Pricing Your Product: it Doesn’t Have to Be so Complicated
joel.is
joel.is
No one is forcing you to read anything here.
http://conversionxl.com/pricing-experiments-you-might-not-kn...
With all things "startup" (pricing, design, customer on-boarding, etc), there are no absolutes. So articles which offer frameworks that help you ask the right questions or think through the process are generally more valuable and this one does that IMO.
So lay off. I believe you're annoyed but you're not the only one Joel is writing for. The guy is doing a good Jon and a lot of us really appreciate the documenting of his experiences. I personally can really relate to everything he talks about. I'm smart enough to know not to take is as gospel but it's damn helpful nonetheless. Joel isn't running a product pricing blog. It's a blog about his own experiences running a startup so be prepared to read about those types of experiences including how he approached pricing Buffer when you click the link.
It's one thing to disagree with everything he's saying and back it up and another to just accuse him of being disingenuous and self promoting because you've read one too many posts on HN today.
I agree the self promotion is good for Joel. I know who he is because of what he has written even though I've been critical along the same lines as the parent. But the parent's thoughts are important also in pointing out to anyone reading this (who is green) that isn't aware of what is going on here. Then they can decide for themselves how they want to listen to or use the advice.
Joel built the business and he is sharing his experience. Did you do the same? Do you have a successful business?
Profit has doubled for new accounts, conversions have gone up a bit (I also redid a lot of the marketing site, so I'm sure that has a lot to do with the increased conversions), and no one has publicly complained about the new prices. Anyone who signed up before the change was grandfathered in and will never need to pay more.
Lessons learned: When you're building an app for businesses, we usually do a poor job at gauging the economic benefits that we provide to our customers. I ended up talking to a lot of customers, and afterward was able to segment them into groups of "how does Planscope affect the operation of their business and the revenue they collect?" The resulting plans and prices I have now are based on that segmentation, though I think the top two tiers should still be charged more.
I also have a book (it was discussed here on HN two days ago), and the first two points of this article about motivation and validation are spot on. While I work on wrapping up this book, I've been getting a handful of email receipts a day from PayPal from prepurchases. Building a new product in a complete vacuum sucks, putting together an announcement list is better, but having people send you actual cash trumps all.
Blog post about it: http://planscope.io/blog/selling-2000-worth-of-my-unfinished...
HN discussion: http://news.ycombinator.com/item?id=4422151
Feel free to drop me a line (email's in profile), I'd be more than happy to answer any and all questions.
Shame my credit card is kaput until the end of the month. There's a high chance I'll forget the intended purchase by then :(
Make sure you don't give them an anchor. Make sure to ask across a few income ranges (ie. not just poor students).
What you'll often find is that people have a bad sense of how much something is worth and will think your service is worth more than you do.
You can then charge something like the median suggested value. It's what I did for postme.me[1] and it got me sales on the day of launch.
[1] I seriously need to reboot that project, never kill a project that's making sales, even if it's currently "not enough" - just invest more in marketing. Silly Swizec.
Asking people who are not your target customers what the price should be should get you an answer to price it to be free. These people will not think it is worth more or less than you're thinking as they dont need it. If they offer a price, they're guessing since what you have is not something that solves a pain for them.
Instead, talk to customers early and saying "we are doing x to solve y pain and are thinking of charging $z. What do you think?". If they vomit all over the price, then you know you're too high. If they don't get into price cuz they don't get the product, then you got different problems to solve before pricing.
In general, for these convos, I think going higher with this initial pricing is better as it has price anchoring benefits and it's much easier to go down then up in subsequent convos.
But of course, target customers are better. I have a feeling most people when starting out, don't even ask those, but just take the "expenses plus a bit of margin = price" formula.
A friend of mine was starting a subscription ecommerce site targeted at women (clothing & makeup primarily). She asked me about pricing (I'm a guy) I used all my "knowledge" to offer up my thoughts on price and then she asked "would your wife or sister use it at that price?" and I couldn't say. At that moment, it became apparent to both of us that although my pricing logic seemed ok in a theoretical, consulting-esque way, I was actually a pretty useless windbag in this circumstance.
I fear asking non-customers just risks getting at very wrong pricing - garbage in, garbage out. And also risks you missing out on great product feedback as well.
It's actually way more complicated than that but for the love of god just don't ask people what they'd pay. People are terrible about managing hypothetical money and purchases.
My experience, over many years, is the same as well.
People first of all don't even know what they will pay. They can be manipulated into paying more than they were willing to by anchoring and a whole host of negotiating tactics. As another example, just take a look at the way that auctions work. You might decide upfront you will only pay $100 for an item but if someone outbids you the thought of losing the item when you can offer $5 more draws you into bidding more than you would have expected to.
Also look at the way infomercials work in manipulating people to make purchases. "What if we told you this costs $15, well it's $10 and we're going to give you 2 of them". Etc.
1. The customers who you ask initially need not represent the buying majority. How do you select the set of people who represent the majority segments of your user base in order to determine pricing ? 2. In the first version of your product, how can you distinguish the issues the customers have with pricing v/s product features. As it is, mobile analytics is in such infancy. I can't even figure out my user base demographics. 'Asia' is not the demographic I'm looking for. 2. Even Apple faltered with pricing when they announced a steep price cut to the original iPhone but that's Apple, not a no-name startup. If a no-name startup pisses customers off by changing the pricing, then what's the backup plan.
Pricing, especially for consumer apps is a pretty complicated issue and not as simple as the author makes it sound like.
We have a service that we price at $120.
When you purchase that service you are told that it takes about 24 hours to setup. We then offer the ability to purchase 2 to 4 hour setup at an additional $15 or 4 to 8 hour at an addition $10 or 8 to 12 hour at an additional $5.
The majority of people purchase the $10 option. Presumably for the same reason people choose to pay for overnight, two day etc. shipping instead of waiting 3 to 5 days (or whatever the offering is).
When we added this option a while back it was like instant money since we were typically completing the service setup in the 2 4o 4 hour time anyway.