Pricing Low-Touch SaaS
stripe.com
stripe.com
I am a huge evangelist of this piece of advice. I'm the founder of a startup that offers ONE price --- and free trial credits, of course --- for each product. I think it has helped us tremendously.
The amount of startups I see that use the 3-column pricing plans (or worse!) is mind-boggling. Perhaps there is empirical evidence supporting complicated pricing. But I've never seen it. I specifically went with one price per product because I think complicated pricing plans negatively affect sales and sign-up rates, not to mention operational complexity!
If you're interested, here's our pricing page: https://siftrics.com/pricing.html
You make a good point. I suppose it doesn't apply in quite the same way here, since we offer lifetime free credits --- they don't refresh each month. 1,000 free pages, then you have to pay.
I'll still be able to use this service in 2075?
Do you expect anyone to believe that?
Thus it is a reason to look for another vendor who shows signs of realistic planning. If I can pay $50 for something that costs them $25 and it is obvious that it is roughly like that, I know I am partnering with a 'sustainable' business.
If a company gives me "free X for life", I can't expect X if they declare bankruptcy. If they get acquired, the acquiring company will probably be within their rights to cancel my free X, and this has been done time and again. You can try to die on the hill of "lifetime means my lifetime" but I don't know what you expect to gain.
I know investors like recurring revenue, I sure do.
For many things I have no idea how much I am going to use them in six months if at all, but it seems they feel compelled to price something at "$X a month" even if I just could spend $Y on it this week, solve my problem, and maybe buy some more later. I am thinking in terms of $Y.
There are just so many monthly bills out there that the only service anyone needs now is one that cancels all the services you don't use.
But the idea sounds great to me.
What I saw happen with television is that it went from a ratings based model (they had to make stuff people wanted to watch) to a model where the "cable bundle" was determined by cigar-chompers in a dark room somewhere. I can say I want this group of 20 channels, but I can't say I want CNBC but not CNN, Fox and MSNBC.
They get paid anyway so now there is no connection between "what I want as a consumer" and "what I get". So of course you get slow decline like we've seen with the cable industry -- the only meaningful conversation you can have through the market is "exit".
Netflix has only "exit" and "not-exit", it doesn't have market signals that say you can do 1% better and make 1% profits. So ultimately it gets a dull edge.
So many firms are falling over each other to offer you all the Madden NFL and Assassin's Creed you could possibly play and I am frustrated that people don't perceive that this has happened to MTV and most of the other cable channels since the 1980s: when I was a teen we watched music videos, but a 70-year old man bought the network and decided that he didn't want us to watch music videos. Once Youtube let people chose what to watch we found that people still love watching music videos: does anyone watch MTV? I'm sure there is somebody long past youth in Hollywood who thinks they can stay in touch with "youth culture" by watching MTV. I suspect there is a TV set in a Nielsen home that blasts away 24 hours a day with nobody watching. Other than that I don't know.
[0]https://www.dailykos.com/stories/2020/8/12/1968730/-Sumner-R...
TV networks initially embraced reality television because of the Hollywood writers strike. The writers stopped writing, so the networks turned to content that didn’t require writers. Then they discovered that reality television is cheaper, too. The rest is history.
That's funny, but empirically that's not what happened. A quant working at MTV realized that reality TV like Real World, Jackass, and The Osbournes were way more lucrative and way more popular. At the same time music exploded in access (Napster). People voted with their eyeballs.
To make sense of the decisions that the TV industry makes you should also consider what their moat is and how they tried to protect it from the internet.
Studios still made content people wanted to watch, monetizing it became a lot harder which is why (strictly) ratings became less important. Bundling came around because it was easier for Disney to force Comcast to swallow channels like Lifetime and Toon Disney if they needed that to get access to ESPN. ESPN (live sports) has no digital compliment and for many people is the only reason they pay for Cable. The name of the game then became "How much money can we extract out of the remaining ESPN subscribers".
That is, the industry would have transitioned to a "harvesting" model with increasing cable bills and fleeing subscribers no matter what the competitive threat (internet, netflix, ...) is. The competitive threat determines where the crisis happens, but the crisis is built into the product.
I don't believe it about MTV. I don't think anybody watches the Real World, Jackass, or the Osbournes. They read in the newspaper that somebody got killed acting out a scene from Jackass or they watch the highlight reel for the Osbournes on Entertainment Tonight. The meaning of that kind of television is not in the watching, but in being a subject for the rest of the media.
A question, if I may: How big is your userbase?
https://www.nickkolenda.com/conversion-optimization-psycholo...
Sure, this might be the worth of the features, but then I might get frustrated: "I want features X and Z, but they are only in the most expensive tier. In the cheaper one I can get just X, or X and Y. So now I have to pay for X, Y, Z although I only need X and Z."
Another example: johnreed fitness gym offers three tiers. They are basically the same, but give you more flexibility in where you train. If you are a member for one year, you move up one tier for the same price. It's not clear whether or not my contract would get cheaper if I start at the highest and after a year move to the price of one lower.
So basically they made me work and think a lot just about pricing for some service I actually want because I don't want to think about it. Which made me choose another gym altogether.
I'd never heard of your company but this service looks GREAT.
I wish you financial success.
Question: your price points are sooooo low (which is great for the consumer) but I get concerned it's too low for your company to stay viable. Is that a concern? Please don't take this an me knocking your company. I really love what I've seen on your site.
It would take me probably an hour or more to scan 1000 pages. Given that, I don't see a significant difference between spending "an hour plus two quarters" and "an hour plus ten quarters".
The point of the pure text recognition service is to draw business; not to make a profit. Without the "Advanced Features", the service operates at a slight loss. However, the profit margins and total volume we do on "Advanced Features" covers the loss and turns a profit.
On the Hydra (Documents-to-Database) side of things, I think we charge enough. Margins are very high.
I could see it being very useful to small businesses that work with paper a lot.
Exactly. It can handle tables of information with a variable number of rows from document to document. It can also handle arbitrary rotation, skew, offset and cropping. To see an example of some extreme cases: https://siftrics.com/hydra.html
>What would be the difference between Siftrics vs standalone OCR software?
The reason I started Siftrics is this:
Lots and lots of businesses need to put data from their documents into a database. Standalone text recognition gets you 75% there.
I thought, at the end of the day, companies still have to hire engineers to write programs --- which _do_ leverage standalone OCR/text recognition --- that are specially tailored to their documents.
I want to eliminate those specially-tailored programs. Now Hydra isn't perfect, but in many cases (people are willing to pay for it), Hydra reduces those specially-tailored programs to a single function call...
client.recognize('avionics-invoice', ['invoice_1.pdf', 'invoice_2.pdf'])
I encourage you try it yourself. After all, you get 1,000 pages for free :)
So on the topic of ${X}0 vs ${X - 1}9 (ie. "50 vs 49", "100 vs 99", "250 vs 249"), what's the current "best practice"?
I feel like we might be like those 5 monkeys with a banana: someone figured out long ago in some context that X9 might convert better, now everyone's doing it and the reason might not still be valid.
I'd love to hear about some recent studies or comparative experiences related to this.
For me, subjectively, "49" has the "sleazy car salesman" vibe, compared to "50" being more "we're not ashamed to tell it like it is". On the other hand, I've always felt like this so I was an outlier before.
Measure how a set of prices performs against your driving metric, e.g. customer growth or revenue growth. Iterate on pricing, measure again.
Repeat until you have enough data to model a demand curve[1] between price and your key metric, then choose your pricing as the point of inflection on that curve. Fine-tune with another round of experiments for charm pricing (e.g. 50 vs 49).
Repeat and localize currencies and prices (e.g. via PPP) for each of your top five geographic markets if you really want to optimize.[2]
Second-best practice? Research what your competitors are charging and charge roughly that.
[1] https://en.wikipedia.org/wiki/Demand_curve
[2] I wrote this article: https://crow.app/blog/price-localization-with-stripe
“Priceless: The Myth of Fair Value (and How to Take Advantage of It)”
"If a person didn’t make tens of thousands of dollars while doing 1,000 transactions in 2017 in cryptocurrencies then, bluntly, there is something wrong with that person’s ability to make good decisions, and you should probably not seek their custom."
For most prospective customers, you should charge less. For a select few customers, you should charge way more. Upping the ante indiscriminately only continues to make the world even more unequal and inaccessible for the people who need your products the most.
(The asterisk reflects that they give the software away for free because it is a complementary good to the business where they make most of their money.)
The idea of charge more is that it brings more revenue into the business and allows it to continue succeeding and producing value for customers. Charging more charges for that value.
The advice is also mostly for b2b or b to professional, so if the product truly brings value to the customer they actually can afford it.
Undercharging kills businesses and does no one any favours in the long run.
Also no business should be run on a foundation of altruism.
Unfortunately, I've watched most people interpret "charge more" to mean that they should raise their prices and keep everything else the same, which only works if your product was underpriced to begin with. Many startups are underpriced, so it works for a while, but eventually people get SaaS subscription fatigue and start trimming away the high cost / low value services. The "charge more" services that don't also offer more value are the first to go.
Ah, "From each according to his ability, to each according to his need?"
I wouldn't mind a similar analysis for my own pricing page for an website SEO auditing tool if anyone feels like giving feedback: https://www.checkbot.io/#pricing
Related to the advice from the article, I resisted offering lifetime deals and going really cheap, I have a free tier to help with organic marketing, I don't offer a free trial of the full version but I offer refunds if you're not happy, and I avoiding using "Pricing" as the pricing section heading. I might try replacing the monthly plan with a quarterly plan so subscribers aren't having to decide so often if they're going to keep paying (I rarely see a SaaS doing quarterly plans without monthly plans though). I suspect I'm giving too much away for free as the free version will probably cover a lot of small business websites.
For the most part, people that care about SEO are making money off it. Paying $10-15/month if the tool provides them any value in their work is nothing.
You’re the one with the data, so these are just my thoughts. But I’d switch the free tier to have a cap of like 100 scans a month, or maybe ever. Just enough to let those who might pay give it a go.
I don’t know a ton about the SEO business, but $10-15/month price point makes me think this tool can’t give me good returns. If it’s something I’m going to use for my work, $50+/month would give me greater confidence. It could be the same tool, but the price point gives the prospect different ideas.
Last thought, the numbers seem way small. At first glance I didn’t think it showed pricing, but they were just there, same size as the other small text.
I guess part of me wants to help people that can't afford to pay anything (hence a useful free tier), and for people that can't afford to pay much, but this isn't the best strategy for maximising profit.
Often it seems that SaaS vendors don't have a plan for pricing but rather they design a "pricing page" that looks like the pricing page for other SaaS plans.
If you start asking questions like: can you afford to offer this service at this price? what value does the customer get out of this service? they get defensive.
I have refused to use SaaS services and I've refused to work for SaaS vendors because "I don't think you can make a profit with that pricing" and they tell me "why do you care? "
As a customer: "I am paying you for a service because I want the peace of mind that I don't have to do it myself. If you business isn't profitable, you're going to go out of business and I'm going to have to find a new way to provide this service."
As an employee I reject the marxist idea that I'm necessarily getting ripped off if I make more value than I get paid. If you are not making a profit for your employer why should they hire you?
In a profitable company you are often struggling to get a decent computer, good working procedures, etc. In a non-profitable company it's almost impossible that they'll treat you with respect and give you the resources you need.
My one complaint is that, mindlessly, this article has a pop-up at the bottom that says "you are browsing this web site from India (not true), click here for our regionalized site..."
Sure big companies like Dell, Logitech, waste your time when you are looking for content by trying to segment you via country, are you an SMB (the article explains why the word "SMB" is mindless), etc. You'd think internet-native firms would know better.
Last year I came across a productivity app that I absolutely loved and signed up for the paid version right away. Unfortunately, they’re charging less than $5/month.
The service is buggy and infrequently updated now because you can tell the founder (solo dev) doesn’t make enough money on it to continue making upgrades.
If he had only charged more in the beginning the app would be both sustainable and growing.
I’ve learned my lesson and now run some back of napkin math on likelihood of success at that pricing before making a commitment to a service.
I'm guessing the answer is something like "not if you have the network"
It's harder to bootstrap some customers who have a 6-months process with NDA, vendor db onboarding, compliance questionnaire, custom T&Cs, but other Enterprise customers are just as willing to send you five figures via credit card within a day or two of first contact. So these can bootstrap your business while you wait for the other deals to go through.
* Expensive headcount - high-touch sales requires sales, marketing and other GTM teams. Sales, especially, is very expensive. * Customizations - enterprise customers will want additional features above and beyond what your MVP offers. This will require additional engineering/product/design resources * Security audits - IT of the enterprise customer will want to see recent security audits which can range from $20K and up * Stability guarantees - enterprise customers are wary of offloading their workflow to small startups that might go belly up. Having guarantees, such as VC funding, will acquiesce them.
A common path in B2B is to start with low-touch SaaS business (which is easier to bootstrap) & then move up-market.
# Charge more.
- It helps keep low money, high support customers away. See "[pathological customers](https://hn.algolia.com/?query=patio11%20%22pathological%20cu...)" - "If an insurance company builds their entire business around [your SaaS product value] then that is a six figure deal, minimally." - Just charge more [[1](https://hn.algolia.com/?query=patio11%20%22charge%20more%22&...)] - SaaS entrepreneurs overestimate the benefit of low prices early - AppAmaGooBookSoft are doing their best to convince customers worldwide that software should be free (or as close at makes no difference) and subsidized by extremely lucrative advertising/hardware/e-commerce/etc ecosystems attached to it. That is a hard market expectation to go against.
# Pricing pages should continue the sales message
- The title of the pricing page should act like a sales representative. E.g. avoid "Plans & Pricing" or Transparent and Flat Pricing". Provide your value in the headline. - Reduce decision fatigue for customers. Up to 3 plans + contact us. Clearly distinct each value proposition - $X.99 pricing is not generally used in B2B or prosumer services because it communicates cheapness; I’d suggest you drop the 0.99 accordingly here, for aesthetic reasons - Lite / Standard / Premium are weak names for SaaS plans because they don’t help a user make an instant decision on which plan is right for them. - Don't use "Dedicated support". Use "Priority support" instead. Plus charge more for priority support. - No free plan on the pricing page - Name pricing plans to sell them to the right users. Avoid "Premium". Use "Hobbyist", "Small Store", "Sophisticated E-Commerce Retailer", "Enterprise" - You should only include the most salient details on your pricing page. If there is a difference between plans which is not salient to your customers or to you, it should not be a difference between plans;
# Others
- About removing the credit card / free trial : most B2B SaaS companies find that removing the credit card requirement increases the number of free trial signups they get but decreases the activation rate (the number of users who make material use of the software) and conversion rate to paying use. It is generally not worth it early in the lifecycle of your company. - All decisions about the pricing page are optimizations to approximate the value creation curve and charge for it. - Free is not a compelling value proposition to well-monied buyers.