Personal ($9): 7X
Professional ($29): 4X
Small Business ($79): 3X
Office ($199): X
Your mileage may vary. If I were doing the math based on phone calls waking me up in the middle of the night, the numbers get skewed due to one pathological customer in the $29 bucket, who has literally called me more than every other customer combined.
P.S. I have fairly exact privileged information regarding this question at a handful of companies and anecdotal evidence from dozens of my software buddies. It is our universal experience that the support load for cheap/free customers crushes the support load for the higher plans, both on an absolute and per-customer basis.
Here's what works for me: on the second "silly" support request they send I put them in a "cool down" queue that gets answered a day later. If they keep asking simple questions they move into the two day wait queue. (Obviously, this only works if your support is by email.)
I worked as a consultant for a company once where they would go even one step further and would actively encourage customers that used too much customer support to switch to another provider. The trick is doing this in such a way that the customer does not realize he's being told to leave lest you get a bad reputation. I'm not going to divulge all my trade secrets here, but I've found a way to do something similar for my business, perhaps you can think of one for yours too.
A customer losing strategy is opposite to most startup who are looking to gain customers. It's a good problem to have and a sign of headaches that need to be managed.
If you could share a bit more on how you help the customer realize they might want to move, most startups are trying hard enough to acquire customers, not lose them.
Many startups are so desperate to find customers that they are even holding on to the ones that cost too much support. (Note that in a startup support cost often takes away valuable time from the founders and thus is more an "opportunity" cost than a monetary cost, they should have spent that time growing the business with more valuable customers).
I chose to do only e-mail support because it self-selects out a type of customer that wants to use the phone (also phone support scales poorly, especially when expanding internationally). There are ways you can encourage the "dummy" user to desire phone support, and then gently point out that there are _other_ providers that have that. If you do this properly the dummy client will actually feel they've had good customer service (and you could argue that they have, we just weren't meant for each other) and your over eager competition gets stuck with the dummies.
Edit: I thought I should mention, for a startup it can often be unclear which customer is/will be valuable and you can learn a lot from the "wrong" ones, so be careful with "selective denial" unless you've run the numbers and are sure what you are doing
Create a canned automatic response to someone submitting a request/support email that goes something like this.
"We have worked really hard to make this app/service as easy and intuitive to use as possible. On top of that we decided to price it very low to make it even easier and affordable for people to take advantage of. 80% of our paying customers never contact us for help or support. We honestly just don't have the time or resources available to explain how to use our service. If our help section and FAQs can't fix your problem, then you probably shouldn't be using this app, or we're gonna have to ask you to pay for support.
Option 1: Click here and we will immediately cancel your account and refund you.
Option 2: Click here to upgrade your account for support
Option 3: Figure it out!
Have a Nice Day!"
Or something like that. Perhaps it can written to be more friendly or in a more suitable tone. But you get the idea.
If you don't have the resources for providing support and can't help yourself being rude, then maybe you shouldn't give the free/cheap option in the first place.
There are other options besides behaving like a dick.
Personally I like how mobile operators handle this. Whenever I call their free support line, I am placed on wait for at least a half an hour, with a message along the lines of "our operators are currently busy, please hold ; if you'd like priority then call this number ...".
Software is support. Sure, there are ways to mitigate the cost and quantity of support, but once the product is built support is one of the primary functions of the business.
Is it that the Personal plans are done by small businesses where the owner is trying to run their shop and do IT work whilst larger businesses tend to have a knowledgeable sole-purpose "tech guy"?
Edit: Ah, I hadn't seen that you've written so much about it previously. Thanks! For others, this seems like a good overview of low tier pathological customers by patio11 -- http://news.ycombinator.com/item?id=3186111
(for more see patio11's suggested hnsearch.com [patio11 pathological customers] at http://www.hnsearch.com/search#request/all&q=+patio11+pa...)
1-If the are just 7x more people in the Personal bucket. (I'm guessing you account for this)
2-If there are so many more in the Personal bucket that it is still the primary driver of your revenue, so that is why you keep it?
I'm sure the equation still favors your theory, but I'm also sure by a lower number than what you'd like readers to believe.
so you cannot just get rid of every customer but your high paying ones.
$9 customer - $5 support = $4 per many customers
$199 customer - $1 support = $198 per few customers
> So it’s not that cheap people require more support. It’s that people who require more support are more likely to make their decision based on price alone.
What evidence is there of this? Surely if you have a plan for $10, $50 and $100 you're going to have more customers at the $10 price point simply because it's so cheap and therefore more support will go to people at that price point. Has anyone even actually released any sort of statistical analysis of price points and support taking into account the pricing, total customers and the amount they use the product?
Also who the price point is aimed at matters. For example if your product has a $10 price plan aimed at individuals and a $50 price plan aimed at businesses you could see the $10 price plan requiring more support (on average) simply because the personal users use the product more actively, not because they're paying less. I as a customer won't pay $50/m if your $10/m plan suits my needs.
It's a really valuable point worthy of consideration even in the absence of concrete data.
If you signed up for a $50/mo service, you would probably feel pretty special about it and possibly spend a few hours learning. If you paid $5/mo you would probably skip through all the documentation as fast as possible, race into trying something out, and upon encountering a problem would probably fire off a support request without searching (hey you're a paying customer now, right?)
Of course none of the above is terribly scientific.. but I thought it post-worthy anyway.
1. Trial / buy at the lowest possible price point
2. Ask lots of annoying questions
3. Master the system
4. (finally) move to a higher price bracket
5. Understand the system and stop hassling support.
Perhaps it would be worth correlating support requests with the age of the account and seeing if that was a better predictor of support burden than the price plan.
Free accounts upgrade to premium accounts essentially never. (1% ~ 2% is quite common.) Cheapo-plans upgrade to higher plans very, very rarely. For Appointment Reminder, I've had one person ever transition from Personal ($9) to something higher and then actually pay for a month of it.
For example, I'd imagine the Dropbox upgrade rate is much higher than for other apps because people will naturally grow into needing it.
An alternative product model for Dropbox would be to partition the product on one or more features. Something like the ability to share files is an obvious choice, as is things like selective sync.
In retrospect it seems obvious to give all the features to everyone, give away a base level of storage and sell storage upgrades.
Before anyone says who'd be stupid enough to sell backup software any other way look at things like Norton Backup, where the license is limited on both the number of computers you can install it on and the size of online storage available.
Good ideas often are obvious in retrospect...
Now, what can a given small company do about it? I think the two opposite strategies of trying to "drive away dummies" or "embrace them" are valid; what isn't as effective is trying to serve both dummies and experts by offering plans with wildly different pricing.
You probably need to make a choice: choose a positioning in either the "dummies" or "expert" space and serve only this population.
But after reading about this "Lemon Effect", I'm starting to think maybe her name is not a coincidence…
1. Mouseover help on every input field
2. Searchable help system with screen captures, it has to be comprehensive.
3. Video help, Camtasia style walk throughs.
Your users are not dummies. They need support, on the feature they are using, when they are using it. You can either provide that support self-service or you can provide it via email/phone. One is far easier for the user (self-service) and the other is much harder on you (answer emails on how to use basic functionality).
I ran a free crm system for about 10 years, it took refining how each feature worked and creating all of the different ways of self-service support but I was able to get technical support down to 1 question per week. That was with about 1,200 unique daily users... users who would be in the system all day because they had all of their calendars, files, contacts, and other things online in the system. They didn't want to wait for support, they wanted the answer right away and I made sure they could get it without contacting me.
Average Joe user, he looks at this and is just guessing:
https://dmhx3adjqsy1o.cloudfront.net/assets/marketing/shots/... I see a support link but I bet that link goes to a generic support page and not support for that page in particular. So now the user has to jump through hoops to find support and might give up.
The user needs to understand the the benefit (of each admin page), what the page is doing, some ideas of how to read the data, and get the most out of it. There can be no assumptions that the user knows anything... they are going to have to be taught and you want that done by self-learning.
The user signed up because of the top 1/3rd of the homepage with the marketing talk. Just because they sign up doesn't mean they fully understand the system, how to use it, and how to dig deep into each page and get the benefits.
Seriously, try it. You obviously are providing value to users. I'd love to hear from you on how it goes.
This might feel true because a small number of customers generate the most support calls and the majority of customers are expected to be on the cheapest plans so you'd expect an overlap.
But be very careful of doing so in public lest you fall foul of indecency laws.
This just leads to them creating some ridiculous pricing schemes that will never prove to be sustainable. They think this is some sort of loss-leader strategy, but its not. Loss-leaders must actually turn a profit to be considered as such. Add in the highly used but seldomnly tested freemium model, and what you get is a bunch of people who are great at writing code, but are pretty bad at selling.
And how can you improve your selling skills if you don't even know who you are selling to?
Now, Sacha does make a good point. Cheap people are a pain in the behind to deal with. They have an overgrown sense of entitlement, most of the time they are rude, and will nickel and dime you till death. But you know whose fault is that? Yours. You did not do your homework. Cheap people are a market, and they are profitable if you know how to work them. The minute you offer them support, the minute they will treat you like their personal punching bag. Pricing yourself out of the "cheap zone" is the best strategy you can have if your product is not aimed at them.
I would not call these people dummies either. They are smart. In fact, they will argue and nitpick every little technical detail so much that it will leave you thinking if you are the dummy. These people know their stuff. For them this is not only a game but a way of life. You cannot educate them. They will not listen. Anything you do will seem like an attempt to raise your prices. How do they react? They double their complaining. Trying to model their behaviour will drive you crazy.
One company that went through this is Pep Boys. They had an offer for a free oil change with any other service. Cheap people started taking their busted old cars to them. The cheap-o's would buy the lowest priced service that would give them the free oil change. Then come back to complain about unrelated problems. They would even go as far as suing Pep Boys for damages not related to the services performed. But small claims courts always sided with the poor abused customer. Cheap-o's actually made money on this. Go figure.
After years of this, Pep Boys finally saw the light and discontinued the practice. But it doesn't stop there. What did cheap-o's do? They complained to corporate HQ about the change.
Another point Sacha makes is that people who pay more ask for less support. Do you know why? Because they are your target customer. They ask for less support because they need the product, and trust you. They know that if something goes wrong you will be there to fix it. They show their trust in you by paying more. Its so simple. They also use your product as intended. And because your prodcut worked, no complaints arised.
When people give you money they are not only buying the product, but they are placing their trust on you. Cheap-o's don't trust anybody. So they complain until they get their moneys worth (in the mind). Your target customer will be glad everything worked out, and will just be silently happy.
I'm going to copy and paste part of the conclusion to make a point.
No matter which strategy you choose, remember to consider the impact pricing will have on your customer base and your support costs. For example, a good strategy might be to start off with high prices, and then only lower them once you’re ready to scale your support infrastructure.
I'm sorry Sacha, but you cannot start with high prices and then lower them. You start with fair prices and then raise them. If your support infrastructure requires higher costs, but your target customer cannot afford it, then the problem began when you chose to build your product. You need to figure out the costs of scaling before even starting. No need to be precise either, you can just make an estimate. Just make sure to err on the high side.
I would also say that pricing does not impact the customer base. It is the other way around. The customer base (or your average customer) is the key metric to set the price. Not your costs, but the customers.
Companies in the make-up industry know this. Most of the makeup out there is made by the same companies. The big difference is the customer they target. You can pick the same basic product from two different brands, and the prices will be very different. In some cases even downright insulting. What does a $200 lipstick have that a $10 one does not? A customer that will pay the price.
Sacha, good call on getting this point out in the open. This stuff needs to be discussed more by startups and hackers.
A friend of mine used to work in a cosmetics factory and explained that the main difference between a cheap and an expensive lipstick is that the expensive version makes a satisfying click when you put the lid on.
No, that is exactly NOT the point he makes - he explicitly rejects making a statement about the character of these customers.
His point is that people who lack deeper understanding of the field will choose the cheapest plan because they don't understand what benefits the higher plans have, and those are also the people who will make lots of support calls with very basic questions.
No matter how we slice it, the problem is not the customer but the business dummie (like he said).
That being said, maybe it's your own experience that cheap customers have an overgrown sense of entitlement, so I'm not saying it's entirely impossible. It's just not the point I was making :)
I don't think they are "dummies".
They are simply less invested in your venture than the higher paying individuals, and thus read less of your FAQ and spend less time getting to know your website before making a purchase.
I run a SaaS, just lowered the minimum payment to $5 the other day, noticed a large influx of questions to my inbox as a result, and deduced the above.
Somebody who comes along and deposits $100 into my service has probably been reading the FAQ for a few days, using my free trial, and really getting into/really liking my website and service.
The person who comes along, see's "backlinks for $5!" and immediately makes the payment without using the free trial obviously doesn't know or care as much about my website as much as the guy who just deposited $100.
Most every question I receive to my inbox is from a non paying customer or somebody who has deposited $5.
It's annoying, but I think it's a necessity for my business. Sales have gone up across the board and it's not a bad tradeoff if you ask me.
$5 customers do turn into $100 ones eventually.
If competing on price, support should reflect the model, i.e. self-serve methodologies.
Especially for digital products/services which have essentially zero marginal cost, the customer is really paying for your time.
If customers are overloading support channels, it probably means the product is priced too low and the price curve should be accordingly adjusted to lower the number of paying customers while maintaining profits.
Of course, the product/service can have an artificially low price point to encourage eventual upsell/cross-selling opportunities, but all the more reason to have a measured funnel before losing most of your time to support.
Although it seems uncommon, it's very possible that the lowest price point would also be the most profitable. So "paying less" != "less valuable".
1) Costs should really be calculated relative to your margins. I.e. I would hazard a guess (due to economies of scale) your cheapest price plan would have higher margins than your larger price plans.
2) The actual cost of support issues - I've found (running xp-dev.com, which mind you, should really not have that many "dummies") that while the cheapest customers do submit more support requests, these requests tend to take much quicker in resolving, than say the larger customers.
So, I think its not as easy as saying "Cheap customers cost more". I think its better to say "cheap customers request more support"
Just a thought ...
Free services may apply to either, but you're going to also get customers who are not really in business yet and they may have unrealistic expectations. I think of myself when I was younger and I thought of all companies as faceless corporations, rather than actual people just trying to provide a good service.
A significant issue for companies is not identifying the true costs of serving specific types of customers. Those that require many additional resources (that you are not charging for), particularly for a SAAS product, should be respectfully cut. Sometimes it is cheaper to not serve a client and not have some revenue come in than to serve those that are resource sucks and pull your time/focus away from your primary market.
> Now being a dummy is not the same thing as being dumb.
I think if I had found myself about to write the sentence above I would try to find a better adjective and not post something this silly.
(GP is right, the phrase is clunky and distracts the reader.)
Really, I think it's a matter of setting expectations, and then sticking to your guns when people want more support than you are selling. "If the service is unsuitable for your needs, I can cancel your account and give you your last month's payment back" - most people, especially on the low end, seem to find this attitude acceptable.
It's really important, I think, to make sure that you don't treat your difficult customers better than your easy customers... I don't think I'm 100% on this yet, but I think it's super important. You choose your customers; if you give better service to people that are hard to deal with than the quiet easy customers, what sort of customer do you think you will end up with? That's one of the reasons I'm really generous with the 'if you want to no longer be my customer, I can give you back your last month' - I also try really hard in the case of outages that if I give anyone a credit, I give all effected customers credit.
I find that the smaller customers are much more accepting of my "I handle the (virtual) hardware, you handle beyond that" support model; usually it's the higher dollar customers that keep coming back wanting me to tune their apache config or re-install the os. I mean, they can do all those things (at least if they could do all those things on a dedicated server with a boot-cd in the cd-rom drive.)
The larger customers are also (quite rightly, I think) far more likely to make noise when disk I/O is suboptimal. I mean, to be fair, it is a problem. (I do not know if it's a worse problem with me than with other providers; I doubt it. We're all using pretty similar hardware. I do know that it is a big problem with shared 7200rpm disk in general. Disk shares poorly.) But the smaller dollar customers? they don't complain nearly as often as my high dollar customers; if you are using it as a shell replacement, a little disk latency just isn't that big of a deal; I mean, ram is cheap enough that a whole lot of stuff can be stuck in pagecache, and that's way faster than the fastest disk. But if you are running a fifty gigabyte MySQL database that is under heavy use? well, perhaps a virtual environment is not the best place to put it.
I also have a much higher margin (cost of goods sold, anyhow) on the small guests; I charge $1 per 64MiB ram plus $4/account/month, so the total cost per megabyte drops pretty sharply with volume. When I started, my under $10 VPSs were unbeatable deals; at this point, my cost per megabyte ram is still pretty competitive for my larger guests, but I'm getting overtaken on the low end, so I think it's time for me to drop prices and/or increase resources on the small guests. I'm not sure what I'll do with that yet, but I do know I need to do something. I feel like that used to be /my/ market and I want it back.
Without that strong line between my responsibility and yours, every support question becomes a negotiation; finding people that are both good at negotiation and good technically is extremely difficult, at least without spending just gobs of money.
But the important bit, I think, is that I'm concisely explaining "my product does X" to a certain group, then I'm attempting to exclusively market to that group. I don't know how you would do that with a email card sending service, but I bet that if you figured out how to do that, the "concisely explain to a certain group what exactly your product does and does not do, then market exclusively to that group" process would lower support costs, by reducing the number of people expecting non-standard services.
Their lack of perceived value for the service isn't always attributable to price alone either. The fact that they chose the cheapest usually means that they're either just plain cheap or they don't understand how valuable what they're getting is to begin with which leads to the, acting like dummies and being demanding. Now, when I say value in this case I don't mean money. I'm talking about their perception of how useful the product theyre getting is.
Besides that minor clarification I totally back this up. The higher priced item will always have more features and attract people who know the value of those features because they're already educated about their benefits most likely because they've used similar solutions before.
True in my experience.
The reason is simple. Cheapest plans attract people who are just starting out and don't know what they are doing.
And in turn those plans attract them because they don't require the greater X or Y or Z of the more expensive plans. They're not at that point yet.
This sounds like you are agreeing, not disagreeing.