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📖 The following is an excerpt from my work-in-progress book, Founding Marketing. It's a (very) rough draft of thoughts, notes, and research... so feel free to reply with your feedback on what I should expand more on and what needs to be clarified. Enjoy! How do you put a price sticker on your SaaS product? Pricing is one of those parts of the business that you can agonize about for months and then end up scrapping everything you worked on. When you're just starting out, it's just not worth spending a considerable amount of time on. Pick a price you can learn from, and then move on. You won't have the data, time, or strategic insights to design a pricing model that you can stick with long term. Your product is likely incomplete, buggy, and ugly. Early users are doing you a favor just by agreeing to get a demo or sign up for a beta period. Don't pick a price that kills all goodwill. There's also a strategic element to this that we can extrapolate from the "learn from" part of the principle. A price point you can learn from is a price that is:
Here's the story of how Intercom first came up with their pricing: Initially we spent weeks dreaming up fancy pricing models, running the numbers, analyzing our customer base to see who gets most value and deciding what should be free. During that time we met with Jason Fried, Co-Founder of Basecamp, and his advice was characteristically simple, "Just charge $50 and see what happens". Are you serious? He was. Charging $50/month was a smart move because it brought customers past the "why not" threshold. It's a considered purchase. I worry about business products that charge just $9/month; it can give them a false sense of traction. Their conversion and churn will look good, but only because no one in any credible company even notices $9/month on a company credit card. If the plan is to move that $9 to $59 when things "get real", then I'd argue the business is still none the wiser about whether or not customers will pay it. So $50 was a good divider. It taught them a lot about their user base. It helped them distinguish credible customers from folks who were just playing around. They changed their pricing structure a year later to something that distinguished the different types of customers and types of value served. If you look at any successful business, they will always iterate on their pricing as they learn more about their business and their customers. When you're starting up, your goal for pricing should be to get some meaningful cash from people to learn what pricing works and what doesn't. The end goal is to find pricing that aligns with the value customers get out of your product. This is in contrast to two other popular methods: Competitor-based pricing and cost-based pricing. Of course, I wouldn't advise you to think of a random number in your head and then make that your starting price. At the risk of being too prescriptive, a rule of thumb to pick from one of three prices:
More sophisticated way of coming up with new pricing Make a list of all value metrics Plot each customer's usage (e.g. boolean, sum, average) of each value metric on a unique chart Van Westendorp survey to measure price elasticity and ranking importance of each value metric. —Corey
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