Pricing strategy · Saas

How to structure pricing packages - features plus free?

Kate Hiscox

March 15th, 2014

We're currently hammering through the first of our two virtual hackathon sessions (awesome so far by the way) and I am working on our subscription pricing. There's a couple of things to consider and I would appreciate any feedback.

1. How many packages is too many? Is there a consensus on what is a perfect number of choices when it comes to selecting a subscription? 

2. Is there any science behind the way the packages are presented? I often see certain packages high lighted or 'raised visually' to attract the high. Is positioning (left to right) an important factor too? I've seen the order of pricing packages presented in both directions regardless of price.

3. We're planning to offer a free package that targets smaller customers so they grow with us. Our model allows us to counter this through other revenue streams as well as leverage some marketing partnerships so its not exactly a loss. But is free perceived as valuable in these cases? I've seen solutions such as Zendesk and Desk.com for example, move away from free to very low cost monthly fee's.. like literally a couple of $ per month. Is this because any kind of payment, even small, gives the perception of value and encourages loyalty?

4. Free trial - what is a good period? I sort of feel like 30 days is too much and 7 is too few. But again, is there science behind this? Does a shorter trial period encourage the customer to adopt and implement the solution more quickly?

Many thanks!
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David Frigeri Global Data Executive

March 15th, 2014

3 suggestions 

1) spend a half hour here...
http://www.bvp.com/blog/software-service-pricing-strategies-white-paper-released

2) The primary purpose is to get customers on the platform and make sure they are really happy...I would not get too caught up on up selling or anything like that...you can always adjust pricing and available features in the future and grandfather in the original customers but everything is irrelevant until you show traction.

3) Re: #1 & #2 - Test, Test and Test 
www.optimizely.com


Anonymous

March 15th, 2014

Hi Kate,

You'll also find some great information (and videos) on Lincoln Murphy's blog: http://sixteenventures.com/?s=pricing

The video I found most interesting was the "Beta Testing and Pricing Examples" video at http://sixteenventures.com/beta-pricing-examples

If you can afford his services, he can also help you devise your pricing strategy (disclaimer: I don't know him personally and have no financial interest in bringing him business).

Raphael.


Monica Borrell CEO and Founder at Cardsmith

March 15th, 2014

I agree with @David that you should not get too caught up in these details until you have a large (enough) number of users happy with your product. I'm going to be in the same spot you are now in about 4 or 5 months and I'm thinking we will indicate to early users (beta release customers) that they are getting for free a product that is likely to be valued between $x and $y dollars a month. These customers will help us really determine the value and price along the testing process.  

I see the appeal of the freemium model but I personally believe a product needs to have a cost even if it is a small one to project real value and garner commitment from the users and I'm all for a 30 day free trial period. 

Kate Hiscox

March 15th, 2014

I agree - I was just talking to a friend who emphasised the importance of low cost freemium over totally free. Desk insist on a year up front for their freemium package. I don't agree with that - I think no matter the $, people bulk at a 12 month commitment if their business is on the small side or starting up. ᐧ

Kate Hiscox

March 15th, 2014

I forgot to add a question about features!

5. Is limiting features, for example, to the free package a good thing to do? Personally, I don't love that but of course this method encourages upgrades and lets us cover more bases for growth (in our case our customer may not have added additional SKU's to their line but their staff is growing and they require more users to have access to our system or they might decide to integrate their existing system with ours via the API etc.).

Thanks!

Kate Hiscox

March 15th, 2014

Thank you all! ᐧ

Don Daglow 3-Time Inc. 500 CEO, Technical Emmy® Award, International Speaker, Advisor at Founders Space accelerator

March 15th, 2014

There's lots of research that says that too many choices on a screen causes more users to make no selection at all and move on because they're unsure, losing revenue forever.

Small sample empirical data: Most services I've used have 3 options on their initial sign-up page, sometimes with a call-to-action special "Limited time only!" special deal layered on top.

If you think that lots of options are part of your value, you can always get people started and happy (as per the wise advice from David and Monica above) and then offer them an expanded feature set for a small incremental price per month, so long as the copy doesn't imply that their current option is somehow lame, hobbled or incomplete: "If you have both flowers and vegetables in your garden you'll love our 'Double Growth" deal for only $3.95 more per month!  And if you only grow flowers, you're already on the right plan, and thanks for joining Fertilizer.com!"

The majority of the projects I advise are in some corner of the games space, where every nuance of these conversion and upgrade issues gets studied with metrics.  The same process works for any app, so long as the vision for the product drives the metrics instead of the other way around.  No one likes that person who says, "Do you like this shirt?  Yes? No?  I can go home and change it if you guys vote and say you don't like it!"

Hope this helps!

Don