
How much to charge for your Web App? - chanux
http://creately.com/blog/experience/how-much-to-charge-for-your-online-service/
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patio11
I'm torn. On the one hand, it clearly succeeded as a publicity stunt.

On the other hand, in terms of discovering what users will pay for Creately,
the experiment was a failure. By essentially structuring the system as "donate
us money", you prime the users to think "Hmm, even $1 is being generous to
them. I'm a big spender... I'll go as high as $3." That is, ahem, an _insane_
price point for _any service_.

You have to convince someone to dig out their credit card to pay you money.
There is essentially no differentiation between $3 and $9 at that point, since
neither amount is an appreciable amount of money to working professionals.
(Students are another case. Since they're going to complain long and loudly
about being made to pay, and are going to do their level best to steal your
service anyhow, I think you can quite rationally make the decision just not
seek their custom. Alternatively, you can segment your plans such that one
which is free but helps your marketing meets their needs.) There are
_tremendous_ advantages to the business, however, from moving from $3 to $9.
(Revenues net of Paypal fees just increased by a factor of four.)

Note that $9 is still VERY VERY cheap. The fully loaded cost of a professional
exceeds that for every ten minutes. Also, if you look at any SAAS business
they'll tend to tell you the same thing: the most expensive plan, which is
typically bought by employed professionals spending other people's money,
brings in more revenue than any other plan. This has been mentioned by Wufoo
in interviews, it was true of DropSend when they published their numbers, and
I know it to be true of three other companies who have not given me explicit
permission to make the fact known.

Additionally, as Creately noticed, the kind of people who are attracted by
"This only costs a buck!" are the worst customers in the known universe. They
cause hugely disproportionate loads on your support resources, and feel
entitled to do so because they're Paying Good Money For This, Damn It. They
tend to churn like crazy. They'll fail at the most trivial of tasks (like
typing in their credit card details) and then blame _you_ for it. (When you
spend a buck on something, if something goes wrong it is the merchants fault,
the lazy bum. When you spend hundreds on something, you darn well check to
make sure it went through alright.)

~~~
thegeekster
Perhaps now that we are moving into an age of micropayments the smaller dollar
amounts have regained their separation. i.e. a buck vs a fiver.

~~~
patio11
I understand how someone typing a blog post on their $2,000 Mac while
listening to music on their $300 iPod could perhaps think that we are moving
into a new age of micropayments because he paid $1 for a fart app on the the
$600 iPhone in the pocket of his $100 jeans, but I don't agree with him.

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gills
heh...your description of the emo mac dude gave me a laugh, thanks.

I'm curious how the same individual might value a subscription to "trendy $100
jeans...as a service", both in utility and price? I think it's been tried with
luxury handbags for about $50/month, but I'm too lazy to look up what happened
to that business (and my battery is at 3% so I can't look right now).

~~~
aaronbrethorst
For starters, $100 jeans are on the low-to-mid-range end of the denim market.

$20'ish - el cheapo house brands at Target, Walmart, etc.

<$50'ish - Gap, Levi Strauss

<$100'ish - Lucky

<$200'ish - Diesel, Seven for All Mankind

~$500 - Prada, etc.

If you think about what Avelle provides (LHaaS), it's a way for women to
accessorize themselves for a big night out in a way far outside of their
typical budget. That super-trendy, $1000 Fendi bag won't lend itself well to
everyday usage for most people. Those $200 jeans, on the other hand, _cannot
and will not_ be worn for that Big Event.

Imagine you're going to a cocktail party with a bunch of big-time politicos.
If you're a woman, you might rent that Fendi bag from Avelle. No one in their
right mind would say to themselves, 'hey, I'll go rent some trendy jeans for
tonight's black tie event.'

A serious online competitor to those god-awful tux rental shops could be cool,
though.

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jacquesm
I have a funny story about this subject. A while ago when we were charging
$9.95 per month for the site and I felt pretty good (several thousand members)
I was visiting someone that also runs a large for pay website.

He looked at what we were doing and he said 'double your price'.

I laughed at him, and said no way, people will cancel in droves, if more than
half cancel it'll be a net loss.

Sales went _up_.

We basically doubled our income overnight.

~~~
chandika
Gotta try it with my service as well. One thing keeping us back from pushing
it further up is the current, lower pricing.

What happened to the existing users when you doubled the price? Did your
cancellations go up? Or did you freeze the price for the old users?

~~~
jacquesm
We gave them the option to lock in their account or to wait for expiry of
their card and then get charged the new amount.

Most chose to lock in, and a very small number of them still have that rate
even 3 years later.

We have fewer members now but that is due to other reasons.

Cancellations for the locked in accounts went down because those people
thought they were getting a very good rate and knew that if they canceled and
would sign up again it would be at the new rate.

At the time our retention was 3 months, so within 3 months the larger portion
of the accounts were being charged at the new rate.

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ciex
I found the following approach very interesting:

* Generate a random price in the acceptable range (but don't tell the user about it)

* Let the user know that you made up a price and let him enter what he would pay

* If the user entered a higher price than the random one he gets the product, otherwise he doesn't

Of course this only works if you keep the user from trying to do this multiple
times, for example by offering an invite-only system and giving every invitee
only one chance.

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ohashi
What if this were done iteratively? As they add more features to the premium,
one could try creating different tiers with higher and higher starting points,
you could then really start to see and breakdown where different segment's
fall in the value scale. Anyone that paid more than the next tier,
automatically gets in(can donate more if they want)? I am sure this would lead
to too many plans (would probably need a moving bar to keep the numbers of
plans reasonable).

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gcheong
"The PWYW scheme did a good job in helping us gather invaluable data on our
customers, but may not be sustainable over a long run. This is due in part to
the fact that although we ask people to be Fair, not everyone is."

When fair is defined as "pay what you want", how do you define unfair?

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robryan
Given the prices listed of comparable products if they deliver more value than
there competition they should be charging at in the same range.

If your app gets the job done better than visio for a company why shouldn't
they pay you a comparable amount?

~~~
trevelyan
Because you are working to put the competition out of business?

~~~
piotrSikora
But, in my humble opinion, fighting with lower price isn't good option (for
anyone, in the long run). You should fight with features and/or better
quality.

~~~
sunir
Depends on your market position. You can create a lot of value in the
marketplace by commoditizing and simplifying an over-serviced, over-delivered,
over-matched product.

This works in software too. For instance, Gmail and Amazon Web Services pull
prices down on webmail and cloud services respectfully.

If the competition's strength is excellent service for more, provide no
service for less. I know it sounds weird, but it has often worked. In a
maturing market, many pragmatic and conservative customers will prefer the
cheaper, simpler packaged product. The key is that you cut prices by far less
than the actual cost of service of the premium competition, so you can make
more profit across a wider base of customers.

