Pricing strategy · Freemium

How do startups and small companies determine prices for their products/services?

Eugene Ivanov Open Innovation & Crowdsourcing for Small Businesses

November 19th, 2015

I have a sense that many entrepreneurs, especially novice, struggle with setting up prices for their products/services. The most popular benchmark seems to be "what others do." Often they go for freemiums but then face problems with switching to the paying mode. What is the right approach to choosing optimal prices? Is freemium (always) the right model to start?
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Rodrigo Vaca Product & Marketing

November 19th, 2015

Eugene - I've marketed/sold under both models.

As with anything, it depends, primarily what kind of product you're talking about.

In the context of software/SaaS, I do believe freemium can work quite was as an acquisition strategy. It worked very well for us at Zoho, and we consistently get higher-than-average free-top-paid conversions.

To make freemium work, I suggest you consider the following three things (at least, there will be some others I can't think of right now):

- Freemium from the start. It can be very difficult to switch from only-paid to freemium. You could lose revenue in the short-term, which might be painful.

- Meaningful paid features. This sounds like a no-brainer. However, look at Trello. Their initial "paid" edition gave you... stickers! You could tell they didn't plan that well.

- Onboarding, ease-of-use, etc. All of that is true under a paid-only model, but becomes twice as important under a freemium model since you're betting customers will absolutely LOVE your product in order to switch to paid.

Most importantly, remember freemium is not a business model. Freemium is not a pricing model. Freemium is just a user acquisition tactic.

As for your overall question about choosing optimal prices... I love pricing challenges myself, but it is hard for me to speak in general terms without a specific market at hand. A related reading you might enjoy if you're inclined to think about pricing is Priceless, by William Poundstone.

Good luck!


Karl Laughton VP of Finance at Insightly

November 19th, 2015

Hi Eugene,

If you've already got a customer base (paid or free) and this is strictly a pricing question, we used the folks at Price Intelligently and absolutely loved them / continue to love what they are doing. Happy to make an intro if you'd like.

Best of luck,

Karl

Eugene Ivanov Open Innovation & Crowdsourcing for Small Businesses

November 23rd, 2015

Rodrigo and Karl,

Thank you for your very useful responses. Much appreciated!

Best,
Eugene