I realise this question may have already been asked, but we are launching a new product which will be the first product we are attempting to monetise. Ideally we want customers paying for the service on a monthly basis. Our first question was simply 'how much should we charge per month' which now feels rather naive without making other considerations. We have therefore started discussing pricing strategy.
I am particularly interested in how other HN'ers have tackled the launch of their product in respect of pricing. Has it been a gut feel type of thing, or have you invested a significant amount of time in creating a pricing strategy and, for example, related the price of the service to the cost of the infrastructure and the expected number of customers? Thanks in advance for your thoughts, suggestions or otherwise.
It is currently in development and I would love some feedback on the frontpage: http://db.tt/LHjMnwy
I actually started with costs and considering it is all on Amazon infrastructure and I am outsourcing development offshore the costs are pretty low. I had not fully calcuated the cost of customer aquisition though so that is something I will need to do. Thus far I was working on £10k / year on advertising which consisted of Google adwords, social media and niche print advertising market mix. I was also going to promote it directly via presentations to my contacts but I had not priced that time as I can do that while still doing my consulting role (at least initially, and if it goes well I can hire some sales guys).
I am concerned about what glenngillen says regarding the perception issue. Security products are expensive: e.g a few competitors such as Archer (http://bit.ly/9Z7Xyq), RSAM (http://bit.ly/cSjzDz) and riskwatch (http://bit.ly/bhlzYY) are well over $10K per year for most companies.
If I price at £20/m is it too low and will it be percieved as "cheap" and non "enterprise" or will I be able to undercut the competition and appeal to the smaller merchants who still needs security software for PCI-DSS level 1 and 2 compliance?
Sometimes there is a minimal cost threshold for something to be a project in large companies. If it is not an "official" project, it will lag.
Another aspect of pricing too low is that if the manager in a large company paid a lot of money for something, they'll put pressure on the organization to use it. If it was cheap, they won't put as much pressure. In large companies, most employees have a lot of inertia in their way of working so that extra pressure might be beneficial.
Finally, its always easier to lower the price than to increase it.
With it not being an "official project" I would actually prefer this. My experiance with espeically with pure security projects (as opposed to security piggybacking on other projects to get what they want) trying to get a business case for a project is really tough. So getting project approval, prioritization, resources all rolling is a very hard and time consuming process.
I want this app to be something anyone in a IT security department can just subscribe and use straight away. If it gets a shadow IT following and the orgainzation really likes it I can get then sell a gold or platinum customization piece which will be a proper project with procurement and contracts involved and consulting time from my company
Your third point - I really don't want people to be preasured to use this because of the investment, the users then grow to hate the product and that is no good for anyone.
The log in box doesn't fit there in location or in style. It looks like it's a sub-point of FAQ right now. It draws the eye away.
The little screenshots all look like they come from different applications.
Ok will work on the login box.
The screenprints are placeholders for now, will be replaced with actual screenprints when the pages are finalized.
My software enables users a lot simpler way of performing the risk assessment functionality focused on information security. It is designed to be really easy to use, turn-key with zero setup but still robust in the methedology, reporting and collaboration. You can also export to Archer if you have it.
That is what I'm wondering though... is $20 too low.. should I start at $100? I am talking to two MD's of large financials this week who maybe prospective clients and have agreed to mentor me so I will get their opinion on it also.
How much value do you think security risk assessment software that assists to cut your security costs by prioritizing investment where it makes a difference and helps you comply with regluation like PCI-DSS is worth to a customer? It is B2B only: target markets are large firms with large mobile security teams (30-100 in IT security) and smaller merchants that need to do risk assessments to comply with PCI-DSS Level 1 and 2
As to your question, I'm facing the same problem. I've got a couple of hundred free users who signed up to help beta testing, I think I'll allow them to keep their free accounts as a thank you. Beyond that, I'm going start high and see how it goes. The system is designed to allow certain features to be enabled/disabled easily so I'll offer 3 different price options.
I think it is about finding that sweet spot on perceived value. I'd prefer to have the product priced slightly on the higher side with fewer customers (but roughly the same net revenue), that way I'm just as well off but with a lower support requirement. Plus it gives me room to price-cut in the future.
And then there is always to option to try and split test pricing to see how sensitive your prospective customers are to price adjustments.
Above all, I'd look at other successful companies like Apple and see how they try and structure their products and prices in such a way to convince you that you're actually getting a good deal.
Oh and of course, try and calculate what it costs you to provide the product and support per signed up customer... and don't charge less than that ;)
Also, for any given product I'd expect a small group of very active testers, and a larger group of semi-active to inactive ones.
Many, many, many years ago now I wrote one of the very early GUI HTML editors while still a junior in high school. This predates Frontpage, Homesite, and most commercial offerings from the major players so it was relatively successful in terms of market share. It was shareware though, and fully functional apart from the occasional annoying popup. A payment of $5 would remove the popups. Over the course of a year I increased the price from $5 to $10, and then to $15 dollars.
I can't remember the exact numbers, the the downloads per month were still in the thousands but the number of people that had paid for the product since I released it I could still count on one hand. That didn't bother me too much as I built it for myself primarily, anything else I deemed a bonus.
Then one day I decided to up the price to $99, I figured zero people at $99 was just as profitable as zero people at $15. The next day I woke to find I'd had at least 10 orders overnight, and the trend continued for quite a few months until the product started to noticeably lag the new offerings from Microsoft and Co.
It was a very early and valuable lesson, the price you put on a product signals to your potential customer how valuable you think it is.
One of my most recent client sells a SaaS product that allows people to do market research. It's not the cheapest in the market, but by no means expensive. A large part of their customer base are consultant types who use the tool for when doing work for their own clients. Many of them lament the fact that there wasn't an "Enterprise" edition of the tool. No requirements for additional features, it already meets their requirements, they just don't want their clients thinking they can have access to the same tools for $100/month.
For slightly different reasons, it was price guiding the perceived value of the offering.
Just something worth considering. Obviously without knowing the product it's hard to say what value I'd prescribe to it on a monthly basis.
I'd start high and lower the price (A/B price testing?) as needed.
I think a problem many of us face is knowing when to take off the techie hat and put on the CEO hat. Don't price like a techie. ;)
6$/m is too low for almost all products, you won't be able to effectively acquire customers with that. Remember, once someone gets to the point where they pull out their credit card, the difference between 6$ and 9.99 or even 19.99/m is almost negligable (although there is a difference between 9.99 and 19.99, although2 mostly you'll do better with 19.99).
Charge 19.99/month. It will give you breathing room to put Google ads, to pay referral fees (what's the word?), to experiment with temporary lower prices etc. If you charge 6$/m, you're stuck with a too low price and no breathing room whatsoever to acquire customers. Many startuppers underestimate the cost of acquiring customers - you don't just get them for free, most of the time.
ps: in most cases (unless you sell hosting or something, and even then) the price of the service has NO relation to the cost of the infrastructure and the expected number of customers. It is instead related mostly to the cost of acquiring new customers, which is likely going to be somewhere between 20 and 80$ per customer.
If it costs you, say, 40$ to acquire a paying customer, and they stay an average of 3 months, you need to charge X/month to be making money.
At the same time, there are psychological limits on what people are willing to pay. 9.99, 19.99, 39.99, 79.99 etc. Charge 8.99, for example, and you might as well charge 9.99, since you'll get exactly the same amount of customers (probably).
Seriously. Charge 19.99$/m.
Once you experiment (later) with lower prices, you'll likely see it makes no difference in conversion.
Charge 19.99$/m.
http://www.amazon.com/gp/product/0136106811/
It's pretty expensive as far as books go, but very much worth it. It not only explains how to set a price, but also how to set different prices across segments, how to calculate/estimate value your product is worth to your customers, how to price differently over time (honoring the changing business cycle) and how to react to competition (a very short summary: add value, target more segments, don't go into a price war and instead force the others out of it by restructuring your offer or by adding "threats" ("we'll match the best price" etc.)).
For the OP, I would also recommend "Blue Ocean Strategy": http://amzn.com/1591396190 . The authors address how to move beyond mere competition, and pricing is one of those ways.
If the buyer is a college student rather than an entrepreneur, well, the cover price is comparable to the price of other college textbooks. Textbook publishers can get away with charging a lot because students have to buy whatever the professor says to buy, and because once they’re borrowing tens of thousands of dollars for tuition and living expenses, students will not balk at a few more kilobucks for their books.
1. Who is your target market? How much money do they have?
2. How much value do you create for them? <== This is IMPORTANT
--once you've set your price based on the above, continue to steps 3 and 4--
3. How much to related/competing products charge?
4. How much would you need to charge to be sustainable?
Also, I try to set a price based on steps 1 and 2, before continuing on to 3 and 4, because 3 and 4 are really refining and validation steps. Step 3 is a good check to make sure you're in the right ballpark. If not, you need to go back and check your assumptions and figure out why it is you're so far off from the competition (although being far off is not a bad thing, just make sure you know why). Often, the very reason your price is so different from competition is because your step 4 may be vastly different (or wrong).
Step 4 is hard to do until you have a good idea of what your customer acquisition costs are, which is why it's also done after you set a price. The fact that you have 200 FREE users means you still know nothing of CAC. Step 4 is a very important validator of your business in general. If the amount you determine for step 4 is higher than the price you came up with, what you have is a problem, not a viable business.
Of course, my own process is a little more involved than this, and usually requires a lot more refinement (none of these steps are meant to be done just once).
Hell, maybe a good place to start would be asking some of your free users if they'd still use it if you increased the price to $X.
That being said, two of my favorite stories about pricing are the interview with Steve Blank called "It’s very easy to underprice your product" [1], and Jaques's recent post, "Double your price! (and no, I'm not kidding)" [2].
[1] http://venturehacks.com/articles/pricing
[2] http://jacquesmattheij.com/Double+your+price+(and+no,+Im+not...
http://onstartups.com/tabid/3339/bid/11042/Dharmesh-On-Start...
2) Test - Use Google AdWords and split test to a landing page that advertises the service w/only difference being price point.
eg - Write up a pair of ads with your value proposition and different price points, see % click through.
You can't spend enough time on this step, very easy way to refine down to a good starting point.
EG:
Online Bookkeeping Service For just $19.97 a month get access to professional bookeepers.
v
Online Bookkeeping Service For just $29.97 a month get access to professional bookeepers.
3) Tweak - Google "Price Elasticity Testing".
If you wind up charging more (or less) grandfather early users on the higher price, or move them over to the new lower price immediately.
People reguarly leave this step out, but the difference between 24.97 vs. 29.97 may be the difference between exceptionally profitable and mediocre, 100% worth doing.
Detailed refining is tough to do without scale but should be one of your first planned A/B tests.
http://en.wikipedia.org/wiki/Price_elasticity_of_demand
http://economics.about.com/cs/micfrohelp/a/priceelasticity.h...
http://conversionvoodoo.com/blog/2010/06/one-simple-secret-f...