and have customers happily pay a function of x. The known value / known cost approach seemed fair to me. Pitching additional product for me is troublesome because of the intrinsic fees associated with them. I look at my service as something that accelerates debt repayment in the most efficient way. But to encourage customers to roll-over into a cc balance transfer, mortgage refi, or student loan consolidation, it just pushes their obligations further out in the future. Now, this might not be a bad thing for some people. But ultimately you could get a lot of people into the fee roulette game and it becomes a never-ending cycle where every economic peak and trough of high->low interest rates creates a new incentive for a financial services company to pitch new product. So, I struggle with this. Do I want to maximize my revenue, or do I want to just provide a really good service for the small group of people willing to pay for it...
jmadsen 13y ago
"Adii Pienaar of WooThemes solved this problem by refusing to support non-paying customers. If they’re not willing to pay you, then they’re not your customers" Great article all around, but I thought that was the biggest take away for people running web apps & online games, or similar. For a long time there was this "it's on the internet - it should be free" mentality. There is a difference between freedom of information, and giving away hard work with value.
- aytekin 13y ago
  There are cases where a free plan actually makes sense. Does the usage increases with time? Many users start using JotForm with very low usage and then after using it for months or years they go over the 100 submission/month limit. I believe Evernote also had a similar pattern. Dropbox probably also has it. Can you use network effects? Only a tiny percentage of our users share their forms with others on JotForm Form Templates gallery. Tiny percentage of 1 million users is still pretty good. So, we have all these ready to use form templates for other users. It saves people time to be able to find a form template for any use case. If we only had paid users the number of shared templates would have been very low.
Sealy 13y ago
This is a great article. When raising my prices, I'm always worried that my competition will be able to see and roughly gauge how profitable I am. I'm worried that this will give them an incentive offer products that overlap what I offer and undercut me. Many price-sensitive customers will just leave at that point. Does anybody share the same fears or have experience of this?
- JacobAldridge 13y ago
  I'm always worried that my competition will be able to see and roughly gauge how profitable I am. Not a chance (or, specifically, not a chance likely enough to concern you). They're focused on their baby, not yours, and 'profitability' as a meaningful factor depends on variables including overheads, business owner salaries, and vision which are next to impossible to guess with any clarity. I'm worried that this will give them an incentive [to] offer products that overlap what I offer and undercut me. This is more likely, but is the very definition of competition. If you want to compete solely on price then you (and your competitors) are signing up for a never-ending arms race. Find other ways to compete, and know that success breeds imitators so you must always be a step ahead in regards product or service innovation, or market penetration. Many price-sensitive customers will just leave at that point. Yes. That's usually a good thing. Moreover, you will lose far fewer than you expect - switching services requires an investment in research, deliberation, time to change, time to re-learn, and risk of something new. The cost-savings need to fund all of that as well, and often don't.
  - Sealy 13y ago
    Thanks Jacob, if anything that was an encouragement to keep me focused on my overall goal of service improvement rather than to get intimidated by the 'business side' of running my website. Can I tap your knowledge further. How important is it to have a clear division of roles in a startup? What I am asking is, for greater success, can the techy guy really be the business guy at the same time? (I'm thinking about the partnership between Woz and Jobs)
    - JacobAldridge 13y ago
pbreit 13y ago
Good article. I still think a free tier can be beneficial for most SaaS products. At Eventbrite we shared space with Yammer and Zendesk, the three of us with free tiers (Zendesk $20/year "donation") and really making it work. The point is NOT to implement limits but instead to implement features that make sense for those able to pay. For many SaaS services, that's admin tools to manage users. The reality is that there are millions of companies out there with fixed costs well less than $20k per month (don't forget there are non-tech startup companies, too). It cannot be overstated that it really is very easy to raise prices. It's pretty much impossible to make a pricing mistake in the beginning because for growing companies, the initial users will only amount to a fraction of total users over time.
snambi 13y ago
does increasing prices increases the number of customers also?

252 points by craigkerstiens 13y ago

atte 13y ago

Here's my situation: I have a product that I know 6% of 2000 users who have given me their email address will take for "free," though it requires 15-20 minutes of work for them to participate (so they must see some value here). I originally priced it at $99, but I haven't been able to get anyone to pay that amount or $19. Do I just keep dropping prices until I can get someone to pay? Is it a fair test to email out varying "discounts" to groups of users to determine a price?

monkeyspaw 13y ago
I'd work on your marketing. Do you have a series of case studies explaining the benefits? Is their ROI calculated for them? If you're providing them with that much value, maybe you just need to bring their attention to that value. That goes double if this is a b2b.
- atte 13y ago
  Thanks for the tip. I don't have case studies or even testimonials yet, so that may be hurting me. This is what my sales page looks like: http://cl.ly/image/1a21191A2U16 http://cl.ly/image/1a21191A2U16
  - rallison 13y ago
    Run your copy through a spell checker! Misspellings can easily make a professional looking site not look professional.
    - atte 13y ago
      Thanks and good eye (before 'e' except after 'c') - that was a slightly outdated version :)
  - alok-g 13y ago
    My gut feeling is that you should not reduce the price at all, and instead work on proving the value you provide, just as you have identified too. If I am working on a project that I need feedback on, and I am convinced that your solution will provide me that feedback, I'll happily pay $100. At $40, I'll be happy to take risk too. At $20, it sounds like the price is so low because the results would not be worth anything. If the question is how to bootstrap, the best I can think of is to work closely with those 6% people and refine your product to the needed extent, proving value and getting testimonials.
    - timv 13y ago
      I agree that $19 is too low. That page is trying to convince me that I will get ~20 comments from smart & knowledgeable people at a cost per comment of <$1. I simply don't believe that pitch. Anyone who is willing to do that for <$1 doesn't value their time, so why would I value their opinion? I'd increase the price, add some case study/ROI, and provide more detail about how it works (not necessarily on the landing page, but clearly linked)
      - Robin_Message 13y ago
        Worth pointing out what's in it for the advisors – namely, a chance to hear about early products.
destraynor 13y ago
Honestly, I'd question whether you've hit product market fit yet. That might sound bad, but just consider it an opportunity. Lots of products start here and go on to make (b|m)illions The best thing you can do here is talk with some customers that you don't personally know and aren't connected with. Tell them you're going to give them 3 months free in exchange for a frank conversation about how they use your product and what they actually value. That will guide you.
marcosdumay 13y ago
Think about monkeyspaw's answer, but also think about changing your users or the product. But first think about monkeyspaw's answer, not mine.
tptacek 13y ago
Are you generating $99 dollars worth of value? What makes you say that? And, are you sure it isn't higher? If your starting point on pricing is too low, you're going to be measuring below your noise floor. Running what is effectively a reverse auction on your price won't help you, because your prices are already arbitrary. If that's the case, consider solving the problem with some mechanism other than pricing.

thezach 13y ago

As a person who just launched their first two Android Applications this was an excellent read. My biggest question is do you think its best for applications to charge a one time large fee or a monthly smaller fee?

aaronbrethorst 13y ago
What kind of fees are we talking about? Recurring revenue is the best revenue in my opinion, but if you were talking about a $1000 one-time fee vs. $5/month, it's pretty clear which avenue you should take. Also, if you're talking about offering a service, you're going to have ongoing operational expenses. If your customers pay you only once there will come a time when the profit you've derived from them is exceeded by their ongoing cost.
destraynor 13y ago
It depends on how often you deliver value and what costs you have. If you have recurring costs that increase in size with your user base, then charge a proportionate recurring fee. If it's a game that someone buys, plays for a week and moves on to the next, a subscription won't work, because there's no continuous value. So you charge up front, deliver all your value up front, and get busy working on your second game. If you're thinking big applications (e.g. Photoshop) then your question becomes about things like distribution, retention, sales channels, competitors etc. Bluntly You can take $2k every 2-3 years assuming people upgrade to your latest release, or you can take $50 per month every month assuming people stay. Both work out similar. The advantage of the $2k model is that you get big money up front which you can re-invest in more customer acquisition (or your next release). The drawback is that $2k isn't a "no-brainer" sale, it needs approval, you need a good brand, and you're limiting your addressable market a good bit. The advantage of the $49 per month is that it's a zero risk try-out, people will convert far far easier. The disadvantage is retention. Product to product I'd give different advice, but in general, recurring is easier to plan a business on.

kunle 13y ago

Solid read. This is one of my favorite blogs about Saas businesses/services.

_neil 13y ago
Agreed, one of my favorite product blogs as well. It's also prime example of using your blog to educate, demonstrate domain knowledge, and eventually win customers (worked on me, anyways).

jonnathanson 13y ago

Great read. Obviously there's a lot more to pricing -- which is as much science as it is art -- than can be covered in an article. For those interested, I would suggest an approachable, but comprehensive text on pricing theory and analytics. "The Strategy and Tactics of Pricing" by Nagle, Hogan and Zale is a great resource. (And speaking of pricing: buy it used, if possible; like most textbooks, it's fairly expensive). One word of caution: tiered and freemium models are, once again, all the rage in software. And that's great. It's good to see people actually trying to make a profit, and many of them succeeding. But it's very easy to go overboard on tiering. Too much tiering and too much customization in your pricing model will create two big problems: 1) customer confusion and resentment, 2) hidden operational and opportunity costs in managing the tiers and customization. Segmented pricing is great if you can do it, but it needs to be simple, manageable, and transparent.

destraynor 13y ago
Absolutely - if you find yourself having to tier lots & lots , it's a good argument for utility pricing instead. Re: Pricing, thanks will check it out.

dvt 13y ago

Awesome read. Everyone planning to run a SASSy start-up should read this. I would add that when I ran one of my first start-ups, we were sort of scared about whether or not we're charging too much. After our first influx of clients, that fear quickly diluted. (As it turns out, we could have charged a lot more and people were still willing to pay.) Generally speaking, you ought to charge more than what you think you should. For example, you may think that $25 dollars a month may be too much, but, in reality, you should probably be charging $40 or $50 a month. This isn't a silver-bullet, but, as developers and given the insane ROI (barring development which you most likely did yourself) you get out of running a tech start-up, we heavily tend to undervalue our products.

logicallee 13y ago

there's great danger in leaving value on the table. I suggest you survey no fewer than 150 decision makers and start quoting them different pricing amounts. So that you're thorough, do your survey all hte way from $150M (anually) down to whatever's silly (like a few bucks, you don't have to do those.). For example: Quote decision maker #1, decision maker #2, and decision maker #3: $78213333.33 Quote decision maker #4, decision maker #5, and decision maker #6: $38471111.11 Quote decision maker #7, decision maker #8, and decision maker #9: $26702222.22 Quote decision maker #10, decision maker #11, and decision maker #12: $20298271.60 Quote decision maker #13, decision maker #14, and decision maker #15: $15549629.63 Quote decision maker #16, decision maker #17, and decision maker #18: $7051412.89 Quote decision maker #19, decision maker #20, and decision maker #21: $6571486.05 Quote decision maker #22, decision maker #23, and decision maker #24: $3755915.26 Quote decision maker #25, decision maker #26, and decision maker #27: $2857190.47 Quote decision maker #28, decision maker #29, and decision maker #30: $2011964.30 Quote decision maker #31, decision maker #32, and decision maker #33: $955402.69 Quote decision maker #34, decision maker #35, and decision maker #36: $812816.78 Quote decision maker #37, decision maker #38, and decision maker #39: $516906.05 Quote decision maker #40, decision maker #41, and decision maker #42: $322132.83 Quote decision maker #43, decision maker #44, and decision maker #45: $231654.29 Quote decision maker #46, decision maker #47, and decision maker #48: $157176.59 Quote decision maker #49, decision maker #50, and decision maker #51: $104682.89 Quote decision maker #52, decision maker #53, and decision maker #54: $67406.83 Quote decision maker #55, decision maker #56, and decision maker #57: $40156.30 Quote decision maker #58, decision maker #59, and decision maker #60: $34938.66 Quote decision maker #61, decision maker #62, and decision maker #63: $17201.68 Quote decision maker #64, decision maker #65, and decision maker #66: $10708.61 Quote decision maker #67, decision maker #68, and decision maker #69: $7962.40 Quote decision maker #70, decision maker #71, and decision maker #72: $5854.78 Quote decision maker #73, decision maker #74, and decision maker #75: $3738.44 Quote decision maker #76, decision maker #77, and decision maker #78: $2609.52 Quote decision maker #79, decision maker #80, and decision maker #81: $1678.07 Quote decision maker #82, decision maker #83, and decision maker #84: $1169.41 Quote decision maker #85, decision maker #86, and decision maker #87: $852.98 Quote decision maker #88, decision maker #89, and decision maker #90: $504.30 Quote decision maker #91, decision maker #92, and decision maker #93: $403.51 Quote decision maker #94, decision maker #95, and decision maker #96: $217.04 Quote decision maker #97, decision maker #98, and decision maker #99: $180.79 Quote decision maker #100, decision maker #101, and decision maker #102: $100.46 In this case 102 decision makers is plenty. If you chart it you should see a precipitious drop in interest somewhere. Where is that? If you DON'T do the above you'll NEVER know!! :) By the way if anyone's interested, this is made by a script that decays from 100M by 2/3 each go, then fudges +/- 20% to make it a bit more organic.

DenisM 13y ago

Good stuff. I would add that one exercise which should really help is sitting down and actually quantifying the value customer receives - dollars saved, dollars earned, time saved, all broken down by type of customer (however you chose to define that), and by the aspect of their workflow you aim to improve. What this will do is anchor your pricing gu feel to the right range. Besides, you can show it to the users and get valuable push back where you're off. My mentors spent countless hours convincing me of the value of this exercise and it's finally sinking in now, so I am in a hurry to share the wisdom. :)

nubela 13y ago

Mirror: http://webcache.googleusercontent.com/search?q=cache:http://insideintercom.io/four-pricing-principals-to-never-forget/ http://webcache.googleusercontent.com/search?q=cache:http://...

tlogan 13y ago

A few more tricks (I call it "red flags") I learned while running my small SaaS: - if you sell service for $10/month and user says "I would buy it for $5/month" - that means he/she will not buy. Just do an experiment: for each customer which does that just give them discount for $5/month (even $2/month): nobody will come back and pay. - if you sell service for $10/month and user needs to "to talk to somebody" before committing purchase: he/she will not buy. On other hand, if you have business / enterprise plan (which is like $3000/year) that is a good sign. - lowering prices will not get you more paying customers - start with "low" prices and rise it during lifetime of your company. Never go back.

pkmehta 13y ago
Whoa - this is so spot on. We get lots of I'd be willing to pay X and we always send them a link for exactly that amount. And they never pay. We even follow-up just to give them the benefit of the doubt and they still never do. Being the low cost provider for software (at least those targeted at corporates) is not the way to go. When people are spending OPM, it's more about the problem you solve for them then the cost. (note: of course, cost can't be insane but you get the idea. OPM = other people's money)
- destraynor 13y ago
  I agree with this and the parent comment. "Conditional" purchases are BS. The people who buy don't give you conditions. The people who give you conditions never buy.
andrewflnr 13y ago
Does that last point include grandfathering in existing users on cheaper plans? If I'm an existing user, I'll be annoyed if my bill goes up, especially if it's a really big jump. But if prices go down, everyone is happy. If you start high, how big of a problem is it to go down? How much of my objection is just because I'm spoiled by the internet and haven't run a business?
- nedwin 13y ago

stevesaldana 13y ago

One of the biggest problems I face is determining when the time is right to shift from free to paid. I originally slapped a subscription page on my app[1] thinking "we'll see how this goes". But after a few weeks of 0 conversions, I had a tough time justifying turning down folks who would have at least signed up if there wasn't a payment required - so I made it free. The way I look at it is that any feedback with a free plan is better than zero feedback with a subscription. I gain a lot of valuable insight observing how users actually use the service. I'm hesitant to give that up by switching back to a subscription plan and watching new signups die again. I know there's no magic bullet. I suppose this could be solved quickly if I had more time to devote to selling and marketing - admittedly I've been slacking in that department. Any words of wisdom would be much appreciated. [1] https://beanjockey.com https://beanjockey.com

alanbyrne 13y ago
Stop coding, pick up the phone and call some of your free users. Ask them if they'd pay for your product and why/why not. If none of your free customers are willing to pay, then it might be time for a pivot. Such as licensing your app to financial providers as a value add.
- timv 13y ago
  If you do pivot, there might be enough return in acting as a broker (/lead generator) for selling financial products to your users. Once they're paid down their loans (and even before then) you should have a pretty good picture of their financial situation. What are they going to do with that extra cash they have now that their loans repayments are done? * Take out a loan for a car/holiday? * Open a share trading account? * While they're paying down their debts can you get them a better deal on their credit card?
  - stevesaldana 13y ago
    You are spot on. There are so many alternative fee-generating sources and maybe I've been too stubborn at ignoring them. My motivation going into this was that I wanted to create something that provided a definitive value of x, and have customers happily pay a function of x. The known value / known cost approach seemed fair to me. Pitching additional product for me is troublesome because of the intrinsic fees associated with them. I look at my service as something that accelerates debt repayment in the most efficient way. But to encourage customers to roll-over into a cc balance transfer, mortgage refi, or student loan consolidation, it just pushes their obligations further out in the future. Now, this might not be a bad thing for some people. But ultimately you could get a lot of people into the fee roulette game and it becomes a never-ending cycle where every economic peak and trough of high->low interest rates creates a new incentive for a financial services company to pitch new product. So, I struggle with this. Do I want to maximize my revenue, or do I want to just provide a really good service for the small group of people willing to pay for it...

jmadsen 13y ago

"Adii Pienaar of WooThemes solved this problem by refusing to support non-paying customers. If they’re not willing to pay you, then they’re not your customers" Great article all around, but I thought that was the biggest take away for people running web apps & online games, or similar. For a long time there was this "it's on the internet - it should be free" mentality. There is a difference between freedom of information, and giving away hard work with value.

aytekin 13y ago
There are cases where a free plan actually makes sense. Does the usage increases with time? Many users start using JotForm with very low usage and then after using it for months or years they go over the 100 submission/month limit. I believe Evernote also had a similar pattern. Dropbox probably also has it. Can you use network effects? Only a tiny percentage of our users share their forms with others on JotForm Form Templates gallery. Tiny percentage of 1 million users is still pretty good. So, we have all these ready to use form templates for other users. It saves people time to be able to find a form template for any use case. If we only had paid users the number of shared templates would have been very low.

Sealy 13y ago

This is a great article. When raising my prices, I'm always worried that my competition will be able to see and roughly gauge how profitable I am. I'm worried that this will give them an incentive offer products that overlap what I offer and undercut me. Many price-sensitive customers will just leave at that point. Does anybody share the same fears or have experience of this?

JacobAldridge 13y ago
I'm always worried that my competition will be able to see and roughly gauge how profitable I am. Not a chance (or, specifically, not a chance likely enough to concern you). They're focused on their baby, not yours, and 'profitability' as a meaningful factor depends on variables including overheads, business owner salaries, and vision which are next to impossible to guess with any clarity. I'm worried that this will give them an incentive [to] offer products that overlap what I offer and undercut me. This is more likely, but is the very definition of competition. If you want to compete solely on price then you (and your competitors) are signing up for a never-ending arms race. Find other ways to compete, and know that success breeds imitators so you must always be a step ahead in regards product or service innovation, or market penetration. Many price-sensitive customers will just leave at that point. Yes. That's usually a good thing. Moreover, you will lose far fewer than you expect - switching services requires an investment in research, deliberation, time to change, time to re-learn, and risk of something new. The cost-savings need to fund all of that as well, and often don't.
- Sealy 13y ago
  Thanks Jacob, if anything that was an encouragement to keep me focused on my overall goal of service improvement rather than to get intimidated by the 'business side' of running my website. Can I tap your knowledge further. How important is it to have a clear division of roles in a startup? What I am asking is, for greater success, can the techy guy really be the business guy at the same time? (I'm thinking about the partnership between Woz and Jobs)
  - JacobAldridge 13y ago

pbreit 13y ago

Good article. I still think a free tier can be beneficial for most SaaS products. At Eventbrite we shared space with Yammer and Zendesk, the three of us with free tiers (Zendesk $20/year "donation") and really making it work. The point is NOT to implement limits but instead to implement features that make sense for those able to pay. For many SaaS services, that's admin tools to manage users. The reality is that there are millions of companies out there with fixed costs well less than $20k per month (don't forget there are non-tech startup companies, too). It cannot be overstated that it really is very easy to raise prices. It's pretty much impossible to make a pricing mistake in the beginning because for growing companies, the initial users will only amount to a fraction of total users over time.

snambi 13y ago

does increasing prices increases the number of customers also?