Pricing Principles
insideintercom.io
insideintercom.io
- 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.
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)
"Conditional" purchases are BS.
The people who buy don't give you conditions. The people who give you conditions never buy.
A good trick I've heard is to launch at a high price - say $100 per month - and do promos through marketing channels where you are quite liberal with discounts. This gives the perception of high value on a limited time offer while still making it clear what your price point is.
You then make the discounts more and more scarce over time and for smaller and smaller amounts until you settle on optimal pricing.
Can I contact you and ask you some questions? :)
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.
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.
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?
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...
As a first-time founder and relatively new developer, I could never really tell when the time is right to stop creating and start pitching. Looking back, I definitely went too far with the build, but better late than never to snap out of it and start soliciting.
> The way I look at it is that any feedback with a free plan is better than zero feedback with a subscription.
I wouldn't be so sure. My experience has been that I get very different kinds of feedback from free users versus paying users. Often times even opposite feedback.
Be careful listening to people who are not, and will likely never be, your target paying customers.
> I'm hesitant to give that up by switching back to a subscription plan and watching new signups die again.
Freemium can work reasonably well for this. Takes less courage, and you ideally get some paying users in the process. Not sure what the best pricing breakdown would be for your app specifically though, as I'm not too familiar with the industry.
Alternatively, you can do free trials (2 weeks, 1 month, or 3 months). Take a credit card up-front if you're feeling brave, or defer if you're not. If people don't convert, contact them personally and find out why. Offer a "no questions asked money-back guarantee", it'll probably make you feel comfortable more than your customer. If you really want, you can give them some customers free accounts anyways.
Best of luck! :)
In that case, perhaps an alternate revenue system can be found. Maybe something like Mint.com.
I read (listened) to Chris Anderson's book Free: The Future of a Radical Price [1], which tackles this very subject of creating revenue from free products. (Chris Anderson is the founder of Wired.com and this book debuted as #12 on the New York Times Best Seller List.) You may find his book useful too. I highly recommend it. Best of all, the book is priced appropriately: Free.
Lower income earners, with primarily unsecured credit card debt for example, are basically faced with two options - spend less or earn more. There's no panacea that software can provide, other than increasing awareness of costs and consequences.
Thanks for the link - I'll check it out.
[1] http://www.federalreserve.gov/pubs/bulletin/2012/pdf/scf12.p...
So how do you attract high earners with a lot of debt (but still low debt-to-income)? That sounds extremely difficult.
Everyday, I question if the Internet is the best place to market something like this and if a price point in the $5-$15/month range is too low. Eventually you start to creep up towards the level of service that a personal financial advisor would offer. But, I have limited desire to support the asset-side of household balance sheets (401K, stock investments, cash, etc). It's not that I don't want to go down that path, it's just that there are many more variables once you start to incorporate investment objectives, risk tolerance, return forecasting, and stochastic outcomes.
The other marketing challenge is how to cater towards people outside the US. In Europe especially, there are some crazy forms of credit made to people which have all sorts of embedded optionality. I used to work for a bank, building models to forecast this kind of stuff and it was such a challenge looking at it from the lender's perspective, I can only imagine the confusion from the borrower's point of view.
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.
Re: Pricing, thanks will check it out.
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?
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.
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.
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)
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.
But first think about monkeyspaw's answer, not mine.
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.
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.
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.
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?
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.
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)
There are loads of case studies where an innovative, entrepreneurial spirit has teamed up with a more detailed focus operationally-minded colleague. As long as their values and risk profiles are aligned, it can be (really, really) great.
There are also many advantages to one person looking after both tech and sales [1] - for one, it avoids building a product that customers aren't asking for.
So the clearly defined roles are still there - say product build and sales. You might do both, so just make sure you keep yourself accountable to doing them both justice - for example, scheduling blocks of time for each, and not giving in to distractions. You will almost certainly prefer one to the other - success is keeping the balance, and not one day finding you've been coding for 3 months without talking to a single customer or investor.
In the startup stage there will always be a lot of roles that aren't full time and will be filled by a founder - think accounts, marketing, customer service. As you grow, these can be handed over - and if you've always treated them as separate roles, not just part of your job, then that role succession will be much easier for you and your new recruit.
I'm always happy to answer business questions - email address in my profile if you prefer.
[1] At startup, "the business guy" means "the sales guy". They're either selling to customers or selling to investors; if they're writing 5 year plans and applying their MBA's management reporting course, then they don't understand startups.
My biggest question is do you think its best for applications to charge a one time large fee or a monthly smaller fee?
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.
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.
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.
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.
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. :)
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
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.