How to price: Lessons learned from our first attempt

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With today’s launch of a whole new pricing model on, we figured it would be a great opportunity to share with the community our experience around selling and pricing a SaaS product as a startup. As the folks at 37 Signals say, this is based on our experience, so use good judgement in applying it to your situation.

Lesson #1: List prices on your website

The temptation when you’re first building a product is to shy away from making a commitment to a certain pricing scheme. It’s understandable – you’re afraid about writing down a price when there is so much more you want to learn about your customers, their willingness to pay, the features and functionality that they would pay for, etc.

When we first launched, you had to ask us for a price – we would ask you all sorts of questions about what you were building, whether you would pay $X for Y, how many users you had, and all sorts of other questions. This was far more about understanding our customers than trying to milk them for every last penny, but it was really sketchy. The majority of our customers probably never reached out, and a large numbers of those who did went silent after we didn’t respond with a standardized pricing scheme.

Ignore this hesitation to commit, make a gut call, and put a pricing page on your website. You’re intuition is probably close to the right answer, but give yourself some leeway anyway by putting a few different pricing plans up with a few different feature sets. As soon as we put our pricing page on our website, we had an 8x increase in customer signups, 3x increase in revenue/customer, higher customer satisfaction, and saved ourselves a ton of time by not having to constantly back-and-forth.

Lesson #2: Price on value, not on cost

This is one of those things that you hear time and time again in the pricing world, but is really easy to overlook. Why price on value? When a customer comes to your pricing page, they aren’t paying you because you have expenses, they are paying you because you provide something they want. They don’t really care what it costs you to provide certain service, as long as it doesn’t seem like you’ll go out of business and you’re not gouging them.

Founders are drawn to pricing on cost, because it’s easier to do (we’ll take our costs and mark them up by 3x!), and pricing on value seems more risky (what if your costs for a given plan are higher than what people will pay?) If that’s an entry-level plan and you can get people to upgrade reasonably quickly, chalk it up as a marketing cost. If that’s the case across the board, you should re-think your value proposition or market, because you’re in a tough spot.

Like Lesson #1, we made this mistake as well: our costs were bandwidth, so we charged on bandwidth. Justifiably, our customers had a hard time estimating the amount of bandwidth they needed, and often didn’t understand what counted as bandwidth and what didn’t. It created a lot of signup friction and support emails. On the other hand, our value comes from the fact that we greatly simplify all obnoxious parts of dealing with files, from uploading to storing to converting to reading and writing to cloud services like Dropbox, Google Drive, Gmail, Facebook, etc. So the more files an application deals with, the more benefit we provide. So it makes a lot more sense for us to charge on number of files rather than bandwidth, and that’s exactly what we now do.

Lesson #3: Iterate

As with all parts of your start-up, run analytics, talk to customers, kill what’s not working and accentuate what is. This certainly applies to A/B testing your pricing page for colors, sizes, text, etc. but don’t be afraid to overhaul things on a larger scale and iterate on your pricing strategy as a whole. It’s harder to A/B test and can be done less frequently, but you have help: your current customers. Before rolling out our new pricing strategy, we turned to a number of our current customers and ran the new pricing by them. After all, they were identically the target audience, and we already had a great relationship with all of them, so they were more than willing to help. Well deserved shout-out to RideJoy, Fitocracy, Boutine, WeVideo, Vidcaster, and Ridepost. We are honored to have you as part of the family.

In summary,

  1. Put up a pricing page
  2. Charge on value, not cost
  3. Change as needed

So if you had looked at but didn’t understand our pricing, our appologies. As always, we have a free plan for projects and early-stage startups to get you off the ground, now with much-requested goodies like direct-to-s3 uploads and fully customizable CSS on all plans.

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