January 25, 2008
julien
Comments (0)
Trackbacks (0)
Basecamp, Business Model, Conversion rate, Pricing
Entrepreneur, Web 2.0, strategy
303 views

Pricing

Web entrepreneur who don’t want to fall in the free and “ad-based” business model are all facing the same problem : pricing! What should I charge my users and for what!First, there is almost no chance that you’ll service if you don’t provide at least a free base : here comes the famous freemium business model. The next step is to figure out for what your user should pay, how much and how often?

What should user pay for

This is very tough to determine : on the one hand, if you don’t give enough “free stuff“, the user will likely not “get addicted” to your service, and might never jump to a paying version -even if this one looks very sexy on the paper-! On the other hand, if you give too much free stuff, then, the perceived value of the paying version might be too small for them pay of more! The most common behavior -as far as I know- is to provide every feature of the paying version for free, but for a limited period of time (a month, 5 times…) or for a limited “size” ( no more than 5Mb of storage, 10 files to be treated,…).

How much

This is getting harder. In the good old days of economy, things were very easy to price : take your costs and add a margin to find the price you should sell your stuff. First, most of the webservices are “free” or marginally free to provide. Let’s be honest, my Pro account on FlickR doesn’t cost much more than my friend’s free account! Second, in the market economy price is set up by offer and demand. If someone provides the same service as me, but for free, there are little chances that many users will pey for mine! And, guess what, “free” is the most common price on internet… so you have to be very careful to always be one step ahead in terms of service (features, ergonomy, design, number of users) if you want to sell it for more than nothing! Roughly, I would say $5-$10 for each additional step! What do you think?

How often

Again, you’ve got here many options : pay per action, pay monthly, pay yearly, pay for a number of credit… My feeling is that the subscription approach is the most frequent : paying remains a “pain” for many user and the less often they do it, the better, so you might want to consider charging them the least often! Interestingly enough, this will influence the price you choose : 5$ a month might appear cheaper/more expensive than 60$ a year… For example, BaseCamp was initially built to be priced for $99 a year, but the guys at 37Signals figured out that if they asked for a monthly payment, they could ask for $19, which makes $224 a year, and they might still get a better conversion rate!