

Freemium business model pricing - mattfrench

When you are making up a freemium business model pricing plan, what is a good way to come up with the difference in prices between each tier?  It obviously has to include features that entice a buyer to pay more for the product, but what level of price increase is too much?
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fookyong
Pricing is something that you're never going to get perfect right off the bat.
Start high, then figure things out with your customers. Remember that it's
easier to lower prices than it is to raise them.

I will say that it's quite common to have a super-high price tier that hardly
anyone buys, that is there to make the other tiers look cheaper by comparison.
Not saying that it's a tactic that works 100% of the time, but anecdotally
speaking, I see it around on SaaS websites.

e.g.

Basic - $30

Premium - $50 _most popular!_

Corporate - $200 (comes with super-duper feature that 99% of people don't
need)

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mattfrench
I agree with everything you say. It is the usual best practices with this type
of pricing model.

Let's just compare these two services and the somewhat different take they
have between the tiers of pricing.

<http://www.chompstack.com/pricing/>

-only differentiation is if you need 11 restaurant. The upsell is only $15.

<http://letsfreckle.com/plans/>

-Freckle obviously plays better with the "idiot package" by upselling 10 more accounts instead of 1 restaurant like chompstack

They both had different pricing strategies I see when sorting through the
tiers: -Chompstack just went up $15 each tier -Freckle doubled each time
instead of sticking with a fixed rate

Any feedback on those thoughts?

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ahoyhere
Yep, hi, I'm the chief everything of Freckle. ;) (Except chief code monkey.)

So, pricing wise, we had a particular strategy and we add very particular,
measurable value. The value for a team is honestly more than double the value
for an individual because value increases directly with the number of people
who track time.

I've actually hired a pricing consultant to talk about whether our pricing
strategy (the chunking of user seats, the size of price increases) is the best
for us.

Til that process is wrapped up, it's a bit hard to weigh in!

I will say that we priced our base plan higher than our "competitors", based
on the difference between Basecamp and Basecamp With Time Tracking, although
it looks now like our "competitors" have increased their prices as well.

(I say "competitors" because we really serve different markets.)

Also: we have as many Solo account members as all other paid accounts
combined.

We're not hurting for money either ;) and growing about 20% month over month
since I've started serious promotion strategies.

Hope this helps!

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stevenwei
I noticed that you guys have a free plan. Is that a significant percentage of
your user base?

It's a little bit hidden and I didn't see it at first (which I guess is the
point).

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ahoyhere
You're asking the wrong questions :) Is it a significant portion of accounts?
Yes. There are thousands of free accounts and about 600 paying. But do people
who actually use their free accounts stay free? No, at an overwhelming rate,
they upgrade. Something like 30-50% of all free accounts with more than 5 time
entries upgrade.

Most free accounts are drive-bys or people who are merely curious. I'm also
looking into ways to capture some of them, convince them to get over the hump
to actually trying it, but I don't worry about how many accounts are free vs
paid any more.

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mattfrench
ahoyhere, thanks for the insight. I am working on pricing for our startup
right now. We serve different markets, but I found your pricing structure
interesting, that is why I used it as an example. Is there something to be
said for offering a very cheap package instead of free (similar to the
Chompstack pricing)? Have you guys tried that at Freckle?

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ahoyhere
Hi Matt, you're very welcome :)

Here's how I see the difference between us and Chompstack: there are no for-
fun restaurants.

We have a free plan because...

1\. some people are just drive-by gawkers, who will rarely sign up at all, and
maybe one day if they actually need time tracking they'll come back.

2\. some people refuse to give CC details until they've checked it out

3\. because of the nature of the app/data, it costs us nothing in terms of
resources to have a lot of free users - it's not like social network data or
file storage - and we do not offer support to free users

4\. for people who use time tracking for their business, the premium features
(invoicing, many projects, multiple people) are huge benefits

That was the free part... for the "very cheap package" idea, we're working on
a paid version of Freckle that has some premium features (multiple projects,
etc) but not the ones to do with earning money (invoicing), that'll offer to
non-hourly-billing productivity nuts for a lower price.

That's about as far as we'll go, though, I think :)

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mattfrench
Ahoyhere,

I have learned more about pricing stuff from you than I hoped! Thanks for the
valuable insight. I have one more question that does not apply to you and
Freckle directly now, but I was wondering if you could share some thoughts on
it anyway. Before launching a product, how important is it to have a marketing
page visible on our website?

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ahoyhere
Definitely important. You want to start reaching out to your audience well
before you launch, and collect their email addresses. That was part of how we
got about $1000 of paying business right out of the gate. We're doing it
again:

<http://charmde.sk>

I'm Amy, by the way. And I'm starting to write more about my biz/approach to
biz @ <http://unicornfree.com> if you're interested :)

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mattfrench
Love the design of both Freckle and Charde.sk. Thanks for the help. As a young
and first time entrepreneur, I like to think I know the answers, but most of
the time it is not the case. Finding out what is needed from a strategic
standpoint is something that I have found others are willing to share,
especially bootstrapped, product based startups. I will definitely be checking
out your blog at unicornfree.com! My name is Matt :)

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ABR
I recommend reading Don't Just Roll The Dice, by Neil Davidson.
<http://scr.bi/c9n8Gu> (via Scribd) Great content, and gives insight to the
understanding of customer perceptions in pricing decisions. I found it useful
for non-software products as well. Also, can you share what type of business
the freemium model would be used for?

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cjg
One thing to consider. Some people will be relatively price-insensitive and
will buy the most expensive option regardless just to ensure they get all the
features. So, make your top price point higher than you might initially think.

