Happy to answer questions to the extent that I can.
Speaking of which: if it isn't transparently obvious by now, I really, really like getting feedback about how my advice worked out. If you ever implement a suggestion from me (particularly with an A/B test), please, drop me an email. Even if the result was "Well, that was sure an epic failure", because negative confirmation is useful, too. (If you want to share results I can write up for the blog, I appreciate that, too, but I'd be just as pleased with a "Keep this under your hat but we did a first-experience tour and, yikes, engagement +20%.")
Patrick, I've recently doubled my pricing across the board. To confirm Ruben's results, no change in trial/paid conversions.
Next step is disconnecting from "usage" (right now, plans are based on # of employees using the software, all plans have the same features) and moving towards plans based on the goals of the business: Do they need reporting? Are they comfortable being a solo freelancer working from Starbucks, or is the customer (or wants to look like) a big agency that needs a lot more flexibility?
This is the exact path I'm taking with my company very soon (I refer to it as persona based pricing, not sure if that's the correct technical term or not).
We've found that increased usage is not what differentiates our users (no one hits the imposed limits on their plans). So we're switching to plans that users should be able to read and immediately identify themselves with (Solo, Consultant, Agency)
Would love to chat with you about your thoughts and results if you're interested.
I hereby declare this to be the correct technical term for it. The guys in marketing may be calling it something else, but I don't think you'll find a more succinct description of the strategy.
Here's what I find really surprising: Making the word "Free" in the call-to-action much less prominent did not reduce conversion by very much.
The original page prominently says: "Sign up for a free trial" and gets a 6.9% conversion from visitor to trial user.
The new page unprominently says: "Money back guarantee" and "Free Sign Up" in the top right corner. Conversion is 5.2%, which is almost the same considering the scope of the change, even though there was much less use of the word "Free".
This is surprising in itself.
I'm also curious about how the next stage of the funnel is converting users from the trial to entering their credit cards.
Also you say that credit card signup is not mandatory. When does the CC enter the picture? Does the service wait a while (e.g. one month ) and ask you to enter you credit card? How does this compare to taking a credit-card upfront and offering a one-month money-back guarantee?
I don't want to be pedantic, but 25% fewer conversions is not "almost the same", it's quite the loss. You need to increase your funnel 33% somewhere down the line to make up for it (which I'm sure they did - I'm just making the point that X% -> X-d% is significant if X and d are small).
Depends if you're maximising for revenue or signups. The number of signups decreased but the revenue increased significantly, making up for the loss in signups. Of course if you can increase signups now with the new pricing then that would also show revenue increase.
I think this might be because of the product. Most people probably don't want free server monitoring, as the perceived reliability and performance would be worse.
I work in the e-commerce "ecosystem". What's your opinion about offering all software functionality for free, but charge for support and other side services like "product catalog management", "product image treatment", "e-mail marketing campaigns management" etc? Do you think customers may like the idea?
I think that the kind of customers who think "Oh, you know what, I want to run my business on a platform put out by a company with no clear way of keeping the lights on" are absolutely not the customers which you want to get. They're disproportionately going to be people who aspire to make money on the Internet rather than people who actually run businesses. People who actually run businesses are much better prospects: they have money and are willing to spend as much of it as you'd care to take if you can generate positive ROI. They'll be much more positively inclined to upsells like e.g. improved photography for their goods because they know that will directly make them money, whereas someone who a) has no orders and b) has no goods won't understand why on earth they'd pay for a professional photographer.
These very desirable business customers will run screaming from the impending trainwreck of a company which is proposing a) tie your business at the hip to ours and b) we could fold at any stiff breeze.
What about pricing a B2C SaaS? It seems to me that all of the advice I've found leans towards pricing B2C and charging a lot more money. Will applying the same techniques work for B2C where customers will be more stingy with their money?
Will applying the same techniques work for B2C where customers will be more stingy with their money?
Which techniques?
Market segmentation and pricing by features? Sure, absolutely. Some people value a certain service more than other people depending on their circumstances, just as some businesses do.
Doubling/trebling your prices overnight and hoping you'll get a similar number of customers all paying several times as much? ROFLOLWAT. These customers are spending their own money, and not only will many of them take their business elsewhere if you try to charge insulting prices, they'll tell all their friends that your service is a rip-off, too.
Obviously it's not really as simple as that. For example, a lot of businesses pitch their prices far lower than market value would support at first. In those cases, increasing the prices to something higher but still reasonable is fine and often quite lucrative.
But you're absolutely right that advice that holds for B2B environments doesn't necessarily work the same way in a B2C context. The starting point and assumptions simply aren't the same.
What are your thoughts on trimming down the price options even further, e.g. one plan around $200/month, plus a "need more? we do custom plans, call us!" option?
Oh, and thanks for writing this, there's some really useful information here.
The notion of keeping customers from having to make multiple decisions at once appeals to me, but you hugely gain by ability to price discriminate against customers who are less sensitive. There's a reason almost everyone you can think of has more than one price for their offering.
Can I give you a suggestion that's halfway there? There's no reason that your /pricing page has to be the only channel anywhere for getting signups. You might have a particular recommendation specific to a particular audience and give that particular audience just a single option. For example, when I write drip marketing campaigns, I often pitch the #3 out of 4 plan semi-exclusively, and send folks to pages which plug it and only it. (If you want to hear more about drip marketing get on my email list. August will be a fun month for you. If you don't want to hear about email marketing optimization my email list is a very bad place to be for the next couple of weeks.)
Thanks, that's really good advice. I'm planning on launching a new product at some point next month, and am preparing the initial pricing plans now. I hadn't thought of offering custom pages for specific audiences like that - I'm already on your list, and looking forward to seeing what turns up :)
Non-technical is not a synonym for uneducated. Many of my non-technical customers have masters degrees, and substantially all passed high school math. The typical non-technical decisionmaker trying to buy server-monitoring software has a title like Purchasing Director or Team Lead and a four-year degree or better. (I'd also tend to avoid that A/B test because the pricing grid looks very clear in context.)
There's a semi-related issue where talking in a particular way can make you seem like The Other to someone, and you don't want to do that, but I doubt the person with purchasing authority is so scared of math that this qualifies. (I might avoid putting a D&D joke on that page, where I would totally do that when talking directly to a geeky audience, if that fits the company culture.)
That wasn't a dig at non-technical people, more so that I've always (and seen results) from being a clear as possible. It took me a couple of seconds between reading "infinity" and realizing what you meant.
I haven't worked directly with any online backup software companies (and wouldn't give you their secrets if I had). In general, I'd try to align pricing with customer success, such that e.g. a big enterprise doing online backup of a mission critical application would end up paying a heck of a lot more per anything than a bride backing up her wedding photos.
This would tend to suggest not pricing backups by weight at all because, crucially, businesses do not value data by weight. 8 GB of bingo cards: doesn't matter if they get rm -rf'ed, I can regenerate them trivially. 200kb gzipped of Appointment Reminder database backups: that literally represents more than half my net worth. The production database for a large enterprise customer? That might trivially be worth $20k+ per month, totally no-brainer, regardless of size.
My most specific recommendation: if the pricing page includes "picodollars", it really shouldn't. (Much love for Tarsnap but darn it I'm right.)
Have you considered running tests on your marketing copy and doing the math on the hard data you get out of it?
I think I understand your point that you're not interested in having the type of customer who would be scared away by 'picodollars' (as opposed to finding it amusing) but you should at least test it out and get the numbers to verify your hypothesis right?
(As a bonus, if you're right, you get to shove it in the faces of everyone else. If you're wrong - well congratulations - you just increased sales)
Unless you're doing this more as a principled stand (which is fine I guess).
The reason that Colin can get away with the picodollar model is that the type of people who use tarsnap would get annoyed if they were charged for 1gb if they were using 100mb. _For those customers_, there is a clear correlation between the price being charged and the value provided.
If Colin is attracting people for whom the difference between $0.03 and $0.30 is meaningful, then Colin is attracting people that do not deserve to do business with Colin. Colin was involved in security with BSD, and made a no-BS almost bulletproof encrypted backup solution on top of untrusted hardware, and has created something of actual value. Anyone whose data is worth less than, oh, call it $100 a month (at the low end) doesn't really need Tarsnap.
I respect that everyone has their own motivations for doing things and that economic optimality is not the be-all-end-all. Colin can run Tarsnap as an underpriced public utility if he wants to. But, Scout's honor, it is underpriced. The pricing model actively discourages large, savvy customers whose lives and businesses would benefit from switching to Tarsnap in favor of pathological bottom-feeders who gain no significant benefit from Tarsnap. My personal opinion is, in addition to costing Colin money, this moots the impact that his (extraordinarily impressive) engineering achievement could otherwise be providing to the world.
This is a very awkward conversion for me, so I'm going to refrain from the unsolicited advice for at least a few months until picodollars just make me snap again.
You've disastrously misunderstood what Colin is doing.
Colin "gets away" with "picodollar pricing" because he is deliberately segmenting away most of his customer base. I am not entirely sure why he is doing that, but he has made a strategic decision in the short term to make less money in order to build his service up more slowly and, I presume, carefully. He exclusively wants the kind of customers who will not be annoyed with this annoying price model; in other words, the kind of customer that has time to reason through the idiosyncratic pricing scheme of a new backup service.
Unless slowing the growth of your own service is one of your goals, do not mistake what Colin is doing here with a pricing strategy that works in the general case.
I can't help agreeing with Patrick here, but I'm not Colin so I can't really presume too much.
In any case I always thought that Colin could get out of the low price quicksand by launching an entirely rebranded service with updated pricing based on value to customer, etc. sure, keep the original guys around too. Throw in some perks on the "new" service that are attractive to enterprise customers. It's not every day you have a product of this quality and (potential) customers willing to pay so much.
Assuming the goal is to have only technically sophisticated users who want to use the most durable data store known to man (S3) and have a rock solid & secure backup solution, the pricing structure being 3-6 times that of s3 pricing is a great value on all sides.
actually: colin, could you tell us perhaps what the total monthly storage and or bandwidth volume is? I don't think that if has ever been stated on the internet :)
caveat: i've been playing with tarsnap on/off since it was first launched, and now that i'm doing my own wee startup, i'm using it quite seriously and religiously to backup my working directories. Love it. (however much i email the tarsnap user list with some confusion thats easy to sort out every time i've resumed using tarsnap after some hiatus :) )
Agreed. I don't doubt that being ruthless about A/B testing pricing increases revenue, but I'm not wild about the implied attitude that customers only exist so that we can extract as much money as possible from them. The user experience should definitely be a factor as well.
I don't think it's possible to support this claim with data, but I'm convinced that being ruthless and unfriendly with pricing can have a negative impact on the business in the long term. As a customer, I much prefer usage based pricing to arbitrary plans.
I'm convinced that being ruthless and unfriendly with pricing can have a negative impact on the business in the long term
Optimising for price isn't necessarily being ruthless and unfriendly to customers.
In my experience more people like pricing models like these. It's easier to understand. They know what they'll be spending each month. It saves them effort and work.
I worked with one organisation who just killed out of hand any service that had variable pricing since it played merry hell with their accounting processes. They would much rather pay $99 a month every month than deal with the hassle of figuring out what this random number was on the invoice (because you had to check that that number was the right number somehow - which cost them money in admin, tracking, etc.).
Yes - models like this make some customers unhappy. Some of those customers will be good customers. That doesn't mean that other who go for the new model are unhappy - or being screwed.
Changing pricing models like this are in many cases more a way to resegment / target your market. The revenue increase is just evidence that you're doing it well :-)
Also - money for the company should mean more resources for building a better product for the customer, so a long term win for the customer.
"I worked with one organisation who just killed out of hand any service that had variable pricing since it played merry hell with their accounting processes. They would much rather pay $99 a month every month than deal with the hassle of figuring out what this random number was on the invoice"
Couldn't they just 10x their number of servers and pay for that?
Pricing is obviously a complicated issue, and I know there will never be a "right" or "wrong" way to price a product. I guess all I can say is that I don't agree that plan-based pricing is good for the consumer. One of my main objections is that I don't agree that plan-based pricing is easy/simple.
Take a look at Highrise: http://highrisehq.com/signup
37signals seems to have set the standard for plan-based pricing pages, so I think this is a good example to use. Right off the bat it's complicated because I to choose which plan I want before signing up. How in the hell do I know how many deals I need? Then I have to constantly monitor usage to make sure Idon't pass the invisible threshold. Uh oh, one of my employees added one contact and my price just doubled. That's the opposite of simplicity.
Now let's look at a more recent 37Signals pricing page: http://basecamp.com/pricing
This is still plan-based, but it's much closer to being a la carte based on the number of projects used. I can't speak for 37Signals, but it would seem as if they don't think that the plan page they popularized is actually the best approach.
Things can definitely get too complicated if the units you measure with a la carte become too granular (like charging per byte of storage or something crazy like that), but there's normally a nice middle ground. Basecamp made # of projects the metric to focus on. My company charges per user and makes everything else unlimited which generally makes the cost scale linearly with usage (roughly) but it's still very simple and predictable so no one has to spend time checking the invoice.
My company is called "Less Annoying CRM" so we naturally attract people who are sensitive to the annoying shenanigans that are common with other companies, and this is one of the biggest things my customers tell me they like about our service. The pricing has a huge impact on the customer experience which is largely ignored in this blog post. (Note: I realize there is selection bias with my anecdotal evidence, so you can say I don't have the complete picture, although I think after 2.5 years of talking to potential customers every day, I've got a decent idea)
In addition to all of that, it seems clear to me that the purpose of plan-based pricing is to get the majority of your customers to pay more than they should by only allowing them to buy more resources than they need. This is obviously true with cable subscriptions and cell phone plans, and I think it's equally true with SaaS apps. This is even more apparent when you read blog posts like this one and understand how much thought goes into designing a pricing structure that extracts every penny possible from each and every customer.
If you want to make more money, then ok, but I don't buy the claim that this is in the customer's best interest.
If you can sustain that pattern indefinitely, perhaps not.
If you're getting a quick boost at the expense of your long-term reputation, for example because customers signed up for your service and then you left them high and dry, then I think you should.
Case in point: Around 2-3 years ago, certain recurring billing services made rather sudden changes to their pricing, which very publicly upset a lot of their users. I bookmarked those stories at the time, knowing that sooner or later I would be looking for payment services to use with my own companies.
Recently, that day arrived, and we immediately ruled out anyone who appeared to have acted in a way that screwed over their existing customers. I have a list of names of some of the key founders who were identified at the time, and no company of mine will ever buy any service from any company of theirs. Given that they have demonstrated that they are likely to be incompetent, unreliable, or both, there is simply nothing they could ever say or do that would make us trust them with any important part of our operations now.
It depends if you're "getting rid" of existing customers by forcing them into the new pricing. I don't think that's ever a good idea - they signed up at a specific price and shouldn't be forced to change if they don't want to. That's how Server Density have implemented this change - it's for new signups only. Existing customers can move if they wish but they'll never be forced to.
This is a quote from Patrick and not how Server Density label the customers who are priced out. His observation is that, typically, customers only willing to pay a small amount tend to be higher maintenance.
Couldn't lower pricing be seen as marketing? For example to sell in to companies that are now poor, but could be successful and profitable later. If they can't afford SD and pick something else, how likely is it they'll switch to SD later?
Regarding the question of estimating the error: I don't know a ton about stats, but can't you use bootstrapping to get a valid sense of the variability/margin of error of your dataset for non normal distributions? http://en.wikipedia.org/wiki/Bootstrapping_(statistics)
I always wondered how volatile your pricing scheme can be. Suppose you wanted to A/B test a pricing scheme - is there any potential impact/backlash from customers? And when a company changes their pricing scheme, what happens to customers who were paying a former price/scheme?
And when a company changes their pricing scheme, what happens to customers who were paying a former price/scheme?
Best practice -- and I'm shamelessly stealing this lesson from Joel Spolsky -- is to grandfather SaaS accounts in indefinitely if you raise prices. This a) lets you get a nice bump in sales if you announce the incoming price increase (no reason you can't do the A/B test quietly but announce the conclusion that prices are going up "loudly"), b) rewards people for taking the risk on you "early", and c) incentivizes them to keep their account active because if it lapses then they lose their super-sweet not-available-anywhere deal.
If I were to redo a pricing scheme in such a way that some customers would benefit from switching, I'd switch them automatically if the new pricing dominated their existing plan ("More quota for less price!") and tell them to make the call if it weren't obvious ("More quota for less price but this new plan doesn't have a particular feature that you may want to have in the future.")
Fair, but what if simple economics/margins do not allow you to offer the old price/package. Ex, say you license Twitter data at $0.10/1k, and Twitter decides one day that they want $0.15?
What do you do when your old pricing scheme is no longer profitable?
You can head this issue off by charging more, because your margins for a SaaS should probably be in the 80~95% region, and if you're finding yourself thinking "I'll just add a 20% markup on top of Twitter's API rates then compete on price" or "I'll make a payment processing solution which charges 0.25% on top of credit card costs" then you can reasonably anticipate that this will eventually happen to you. So, for anyone thinking they might ever be worried about this, charge more. Cost-plus pricing has no place in software.
There's some costs which are difficult to anticipate prior to launch. One is ongoing customer support, and it is entirely possible to price below profitability if you get a lot of pathological customers in on the ground floor. If you've just got a few and the business is fundamentally sound, consider it a marketing expense and let them get weeded out by attrition. If you're like Spreedly or Chargify and discover that a lot of the early adopters in your space are toxic, then it's time to have the "Look, we're not in the business of subsidizing you" discussion. I'd have the messaging for that discussion stress that you'd like to continue offer the old terms but circumstances are tying your hands, and try to be generous on e.g. giving 6 months or so of lock-in to the old prices or assistance in moving them to a provider which is more suited to their needs. But honestly, at the end of the day, if the choices are a) not making payroll for my employees and b) ticking off a bunch of pathological freeloaders, I know what I'd pick every single time.
that's just because you aren't big enough. Amazon has been caught testing prices previously, and there were a lot of upset people.
Noticing the test isn't what caused the outrage.. wait until you have thousands of people who find out they paid more than another person for the same item (ie in their minds: were ripped off).
Then you'll see how consumers feel about your test.
99$ a month is reasonable for bootstrapped company's. It's not reasonable for most hobby's, but 50$/month or 100$ / month are both rather high for a hobby website so there is little real loss.
99$ a month is reasonable for bootstrapped company's.
I think HN has been collectively in denial on this kind of point lately. Yes, services offering real value should charge commensurate with that value. Yes, it's lovely if you're Patrick or Thomas and in B2B world where you can whack up your prices and hope whoever is paying the bill isn't spending their own money.
Newsflash: If you're dealing with a bootstrapped business, it might well be that the person paying the bill is spending their own money.
Newsflash #2: There are dozens of companies pitching useful-but-not-that-useful tools and services to these bootstrapped businesses. If you spend $100/month on this one, and $300 over there, and $150 on the next one, and ten more after that, and then you multiply it by 12... Well, before long you're spending on the same kind of level that it takes to hire some office help or to run a long-term marketing campaign with a significant level of funding or for that matter to hire in a guy who knows what he's doing for a few days to build your own customised versions of a lot of these services.
In short, if you think the ability to monitor a couple of production servers is worth $1,000+/year to a bootstrapped company, you're crazy. Yes, it's a convenience, but you're talking about a service that could be built using a couple of widely available building blocks with a tiny fraction of the running costs, and frankly to a business at that stage in its development it is highly unlikely that a server falling over until the morning is going to cause any real long-term damage anyway.
When you're dealing with relatively time-rich and cash-poor early stage businesses (OK, time-poor as well because they're trying to build the business, but that's not really the point here) you can't just dismiss the cumulative effect of all these SaaS gadgets. They add up, and if you want to know why so many small businesses fail, I expect not controlling costs is probably somewhere around #2 or #3 on the list.
Does that mean bootstrapped companies are bad customers for these kinds of services? Sure, maybe it does. If there isn't enough in it for both sides to make it a deal worth doing, it's not time to do the deal yet.
With bootstrapping it's not just a question of write and maintain something myself or use a 3rd party. There is also the option to use something until you write it yourself. Month to month SAAS means you can add an expensive monitoring service temporarily while you work on other pieces, or diagnose a bug. You also get to play with complex features to decide which are useful and then build out those pieces. Think of it as a DEMO that you pay someone else to write and suddenly X$/month can look vary cheap.
The thing is, every time you integrate with another one of these services, you are spending time, both learning about the service and implementing the integration. You may also be incurring some degree of lock-in, either due to direct technical constraints or because of the future costs in time and money of getting your systems unhooked and any relevant data out again.
These costs are on top of whatever you're paying for the service itself, so if you're only going to be using the service for a few months anyway, you might be better off spending the time just implementing something quick and dirty yourself until you have a chance to do it properly.
The key thing is that in bootstrapping terms, very few of these services are indispensable: if you're in that environment then you're probably looking for just enough infrastructure to make a viable product/service, just enough legal/financial advice not to screw up in the early days, and then throwing everything else you've got into marketing, R&D, and sales to try and reach a self-sustaining level of income as soon as possible.
There are decent arguments for integrating certain services early on. For example, analytics/optimisation tools and billing services that boost customer retention can easily have a direct, significant, sustained impact on your income that exceeds the initial investment very quickly. But hardly any of these trendy SaaS tools aimed at small businesses are in that category.
Server Density is a UK company. They use to have pricing in pounds.
They seem to have switched to dollar pricing.
My question:
Are they taking payment in dollars?
or are they converting the amount to pound equivalent in last moment and taking that payment?
I've been thinking about pricing on the internet, whether its good to price in dollars to make it more convenient for the american customers.
I feel like customers from UK are alright with paying dollars, but americans don't like to pay in pounds.
When I change pricing I always worry that current customers will be unhappy because they might have saved some money had they bought it later (I sell a desktop product).
Is this a problem you have seen youself when you sold desktop software?
I think you should give them the option to buy at the new price or stay on their current plan. Think about receiving an email from a service you have been paying $99 a month to that says, "Hey, we are lauching this new pricing at $79 - if it suits your needs you could save $20 a month"
Definitely is not the norm from the majority of SaaS sites.
We hate TelCos who lower the prices and even apply them retro-actively? That's news to me.
But more to the point: the logistics of making refunds on purchases like software are complicated. Most payment processors don't even have the notion of partial refunds.
Making a full refund is costly to you (payment processor took their cut of the transaction; they aren't too eager to give it back to you so either they charge you (and now you have a loss) or they swallow the charge but will kick you out of the system if they have to do it too frequently).
There might be more bad will generated by contacting the customers and offering them refund because that makes them aware of some event that they might not like.
Most people don't monitor the price of software they bought over time so they are not aware of changes so they are not upset about changes. I've bought a bunch of software over time and I can't tell how much any of it cost - I just don't keep track.
One day you find out that your parents are still paying $100/month for a 1mbps plan that doesn't even exist anymore, while they could pay $50 for 10mbps after a 2 min phone call. That's what we hate. Not everyone knows to check every couple months to verify that they're paying current prices.
This is on SaaS, so no refunds needed, just a price/plan change for the next billing cycle.
Speaking of which: if it isn't transparently obvious by now, I really, really like getting feedback about how my advice worked out. If you ever implement a suggestion from me (particularly with an A/B test), please, drop me an email. Even if the result was "Well, that was sure an epic failure", because negative confirmation is useful, too. (If you want to share results I can write up for the blog, I appreciate that, too, but I'd be just as pleased with a "Keep this under your hat but we did a first-experience tour and, yikes, engagement +20%.")