One of the hardest things about running a business is setting prices. Even if your product is a web application.
I love that most people launching businesses online are following the freemium model. For the really niche apps that are emerging, this gives everyone the chance to “try before you buy”, and often is actually enough for people to start using the product. It’s smart from a business standpoint, and kind from a customer standpoint.
The mistake I’ve been noticing a lot lately IMHO is the leap to the first price point. I keep coming across apps that go from 0 to $12 or 0 to $20. $20 a month is $240 a year!
First, think about how often most products get used. Something like email, you use hourly. An app that let’s you sign up for events, maybe weekly. But how often do you encode a certain kind of file? Or update your website’s static content? Or have an online conference? Sure, there are people who will do these things daily, and those are your power users. Great. Charge them through the nose. But when someone’s using your service once a week, is it worth $20 every month to them? Probably not. Because your app is so specific, that one task does not match the entry price.
Second, let’s talk about perceived value. I watch Netflix daily, and pay $15. I could pay less. My email, calendar and RSS reader are all free, and I use them daily, if not hourly. There’s infinite discussion online about free, so I won’t go into it here, but if someone is only going to use your app a few times a month, and the stuff they use daily is free or cheaper, the value to them is skewed. They’re not gong to pay you $24.95.
You know how much time and effort and money you’ve put into developing your web app. It’s worth at least $20 a month to you. You know what? Your customer’s don’t care. If you’re one person, or a company of a thousand, it doesn’t matter. It’s about what your product is worth to your customer.
Obviously, I’m not advocating making everything free. I’m not even suggesting lowering your prices. Instead think about what you could offer the casual user for $10 a month? $5? Could you even charge $5 a month for what you’re now giving away for free? I think you’re leaving money on the table.
Business 101, sure, but I bet you’re losing some customers, or at least losing money, but not charging a little bit for a more basic service.
Tags: online products, plans, pricing, product pricing, web applications, web apps
A problem I’ve found with this approach on pluggio.com is that you need huge amounts of costomers to start making any money!
I’ve found it’s way harder to get 100 x $5 customers than it is to get 10 x $50 customers…
Thanks for commenting. I think Pluggio does a good job but even offering a lower priced plan. It’s definitely not where you’re going to make the most money, but better than ignoring those customers at all. The only downside I can think of is the need to support customers that may not be “paying” enough for your support.
Freemium does require huge numbers of unpaid accounts – for example EverNote gets 2% and is structured to make a profit even if that number goes to 1%.
The biggest issue with freemium, IMO, is that it set’s the value of your software in the customer’s mind at near zero. Once set, it’s hard to break that conception.
That said, I’ve just moved my startup http://startuptodo.com (a training/productivity community for startups and microISVs) to a 30 day free trial because we need to gain mass to monetize in other ways than subscriptions.
And a P.S. for Justin – I just signed up (the free account), but I would have been just as eager to sign up if the Premium had been 30 day trial then paid. Amazon as a payment processor makes this possible.
Thanks, Bob. I’ll be interested to find out how offering a 30-day trial goes for you. I think it’s a smart move.