

Using an 1890s theory (Price Elasticity) to drive up your website profits  - aresant
http://conversionvoodoo.com/blog/2010/06/one-simple-secret-from-an-1890-economist-nearly-doubles-website-profits/

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aresant
Price elasticity testing is one of the simplest ways to drive up your profit
margins - and usually one of the last things people seem to test.

It gets way more complicated when you have longer revenue models like
subscriptions, etc but if you've got an online product that's mostly one-time
sales, you need to give it a try.

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tdupree
Do you (or any fellow HN'er) have any suggestions about, or personal
experience with, trying price elasticity testing for longer revenue models
like subscriptions? I will be launching a SAAS soon with a subscription model
and am curious about experiences with price testing like this.

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aresant
Attrition is the name of the game w/any subscription model, and there are lots
of variables at play.

Typically for start-up SAAS pricing look at your competitors to get a sense of
what the perceived value is going to be of your offering - what category of
SAAS are you getting in to?

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tdupree
You could group us in an SEO/Web Analytics category. For our particular niche
service, our competitors pricing schemes are all over the place. Our service
is born out of our frustration using the other services out there on a daily
basis, so we are rolling our own and putting it out there for others to use.

~~~
aresant
When you've got the site live drop me an email zl @ myusername dot com and I'd
be happy to share some experience once I have a better feel for the service.
Have optimized and participated in several SAAS projects of varying scale.

But a few tips:

a) Attrition, again, is the name of the game. Use that as your metric, look at
trailing trends. Typically we've observed the highest drops in between the
first 3 billing cycles, after that attrition rate seems to stabilize. If
you're lucky attrition stabilizes after the second rebill cyle and you can
better manage front end testing and customer aquisition strategy.

b) You're at something of a disadvantage w/price elasticity testing w/SAAS
because you're going to get press, people are going to hear about you / hear
about your pricing and write reviews early. If you change pricing UP, the
internets will scream loudly :). Plus you have to worry about current
customers getting upset, always implement price changes DOWN accross the
board, always grandfather price changes UP to current users (and tell them
about it so they feel warm and fuzzy).

A strategy we've used before is to put together a meaningful ad budget for
PPC, and test the heck out of the front end pricing. Treat it like traditional
elasticity testing, expecting that rebill #s will hold relatively steady on
the back even though you can't predict that. The point is to get the highest
front-end you can and then work it down, it's obviously much, much easier to
lower pricing than raise.

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tdupree
Thanks for the tips, I'll let you know when we go live!

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hristov
I don't know about this. Wouldn't you piss off customers if you switch prices
on them too much? The Internet tends to keep information. If someone sees that
your product used to cost 9.95 and now you are charging 19.95 for it, they
would feel cheated paying the higher price, and probably would not pay. And
you would not get a chance to explain that you were just testing price
elasticity.

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brc
The answer is yes for many people. If you have a relatively well known product
in your niche, people are going to know when you start changing the price.

You have to do it on the quiet, because changing the pricing without any
associated 'special offers' is the only way to know for sure.

I've always wondered if I am in the right part of the price/demand curve, but
it is so very hard to tell, and doing experiments like this seem to involve
risk of alienating your customer base, particularly if you do a lot of repeat
business with the same people.

