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05/06/08 Learning How To Price Your Web App
CHICAGO, UNITED STATES - Some great emails this week with a whole set of people around the pricing of an online service. My views have been altered for the better by everyone’s input so I thought I’d do a round-up of thoughts.
How often do you charge?
It’s all about the commitment made by the user, like a gym membership, how much are they willing to put on the line to use your service. A free trial or basic account certainly eases this pain.
While automated monthly payments seem like a nice billing period, it’s a very regular charge to appear on statements. Unless your service is offering daily value - there may be months when users look at a bill and decide they didn’t get value that month. Flickr would be an example of this, I’m delighted to pay my $24 a year “as I use it a lot over a year”, but would probably cancel if I was seeing $2 a month on my card. The yearly payment means I just don’t have to think about it again - I think its free.
The larger the business, the less likely they are to be willing to pay a monthly fee - it ends up getting stuck on someone’s credit-card and claimed back as an expense. Businesses like to bulk-pay for 1 year in advance, I’m looking at this option seriously. There are big differences in models for consumers and businesses - small businesses fall somewhere in-between.
How much?
So you’ve decided on your billing period, now what do you charge? For ‘decisions for heroes’, I’m dealing with many voluntary groups, I’ve had to look at it from the side of the user “how can I make this seriously affordable?” rather than “what will this cost me to run?”. I needed to find a price point that would fit people and then mould the business by spreading the cost over enough users to be able to supply at that cost.
With a look around, services tend to be sold in bundled packages, the first being free, then the price goes up 100% at each price point until the last being very expensive. This model holds for 37Signals ($0,$24,$49,$99/$150), DropSend ($0,$5,$9,$19,$99), 1time ($0, $19, $41, $75, … , $288), Linked-In ($0, $19.95, $50, $200), FreshBooks ($0,$14,$27,$39,$89,$149), ConceptShare ($0, $19, $49, $99). The interesting thing is, what you’re getting isn’t doubling at the same rate.
Unlike many traditional models, it seems web app prices are not pay as much as you eat. You do not get charged per item, rather you buy a bundle that has limits. Prices have to be made very simple to up-sell the user as their requirements increase.
What do you charge for?
This is a wide open question depending on your service, but you have three primary factors…
- Amount of usage - how many items are added/created/stored?
- Number of users - how many people access the content?
- Hard costs - storage, bandwidth, resiliance allowances.
Your pricing needs to match the revenue of the business you are selling to, and they need to remain in control of it. ‘Google Apps Premier Edition‘ charges $50/user, as users increase so will your revenue - what would happen if they charged per email? 37Signals charge for usage - as the number of projects you have increases so will your revenues. Hard costs are charges that you’ll face as a provider and need to pass onto users as they use them. Joe has a great run down of the price of online storage.
Does unlimited work?
I’ve noticed lots of people having ‘unlimited’ for their top level accounts. Should there be a roof? Should you allow yourself to always charge more for heavier users if they’re willing to pay? What risks do you open yourself up to?
The one that jumps out is ‘unlimited users’, this is key to me. This is how the internet changes things…
Compare this to the physical world - online it costs you nothing to add a new user. While you still bill them for what they use, users are your word-of-mouth, your free advertising, your viral spread. The more people who set eyes on your service, the more people enabled to tell your story.
Always allow unlimited users.
-Robin.
(Image Credit: 2 weeks ago, back in Europe and sitting with a coffee stunned in a train station as the massive variation of people’s appearances pass by. In Asia you rarely see blonde, brunette, multi-racial, huge or tall people. London was overwhelming on return. By Author.)
Tags: learning, models, pricing, web app
6 Comments
Happy to share some learning here.
(1) The pricing will ultimately only come clear in actual customer conversations. Some customers may want to buy in “gigs” some will want monthly some will want to per year etc. What we at VoiceSage found, was that once we found the right customer-type, the pricing gained uniformity in structure;
(2) Its not about “price” for the business customer, its ability to demonstrate value. If you are “in the pricing conversation”, they don’t see the value. Lets face it, if you walked away from that conversation, would they follow you out the door?
(3) In enterprise, I’ve heard this more than once: “in Pricing, ask for one third of what you can prove you made or saved for the customer”. Doesn’t seem a bad metric to me anyway.
16/06/08 Grant Watson’s links for 2008-06-16
[...] Robin Blandford [ ByteSurgery.com - Digital Media Engineering ] » Blog Archive » Learning How To P… Unlike many traditional models, it seems web app prices are not pay as much as you eat. You do not get charged per item, rather you buy a bundle that has limits. Prices have to be made very simple to up-sell the user as their requirements increase (tags: web2.0 business-models) [...]
Robin,
Good read. I’ve been on the same journey and can recommend you read these:
http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html
http://avc.blogs.com/a_vc/2008/01/the-long-tail-o.html
http://redeye.firstround.com/2007/03/the_first_penny.html
Love the tour on the new site too!
Rgds
Darryl Collins
http://www.banjax.com
Comforting seeing someone else fighting with the same issues. Our small app has just launched so I don’t have enough data (or customers) to give good anecdotal advice, however here are some basic rules we found useful to clarify our final (current) position:-
(a) don’t offer too many choices/’packages for the user to wring their hands over. Basecamp originally presented 5 or 6 but now publicly show 3 options. We had about five variations, hoping to hit the majority of what we though our customer base might need, but settled back to two basic packages in the end.
(b) Each app market is different in subtle ways generally understood by the entrepreneur, however rather than having an unlimited use quota, give a usable quantity as part of a package and then additional at a micro-cost. (easily justifiable, but gives you a revenue ratchet. Same with resources)
Hey Jeremiah - Useful tips. Thanks!
Your additional at a micro-costs idea has given me something interesting to play with.
15/10/08 Robin Blandford [ ByteSurgery.com ] » Finding That Price Point
[...] IRELAND - Today I’m looking at pricing Decisions For Heroes. I wrote this post about the beauty of unlimited during the summer. Time to dive deeper now and project figures from our beta [...]
