Almost all conversations about pricing make the same mistake: they assume that we all have the same goals. Your goal might be to squeeze as much money out of your customers as you can. That's totally fine, and completely ethical, but it's not my goal. I'm guessing many people are similar to me.
I want my business to be profitable. I want to get rich off of it. But I want my customers to get even richer. I want to know for a fact that I'm leaving money on the table for my customers to capture for themselves. I suspect that in the long run this will actually be a good business decision (happier customers now = more word of mouth) but even if it isn't, I still think it's the right decision for me. That's why I don't raise my prices.
This reminds me of a bit of an epiphany I had back in University. At the time, groups in our class were playing some sort of national business simulation game. I was sure that I had optimized my business to produce the 'best' widget at the lowest cost in a market dominated by other high quality widgets. Week after week, my business' position grew worse.
Finally, I spoke to my teacher who had a very simple message (paraphrased, it was ~7 years ago):
"Its not about having the best product, its about finding the untapped segment of the market," he said.
After that, I reoriented my business to attack a segment of the virtual market that was not being heavily targeted. That very week, my company made a complete turn-around.
In other words, I created a product that was well adapted for a specific segment of the market.
In the context of the linked article, I think the message is that there is an equilibrium between value provided by a service and the price at which people are willing to pay. If your product is worth more to your users than you are charging them, then you have not optimized this equilibrium.
Now, IF you are able to offer your service at a cost that is significantly lower than what your target customers are willing to pay, there is a strong likelihood that competition may try and capture some of this margin.
This does not at all violate the equilibrium principle because as new, lower-cost providers arrive, the price-point for users will naturally be lowered.
I honestly can't remember the name, but it was not SimCountry. I hardly remember the game, only the realization that you can either try and outdo competitors face-to-face or simply go where they aren't and capture the value from underserved segments of the market.
I didn't get anything from the article about squeezing maximum money from every customer. No customer wants to feel like they're being gouged. But, neither do they want to see a good service go out of business because the owner felt guilty about the price.
One thing I know is that if you charge $49/month inevitably somebody will tell you the price should be $9.99/month. If you charge $9.99 then somebody will tell you it should be free.
The point is that there will always be a tiny minority of people who want your service for a price that isn't sustainable. You can't base your business plan off of these people. You have to base your prices off of the value of your service as well as the cost it takes for you to provide that service.
Isn't this the road to expensive bloated products full of feature that few people need?
I know I get annoyed when some well designed tool adds a ton of features that don't really make it any better for me, and becomes more expensive in the process. Heck, it often becomes worse overall because all of those extra features make it slow and buggy.
If you are adding features for features' sake, then you are not adding value. Bloated products result when you add features without understanding their value to the customer base you serve.
Of course, it could be that you serve such a diverse customer base that adding in "valuable" features creates bloat as a side-effect (Hi Microsoft Excel!), but for a SaaS app that is less than 3-5 years old, I think you'd be hard pressed to fit in this category.
I think you're less likely, but some people really do just need dead-simple things priced as cheaply as possible, so it's not necessarily a wrong decision, at least for some customers in some markets, to offer them something cheap and bare-bones and not really innovate much beyond the initial offering. I think that may be my favorite category of SaaS, something that does one thing with barely any options, and charges me barely any money to do it, but keeps up the service and a stable API reliably, and periodically drops prices as their own costs drop.
While the title sentence can be true under steady-state conditions, it's not true for virally growing startups. Growth depends on customers recommending the product to their friends. For example, if raising prices by 10% cuts your monthly viral spread coefficient by 10%, it will cut your market share by 90% after 22 months.
(I'm working on a simulation engine for this kind of stuff.)
The opposite is true for normal startups. Unless you drop the price to zero, the viral coefficient goes up with price. The people willing to pay the most are the most likely to spread the word. You will have fewer customers at a higher price, but the likelihood any given customer will spread the word is higher because you are solving a more important problem for them and they are more committed to the product.
If your SaaS startup meaningfully depends on viral growth, and a plan that's 10% cheaper has an effect on it, you'll almost always do far better with a freemium business model.
It's hard to recommend freemium for most SaaS startups since it depends critically on having a huge potential market and a zero-cost avenue for growth within it.
Yes, but market share isn't everything. If you're making 10% more per customer with 10% less customers, you're worrying about keeping less customers happy and can focus on making the smaller group even happier for ~ the same revenue. I'd be interested in seeing your simulation if you decide to make it available.
There's no silver bullet. Version 1 will at least let you capture your assumptions about how you think your market works and how your product will get traction in it. As you gain experience in the market, you'll be able to refine the model and make better comparisons among alternative growth strategies.
Eventually I'll try to curate a library of market models and startup plans that did or didn't work in them.
But what drivers do you model? Consumer behavior and preferences, or just abstract business metrics? I.e.: do you put into your model what is typically an indicator on a dashboard - TLV, retention rate, etc, or do you derive a model of your customers from past data and build scenarios of changes in customer behavior?
"A high price point is a bounty on your head" -- a serial entrepreneur friend of mine.
As SaaS businesses, our fear is that all this uncaptured downmarket demand will create a competitor where none may even exist currently. These potential competitors also have an advantage. You've proven the market for them, and they can expend fewer cycles building their SaaS by simply copying the useful features you've already built.
We all know the standard advice here. Find those features or capabilities that don't provide much value to these downmarket customers, then introduce lower price points with pared-down versions of your SaaS.
But this article suggests another approach, and I like it: instead of paring down features, find out what potentially new features add value for your downmarket customers. Build them. Bring their value received up to your price point, instead of bringing your price down to their value.
This may be hard to do in practice, but it's an interesting idea.
Absolutely. Finding that sweet spot in pricing is essential.
One issue I find is when people don't differentiate _enough_. For example--I may have a blackboard killer CMS, but if I don't have any kind of differentiation from blackboard, I'm only competing on price. And, if I introduce new features but never show HOW these help the consumer, they won't value it.
This isn't wrong per se, but it doesn't feel like solid advice to me; I think it's just skipping past a lot of nuances that are really pretty important.
Like: extracting the maximum possible money out of your customers is kind of a shitty goal for a business, as they go. It's not exactly pushed here, either, but it's not identified and discarded.
There's a price point where customers will be feeling pained and possibly taken advantage of, but still recognize the value of the product to them is such that they will still pay. This is not a sweet spot, I think; it's an opportunity for your competitors.
Hustling to add value instead of cutting prices is a good point, but "how do we change our product to add more value to our customers?" is a non-trivial question, though. The default gut responses are usually wrong, and end up increasing value to some customers at a cost to others; more features but severely increased complexity; sometimes broadening the potential target market at the cost of lower value (or a steeper learning curve) for the current user base.
Finally: customers even in a fairly narrow niche are diverse. You may settle on pricing that works great for healthy businesses, but which will force struggling businesses to reluctantly forgo your service, even when they need it the most.
A business relationship is a relationship between people or groups thereof, in the end, even if a numbers game is involved to maintain business health.
If you want the opinion of someone who was initially excited to read your copy (filling out timesheets is literally the only thing I really dislike about my job, but also understandably required because we bill to clients):
- You only have VIM/Emacs/Sublime, but we use Eclipse. I know that supporting each and every client is unreasonable, but have you considered writing a client that watches for changes in one or more directories? That way, I could use your tracker even if I wrote in ed (which is the standard editor, as we all know ;)
- The paid feature (more than one week of history) is useless to me, because by Friday I need to take all those hours and push them into our internal system.
In any case, good idea and best of luck to your project! Is there anywhere I can subscribe to receive updates?
Yes I can watch files, but if someone doesn't save to disk very often then their time won't be logged accurately since WakaTime depends on pinging the api every 2 minutes when actively editing a file.
You can subscribe to updates here: http://eepurl.com/E5olT Although I haven't sent any emails out yet.
I'm working on adding XCode, IntelliJ, and Eclipse plugins in that order. I'll start sending a newsletter/blog post every time a new editor is supported.
This is one IDE where you will find a lot of enterprise devs.
- XCode is not massively used
- Eclipse is free and users might carry the same mentality about plugins
- IntelliJ certainly has less marketshare than VS
You're right, I need to provide more value instead of lowering prices.
I didn't validate the value before building, and justified it because I wanted to use it for myself. So I built a tool for myself and now let others use it.
Try this: for every feature listed, tell me why I want that.
"Detects project name from repo- so your work is never XXX"
"See logged time per project or branch- so you can see XXX"
Then tell me why I want the investment: "If you value your time at $50/hr then for the price of 11 minutes you can save yourself hours of lost time each month" or whatever the selling point is.
This will have three effects: It will make your pitch more compelling; it will force you to focus on selling the features that matter; and it will allow you to see the features you should add in order to have a more compelling sales pitch.
If you are looking for something to duckduckgo, this is old news, and it comes down to "selling features vs selling benefits" in marketing.
Well you've got a free plan and a paid plan: so first question would be what conversion rate do you have from free to paid users?
If that rate is under 1% for active free users moving to paying users then it's definitely a value problem. (Active, not just made an account and a capture). If this is the case then you probably need to working on adding additional features that are paid only and valuable.
If the conversion rate is alright but the total number of users is just too low that your paid users is too low, then it's not value problem, but rather a marketing problem. Two options in this case: your product is useful but the people who would use it don't know it exists, or your product is not fitting a market need. I'm pretty sure it's the first case, but validating that is difficult. As it's useful to you and does seem useful, the best step is to just try to get more people aware of the product. I'd recommend writing (or paying someone to write) blog posts detailing how your product is used. Tutorials on starting up a freelance business using your product to keep track of time for clients, or blog posts on time manegement using your product as a center piece would be good. Post those blogs up to twitter, HN, reddit, etc.
I just added the paid plans over the weekend, but so far I've had 0% conversion rate from free to paid users so that means I need more/better paid-only features.
As icebraining says upthread, the one difference between free and paid probably doesn't matter for most users. But, you said the paid plans have been up for a few days, correct? I doubt your current users are even aware of them yet.
You need to add a little more information to your front page. I would include the dreaded introductory video. Your site's trying to simplify Git? My advise means nothing because I'm not a Programmer. I'm trying though. What ever
your site is I would let customers use it longer than one week--maybe a month?
Oh, good suggestion with the intro video and free users can use the product forever, they just are limited to viewing one week of their logged time. Maybe I'll increase that to a month in the future.
I tried this a while back actually. iirc I disabled the Sublime plugin because it was causing massive slowdowns (and that annoying popup that tells you about slow plugins).
I also wasn't very sure about how it was actually doing the tracking and whether that information was A) accurate or B) useful.
Honestly I haven't built team features so I set a high price to prevent anyone from signing up for it ;) Don't tell anyone but if someone signs up I'll just ask them what features they want built then refund their money until I finish those requested features.
I like the idea of the product and your pricing is fine. But you just have to figure out a way to hit your target market. In this case, your target market is probably freelance developers.
I know that I've evaluated http://letsfreckle.com/ and other similar options in the past. Their copy appeals to me and it easily lets me know what it is they do and how it is valuable to me. But it isn't what I was looking for.
If you can explain yourself similarly, I suspect you'll have success.
Odd, hosted on Amazon and running Bootstrap w/ no weird JS plugins aside from Olark. Maybe some other not-so-legitimate websites are running on the same server?
What about price discrimination? Micro-economics 101 says using price discrimination is a good way to reduce consumer surplus, so a blanket "don't have low prices" is all very well, but you could have say, a small-business/home tier and get more money overall.
My company's product is by a fairly significant margin the most expensive out of the competition, and we've refused to budge -- and I'm fairly certain the company wouldn't be alive and growing if we'd started out with lower pricing. It's also somewhat satisfying to see the competition slowly raise their prices. And yes, the hardest part that we are constantly working on is raising the value.
i've read a number of comments here who think the goal is to "extract the max dollar figure from customers". and they make that sound so negative. well, the truth is that with that extra money, we hire engineers to improve our software faster so that we can deliver more value to our customers and be more competitive in the marketplace.
our customers need to give us money to keep us in business and so that we continue to add value. if i took the least amount of money from them, i'd be doing them a disservice because they'd adopt my products, i'd fail them after a few years due to a lack of innovation, and then they'd be forced to go through a painful switch to a new platform.
so yes, we do want the max amount of revenue. we want it so that we're paid and satisfied, so we can hire more engineers and acquire more customers, and give them the value and innovation they need over they years.
I find this really interesting. On one hand EC2 performance sucks to the bottom if you are running on the t1.micro instance (I have tried above medium once and it wasn't much better either).
DO (https://www.digitalocean.com/) really catches my eyes. The whole "SSD", "512MB" at $5 per month is a bargain. If you are running low traffic website (assuming you will not post your article on HN yourself), $5 per month is absolutely enough for personal blog. If you run a Persona IdB that way, it's only $60 + $50 (an IO domain can be as cheap as that plus tax on gandi, which comes with 1 year of SSL/TLS cert).
I really wonder how much profit they can make out of this kind of bargain.
I ran into the "your product is too expensive" recently, which in turn also led me to find out that my pricing model was all wrong (I target freelancers and usage of my product is limited enough that it doesn't make sense to have a monthly plan).
To a degree I'll be lowering my prices based on customer feedback, but also because the goal is to meet the customer's reality (not just my own). I think this is important for a lot of new SaaS businesses to consider as we move to a more niche-based market: is my offering matched to my customers reality?
I think one of the problems with building software for freelancers is you are targeting both $5/hour Elance and $100/hour 'ninja' workers. In the case of Proper (nice landing page btw!) both may have the same usage but will get a different value out of it - meaning you can't charge them both the same price. One way you could get around that in you product offerings is to offer more features in the higher plans than just more usage.
Here's an example... If I call AT&T right now, or my cable company and say that I want to cancel service to switch to a cheaper company, all of a sudden they will offer me a lower price to keep me from leaving. The ol' a customer is cheaper to keep than to acquire mantra I suppose...
What these people (and you) don't understand is that if you (or AT&T) called me out of the blue and said, hello sir, we've noticed that today makes your 5th year as an AT&T customer, we'd like to take $50 off your bill every month from now on(which is the offer they give me when I threaten to leave) I would be ecstatic.
- As a satisfied customer I would be shouting your name from the mountain top.
But I (and the OP, to my read) meant "customer" instead. That takes nothing away from the quality of service being provided, etc. (although good luck getting support from the vendor if you have a problem with e.g. Gmail or Google search). But it is kind of silly to talk about pricing for a service like search that is provided free to its users.
In discussing monetization, the difference between the "consumer" and "customer" obviously matters.
Google searches aren't really a product with a zero dollar price; they are a payment to the suppliers of advertising views. charging for them is, de facto, cutting the price Google pays to the suppliers of the main product it sells, rather than a price increase on a product it sells.
Fixed! Thanks. You can tell I'm not a native speaker/writer. Making these kind of writing mistakes way too often (and some of them still show up even after having other look over it) :)
Yes, among other things we benchmark your profit margin, ratio of CLV/CAC, Retention and Churn. Those indicators can help experiment on pricing more effectively.
I've only found large enterprise IT support and cold-callers from 'Microsoft' who are wanting to 'remove the virus from my machine' use LogMeIn. TeamViewer seems to be the flavour of choice.
I want my business to be profitable. I want to get rich off of it. But I want my customers to get even richer. I want to know for a fact that I'm leaving money on the table for my customers to capture for themselves. I suspect that in the long run this will actually be a good business decision (happier customers now = more word of mouth) but even if it isn't, I still think it's the right decision for me. That's why I don't raise my prices.