Speaking of which: if it isn't transparently obvious by now, I really, really like getting feedback about how my advice worked out. If you ever implement a suggestion from me (particularly with an A/B test), please, drop me an email. Even if the result was "Well, that was sure an epic failure", because negative confirmation is useful, too. (If you want to share results I can write up for the blog, I appreciate that, too, but I'd be just as pleased with a "Keep this under your hat but we did a first-experience tour and, yikes, engagement +20%.")
Next step is disconnecting from "usage" (right now, plans are based on # of employees using the software, all plans have the same features) and moving towards plans based on the goals of the business: Do they need reporting? Are they comfortable being a solo freelancer working from Starbucks, or is the customer (or wants to look like) a big agency that needs a lot more flexibility?
We've found that increased usage is not what differentiates our users (no one hits the imposed limits on their plans). So we're switching to plans that users should be able to read and immediately identify themselves with (Solo, Consultant, Agency)
Would love to chat with you about your thoughts and results if you're interested.
I hereby declare this to be the correct technical term for it. The guys in marketing may be calling it something else, but I don't think you'll find a more succinct description of the strategy.
The guys in marketing may be calling it something else...
The original page prominently says: "Sign up for a free trial" and gets a 6.9% conversion from visitor to trial user.
The new page unprominently says: "Money back guarantee" and "Free Sign Up" in the top right corner. Conversion is 5.2%, which is almost the same considering the scope of the change, even though there was much less use of the word "Free".
This is surprising in itself.
I'm also curious about how the next stage of the funnel is converting users from the trial to entering their credit cards.
Also you say that credit card signup is not mandatory. When does the CC enter the picture? Does the service wait a while (e.g. one month ) and ask you to enter you credit card? How does this compare to taking a credit-card upfront and offering a one-month money-back guarantee?
I work in the e-commerce "ecosystem". What's your opinion about offering all software functionality for free, but charge for support and other side services like "product catalog management", "product image treatment", "e-mail marketing campaigns management" etc? Do you think customers may like the idea?
These very desirable business customers will run screaming from the impending trainwreck of a company which is proposing a) tie your business at the hip to ours and b) we could fold at any stiff breeze.
Market segmentation and pricing by features? Sure, absolutely. Some people value a certain service more than other people depending on their circumstances, just as some businesses do.
Doubling/trebling your prices overnight and hoping you'll get a similar number of customers all paying several times as much? ROFLOLWAT. These customers are spending their own money, and not only will many of them take their business elsewhere if you try to charge insulting prices, they'll tell all their friends that your service is a rip-off, too.
Obviously it's not really as simple as that. For example, a lot of businesses pitch their prices far lower than market value would support at first. In those cases, increasing the prices to something higher but still reasonable is fine and often quite lucrative.
But you're absolutely right that advice that holds for B2B environments doesn't necessarily work the same way in a B2C context. The starting point and assumptions simply aren't the same.
Oh, and thanks for writing this, there's some really useful information here.
Can I give you a suggestion that's halfway there? There's no reason that your /pricing page has to be the only channel anywhere for getting signups. You might have a particular recommendation specific to a particular audience and give that particular audience just a single option. For example, when I write drip marketing campaigns, I often pitch the #3 out of 4 plan semi-exclusively, and send folks to pages which plug it and only it. (If you want to hear more about drip marketing get on my email list. August will be a fun month for you. If you don't want to hear about email marketing optimization my email list is a very bad place to be for the next couple of weeks.)
There's a semi-related issue where talking in a particular way can make you seem like The Other to someone, and you don't want to do that, but I doubt the person with purchasing authority is so scared of math that this qualifies. (I might avoid putting a D&D joke on that page, where I would totally do that when talking directly to a geeky audience, if that fits the company culture.)
This would tend to suggest not pricing backups by weight at all because, crucially, businesses do not value data by weight. 8 GB of bingo cards: doesn't matter if they get rm -rf'ed, I can regenerate them trivially. 200kb gzipped of Appointment Reminder database backups: that literally represents more than half my net worth. The production database for a large enterprise customer? That might trivially be worth $20k+ per month, totally no-brainer, regardless of size.
My most specific recommendation: if the pricing page includes "picodollars", it really shouldn't. (Much love for Tarsnap but darn it I'm right.)
I knew that was coming as soon as I read the question. :-)
I think I understand your point that you're not interested in having the type of customer who would be scared away by 'picodollars' (as opposed to finding it amusing) but you should at least test it out and get the numbers to verify your hypothesis right?
(As a bonus, if you're right, you get to shove it in the faces of everyone else. If you're wrong - well congratulations - you just increased sales)
Unless you're doing this more as a principled stand (which is fine I guess).
I respect that everyone has their own motivations for doing things and that economic optimality is not the be-all-end-all. Colin can run Tarsnap as an underpriced public utility if he wants to. But, Scout's honor, it is underpriced. The pricing model actively discourages large, savvy customers whose lives and businesses would benefit from switching to Tarsnap in favor of pathological bottom-feeders who gain no significant benefit from Tarsnap. My personal opinion is, in addition to costing Colin money, this moots the impact that his (extraordinarily impressive) engineering achievement could otherwise be providing to the world.
This is a very awkward conversion for me, so I'm going to refrain from the unsolicited advice for at least a few months until picodollars just make me snap again.
Colin "gets away" with "picodollar pricing" because he is deliberately segmenting away most of his customer base. I am not entirely sure why he is doing that, but he has made a strategic decision in the short term to make less money in order to build his service up more slowly and, I presume, carefully. He exclusively wants the kind of customers who will not be annoyed with this annoying price model; in other words, the kind of customer that has time to reason through the idiosyncratic pricing scheme of a new backup service.
Unless slowing the growth of your own service is one of your goals, do not mistake what Colin is doing here with a pricing strategy that works in the general case.
In any case I always thought that Colin could get out of the low price quicksand by launching an entirely rebranded service with updated pricing based on value to customer, etc. sure, keep the original guys around too. Throw in some perks on the "new" service that are attractive to enterprise customers. It's not every day you have a product of this quality and (potential) customers willing to pay so much.
Assuming the goal is to have only technically sophisticated users who want to use the most durable data store known to man (S3) and have a rock solid & secure backup solution, the pricing structure being 3-6 times that of s3 pricing is a great value on all sides.
actually: colin, could you tell us perhaps what the total monthly storage and or bandwidth volume is? I don't think that if has ever been stated on the internet :)
caveat: i've been playing with tarsnap on/off since it was first launched, and now that i'm doing my own wee startup, i'm using it quite seriously and religiously to backup my working directories. Love it. (however much i email the tarsnap user list with some confusion thats easy to sort out every time i've resumed using tarsnap after some hiatus :) )
I use Server Density (and even blogged about it, http://cherrypopapp.com/blog#Server_Provisioning) and would not pay $99/month to monitor 1-2 servers.
I don't see how paying more or less reflects a level of seriousness.
I'm scared, and as a potential customer I hate to be labeled an idiot.
I'm very happy with New Relics system even though they're priced higher than you per server, they at least offer a price PER server instead of tiers.
I don't think it's possible to support this claim with data, but I'm convinced that being ruthless and unfriendly with pricing can have a negative impact on the business in the long term. As a customer, I much prefer usage based pricing to arbitrary plans.
Optimising for price isn't necessarily being ruthless and unfriendly to customers.
In my experience more people like pricing models like these. It's easier to understand. They know what they'll be spending each month. It saves them effort and work.
I worked with one organisation who just killed out of hand any service that had variable pricing since it played merry hell with their accounting processes. They would much rather pay $99 a month every month than deal with the hassle of figuring out what this random number was on the invoice (because you had to check that that number was the right number somehow - which cost them money in admin, tracking, etc.).
Yes - models like this make some customers unhappy. Some of those customers will be good customers. That doesn't mean that other who go for the new model are unhappy - or being screwed.
Changing pricing models like this are in many cases more a way to resegment / target your market. The revenue increase is just evidence that you're doing it well :-)
Also - money for the company should mean more resources for building a better product for the customer, so a long term win for the customer.
Couldn't they just 10x their number of servers and pay for that?
Take a look at Highrise: http://highrisehq.com/signup
37signals seems to have set the standard for plan-based pricing pages, so I think this is a good example to use. Right off the bat it's complicated because I to choose which plan I want before signing up. How in the hell do I know how many deals I need? Then I have to constantly monitor usage to make sure Idon't pass the invisible threshold. Uh oh, one of my employees added one contact and my price just doubled. That's the opposite of simplicity.
Now let's look at a more recent 37Signals pricing page: http://basecamp.com/pricing
This is still plan-based, but it's much closer to being a la carte based on the number of projects used. I can't speak for 37Signals, but it would seem as if they don't think that the plan page they popularized is actually the best approach.
Things can definitely get too complicated if the units you measure with a la carte become too granular (like charging per byte of storage or something crazy like that), but there's normally a nice middle ground. Basecamp made # of projects the metric to focus on. My company charges per user and makes everything else unlimited which generally makes the cost scale linearly with usage (roughly) but it's still very simple and predictable so no one has to spend time checking the invoice.
My company is called "Less Annoying CRM" so we naturally attract people who are sensitive to the annoying shenanigans that are common with other companies, and this is one of the biggest things my customers tell me they like about our service. The pricing has a huge impact on the customer experience which is largely ignored in this blog post. (Note: I realize there is selection bias with my anecdotal evidence, so you can say I don't have the complete picture, although I think after 2.5 years of talking to potential customers every day, I've got a decent idea)
In addition to all of that, it seems clear to me that the purpose of plan-based pricing is to get the majority of your customers to pay more than they should by only allowing them to buy more resources than they need. This is obviously true with cable subscriptions and cell phone plans, and I think it's equally true with SaaS apps. This is even more apparent when you read blog posts like this one and understand how much thought goes into designing a pricing structure that extracts every penny possible from each and every customer.
If you want to make more money, then ok, but I don't buy the claim that this is in the customer's best interest.
The idiots being scared away doesn't necessarily imply that everybody who is scared away is an idiot :-)
Yes - you will cut out some very nice people who would make lovely customers by segmenting like this. However if this ends up:
* getting more money using the new pricing model
* removing a large chunk of support costs by getting rid of the high-cost, low-value customers
.... as a business should I care?
If you can sustain that pattern indefinitely, perhaps not.
If you're getting a quick boost at the expense of your long-term reputation, for example because customers signed up for your service and then you left them high and dry, then I think you should.
Case in point: Around 2-3 years ago, certain recurring billing services made rather sudden changes to their pricing, which very publicly upset a lot of their users. I bookmarked those stories at the time, knowing that sooner or later I would be looking for payment services to use with my own companies.
Recently, that day arrived, and we immediately ruled out anyone who appeared to have acted in a way that screwed over their existing customers. I have a list of names of some of the key founders who were identified at the time, and no company of mine will ever buy any service from any company of theirs. Given that they have demonstrated that they are likely to be incompetent, unreliable, or both, there is simply nothing they could ever say or do that would make us trust them with any important part of our operations now.
Best practice -- and I'm shamelessly stealing this lesson from Joel Spolsky -- is to grandfather SaaS accounts in indefinitely if you raise prices. This a) lets you get a nice bump in sales if you announce the incoming price increase (no reason you can't do the A/B test quietly but announce the conclusion that prices are going up "loudly"), b) rewards people for taking the risk on you "early", and c) incentivizes them to keep their account active because if it lapses then they lose their super-sweet not-available-anywhere deal.
If I were to redo a pricing scheme in such a way that some customers would benefit from switching, I'd switch them automatically if the new pricing dominated their existing plan ("More quota for less price!") and tell them to make the call if it weren't obvious ("More quota for less price but this new plan doesn't have a particular feature that you may want to have in the future.")
What do you do when your old pricing scheme is no longer profitable?
There's some costs which are difficult to anticipate prior to launch. One is ongoing customer support, and it is entirely possible to price below profitability if you get a lot of pathological customers in on the ground floor. If you've just got a few and the business is fundamentally sound, consider it a marketing expense and let them get weeded out by attrition. If you're like Spreedly or Chargify and discover that a lot of the early adopters in your space are toxic, then it's time to have the "Look, we're not in the business of subsidizing you" discussion. I'd have the messaging for that discussion stress that you'd like to continue offer the old terms but circumstances are tying your hands, and try to be generous on e.g. giving 6 months or so of lock-in to the old prices or assistance in moving them to a provider which is more suited to their needs. But honestly, at the end of the day, if the choices are a) not making payroll for my employees and b) ticking off a bunch of pathological freeloaders, I know what I'd pick every single time.
I think so long as you don't try and cover it up and offer those who discover the choice between the new/old pricing, it shouldn't cause any problems.
that's just because you aren't big enough. Amazon has been caught testing prices previously, and there were a lot of upset people.
Noticing the test isn't what caused the outrage.. wait until you have thousands of people who find out they paid more than another person for the same item (ie in their minds: were ripped off).
Then you'll see how consumers feel about your test.
And bootstrapped startups, etc. This isn't just a pricing change but a market repositioning?
I think HN has been collectively in denial on this kind of point lately. Yes, services offering real value should charge commensurate with that value. Yes, it's lovely if you're Patrick or Thomas and in B2B world where you can whack up your prices and hope whoever is paying the bill isn't spending their own money.
Newsflash: If you're dealing with a bootstrapped business, it might well be that the person paying the bill is spending their own money.
Newsflash #2: There are dozens of companies pitching useful-but-not-that-useful tools and services to these bootstrapped businesses. If you spend $100/month on this one, and $300 over there, and $150 on the next one, and ten more after that, and then you multiply it by 12... Well, before long you're spending on the same kind of level that it takes to hire some office help or to run a long-term marketing campaign with a significant level of funding or for that matter to hire in a guy who knows what he's doing for a few days to build your own customised versions of a lot of these services.
In short, if you think the ability to monitor a couple of production servers is worth $1,000+/year to a bootstrapped company, you're crazy. Yes, it's a convenience, but you're talking about a service that could be built using a couple of widely available building blocks with a tiny fraction of the running costs, and frankly to a business at that stage in its development it is highly unlikely that a server falling over until the morning is going to cause any real long-term damage anyway.
When you're dealing with relatively time-rich and cash-poor early stage businesses (OK, time-poor as well because they're trying to build the business, but that's not really the point here) you can't just dismiss the cumulative effect of all these SaaS gadgets. They add up, and if you want to know why so many small businesses fail, I expect not controlling costs is probably somewhere around #2 or #3 on the list.
Does that mean bootstrapped companies are bad customers for these kinds of services? Sure, maybe it does. If there isn't enough in it for both sides to make it a deal worth doing, it's not time to do the deal yet.
These costs are on top of whatever you're paying for the service itself, so if you're only going to be using the service for a few months anyway, you might be better off spending the time just implementing something quick and dirty yourself until you have a chance to do it properly.
The key thing is that in bootstrapping terms, very few of these services are indispensable: if you're in that environment then you're probably looking for just enough infrastructure to make a viable product/service, just enough legal/financial advice not to screw up in the early days, and then throwing everything else you've got into marketing, R&D, and sales to try and reach a self-sustaining level of income as soon as possible.
There are decent arguments for integrating certain services early on. For example, analytics/optimisation tools and billing services that boost customer retention can easily have a direct, significant, sustained impact on your income that exceeds the initial investment very quickly. But hardly any of these trendy SaaS tools aimed at small businesses are in that category.
Dozens? Seem low, I would say dozens each week ..
They seem to have switched to dollar pricing.
Are they taking payment in dollars?
or are they converting the amount to pound equivalent in last moment and taking that payment?
I've been thinking about pricing on the internet, whether its good to price in dollars to make it more convenient for the american customers.
I feel like customers from UK are alright with paying dollars, but americans don't like to pay in pounds.
Is this a problem you have seen youself when you sold desktop software?
Though I'd wonder why one would be lowering prices when raising prices is just as easy and generally does better things for revenue.
Definitely is not the norm from the majority of SaaS sites.
Regardless, just refund the difference for anyone who asks.
I'd say offer the new price to all and get happier clients. If you can't afford that then why are you lowering prices in the first place?
But more to the point: the logistics of making refunds on purchases like software are complicated. Most payment processors don't even have the notion of partial refunds.
Making a full refund is costly to you (payment processor took their cut of the transaction; they aren't too eager to give it back to you so either they charge you (and now you have a loss) or they swallow the charge but will kick you out of the system if they have to do it too frequently).
There might be more bad will generated by contacting the customers and offering them refund because that makes them aware of some event that they might not like.
Most people don't monitor the price of software they bought over time so they are not aware of changes so they are not upset about changes. I've bought a bunch of software over time and I can't tell how much any of it cost - I just don't keep track.
This is on SaaS, so no refunds needed, just a price/plan change for the next billing cycle.