
Ask 37signals: How did you come up with pricing for your products? - pbnaidu
http://www.37signals.com/svn/posts/1287-ask-37signals-how-did-you-come-up-with-pricing-for-your-products
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swilliams
It's crazy. Sometimes it feels that 37signals just shouldn't still be in
business with how they do things. This makes it sound like they take the Cosmo
Kramer school of business management, "this price just FEELS right."

But it's been wildly successful for them. I guess the point here is that all
the kinds of management training you see in traditional companies pales in
comparison to having smart people with great intuition running the show.

~~~
pchristensen
Their "intuition" and the "feels right" works because they design for people
like themselves. They can put themselves in their customers' shoes and they
actually fit! Sort of like how Jobs only would release a product he'd enjoy
using. If the same 37s people made some other product like break pads or
investment banking advice, their cavalier attitude _would_ cause them to fail.

~~~
swilliams
Good point, I should have added that its smart people with good intuition and
a passion for what they do.

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staunch
The first time I charged for a web service the hard part was getting over the
guilty feeling that I was charging for something that cost me almost nothing.
That's definitely not the case of course. I had to develop it, support it, pay
for hosting, etc. Still, it takes a bit of strength initially to begin
charging money for little more than adding a few rows to your database.

From the inside it's really easy to undervalue what you're doing. It's a big
mistake too, because if you're solving a hard problem for someone they really
don't mind trading money for it.

I think 37 signals emphasis on creating products you can charge for is their
very best advice. Paul Graham didn't go for eyeballs with Viaweb -- he charged
something like $300/mo for an online store application.

Working on a product that makes money is entirely different from working on a
free one. In a thousand little ways. As a business I definitely prefer
charging users directly and probably won't ever try to create another free (to
users) business again.

~~~
aneesh
> "I was charging for something that cost me almost nothing"

Don't charge based on your (marginal) cost; charge based on the value you are
delivering to your customer.

~~~
jcl
...which is another way of saying "Charge based on what customer is willing to
pay". (Not that there's anything wrong with that.)

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ashleyw
I think its just from their experience as customers elsewhere.

For me — $10 for a simple service seems a little pricey, $9 is basically $10
still, $8 is still a a tiny bit high — but $7 is the sweet spot! Same goes for
higher prices too — I like $37 rather than $40. I'd think less about paying
$17 for a service than $20, $19 or even $15!

Not sure why, maybe its because the $7 on the end becomes my focus:- its still
technically pocket change — but also in the higher end out of 10...and I think
about it more than the $30?

(plus if your picking smart numbers for prices, check out the "common"
exchange rate people think of without checking. For me, I think of a dollar
being worth £0.50p, so $37 is around £18.50, when in fact its over £21; for
some it may not make a difference, but for others, the extra few pounds to
nudge it over £20 may be enough for them to pick a slightly cheaper plan. And
I would imagine a similar thing happens with the euro and other popular
currencies also.)

~~~
il
Numerous psychology studies have found that .97 is the new .99 - you're
already used to rounding .99 up to $1 but not $.97

~~~
cstejerean
I've noticed some stores use the cent amount to indicate other things about
the price like what kind of discount has been applied. So for example _.97
might mean it's on sale, and_.95 might mean it's on clearance.

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blurry
37 guys write great fiction but let's look at reality. Their pricing is cost
prohibitive for truly small teams. If I were to use them as a "productivity
suite" for, say, a one-two person team (the lowest possible pricing combo) it
would set me back $804/year.

Given that an individual freelancer is the most common scenario as far as
their potential users, they are probably severely limiting their sales by
setting their pricing the way it currently is. Personally, I subscribe to
their backpack service only. I would like to use their other services but the
high price tag keeps me from doing so.

Or how about this from their Highrise website:

 _Basic plan - 6 users - $24_

 _Solo plan - 1 user - $29_

Does that "feel right" to you?

~~~
webwright
No, it's really not prohibitive, though I suppose it depends on the team.

Take a 3-person team, each making $50k/yr (that's really low for consulting
professionals, but hey-- let's aim low). Add burden/benefits/support costs and
a fully loaded person is generally 2x-3x in cost. Let's say 2x (again, aiming
low- maybe they pay for their own hardware/software/work from home and have
modest benefits). That's $300k in employee cost per year. $70/mo is a drop in
the bucket next to $25,000/mo in employee cost.

So I guess it depends on what kind of company and what "truly small" means for
you. But if you're really talking about COMPANIES (with payroll, expenses,
revenue, and a smidge of profit), they've priced it at "impulse buy" level
where any shmoe with a biz credit card could thoughtlessly buy it.

If you're talking about "3 startup guys with no revenue living on rice and
beans", then it's a different story... But that's such a tiny market that it's
really not worth mentioning (or catering to).

~~~
blurry
I've never "met" a company that does tech consulting that carries just 3
employees. You either have more people (developers, designers, infrastructure,
sales, HR, etc) and so the shop will invariably go Microsoft or something
similar where they own the data (and by no means allow an "impulse buy" when
it comes to their precious rolodex), or you are talking a couple individual
freelancers teaming up on a specific project.

Of course there are some bigger clients for whom $70/month is not a big deal
but I was talking scale. Would you rather charge $70/month to a 1,000 clients
or $25/month to 10,000?

(And let's please not make sophistic arguments about "3 startup guys with no
revenue living on rice and beans". It doesn't make for good discussion when
you pretend that I made an obviously ridiculous statement and then refute it).

~~~
webwright
FWIW, I ran a consulting shop for 8 years-- early in its life, we had 3
employees. Then 4. Then 5. Then (ultimately) 15. Happens all the time.

Can you show me a real business (with revenue and profit) with any employees
who would be concerned about $70/mo? Or more importantly, the difference
between $70 and the price that you think would be more appropriate?

The rice/beans argument wasn't sophistic-- it was an acknowledgment that yes,
there are certainly tiny/new companies with little revenue/profit for whom $70
would "move the needle". 37Signals fails to capture these customers every day.

The 3-person example was aiming at the lowest end-- trying to show that even
the tiniest business with profit and revenue would be silly to care about
$70/mo if it helped their business be more efficient. The larger the team, the
more ridiculous it sounds to say that 37s pricing is "prohibitive".

The $70:1000 customer vs. $25/10,000 is the crux-- Are there 9000 (90%)
businesses/teams out there who would change their decision based on $45/mo? As
a guy who has sold products and services to businesses for 14 years, my gut
says no. It's all about the demand curve.

Great read on software pricing here, if you care to read it:
[http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...](http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html)

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cosmo7
I was a little surprised the article didn't mention any of their competition.
One strategy I've always admired is deliberately pricing products slightly
above competitors.

