Suggestions for pricing low-cost SaaS
My initial hope was to charge $1/week. If payment processing fees were zero, I'd be inclined to simply sign up folks for a recurring $1/week. However, the payment processing fees will eat too much.
I've thought perhaps I could sell "credits". So the minimum purchase is $5 which would give you 5 weeks. I can then offer discounts for longer commitments--a whole year for $40.
The weekly pricing is, at least in my current thinking, a way to reinforce the product itself. The product has a natural weekly pattern of usage, so I was hoping for that alignment with the pricing structure.
Also on this topic, I'd prefer not to offer a free trial but instead to force myself to build a product that people will actually pay for. I am imagining I can adequately describe the product with screenshots, videos and perhaps a demo account.
I'd love some feedback on these thoughts. Please help me flag any dumb ideas in the preceding description.
Obviously knowing more about what your product is helps shape the response. With that said...
I’d avoid weekly recurring charges as aposed to monthly. The main reason being that every time someone sees the charge on their bank statement they make a “do I really need this” decision.
Lowering the amount of times they need to see that charge and make the decision is better for churn. Otherwise, as a subscriber, the micro recurring transactions feels a bit like death by a thousand paper cuts.
In addition, I can't remember how many times I've heard on the IH podcast and others that someone tried to come up with an innovative pricing structure, but it only served to confuse or feel manipulative to visitors, only to see the product take off after using a more standard model.
That's not to say it can't be done, or even that the $1 weekly reminder could be beneficial to users. But it's easy to mess up :)
Thanks for your answer!
channeling inner @patio11 charge more.
Don't do weekly charges. Few reasons :
You don't want the customer to keep seeing a charge on their statement EVERY week (this is more psychological than anything). This point is already mentioned by Dave Polykoff in his reply as well and I agree.
The more frequency of charges, the more risk of failed payments. Lets say you are collecting $1/Week instead of say $4/Month, you now have to try 4 times to charge the same amount. What if the card expires after 2nd week ? You have now lost 50% of your revenue as compared to if you have charged the entire $4 upfront. This is important for your business to survive and grow with consistent cashflows.
Most payment processors (stripe etc) charge a fixed fee per transaction in addition to the percentage. Stripe for example does 20% + 30c. So more the transactions, more fees will be paid by you due to that fixed component of the fee (30c for stripe for example). Probably a small factor but need to consider this as well.
Most importantly, there is no need to align the usage with pricing structure. One week is too short of usage for any product that needs to sustain and not die. So if your customers are not comfortable paying once a month, that product is not worth a subscription at all (in my honest opinion). Doesn't matter if they have weekly goals to track or not. The idea is that they should use your product for a long time.
So keep it simple. Do a monthly charge and move on to more important things which are : market validation, customer acquisition, customer satisfaction and CASHFLOW!!!
I buy that. Thanks for the thoughtful reply.
There is a number of key elements to consider when it comes to pricing.
The first is obviously payment processing costs. Given that payment processors charge not only a percentage fee but also a fixed charge fee, the fewer payments per customer per year, the better.
So annual is better than quarterly is better than monthly is absolutely the bottom tier you should offer for a subscription model.
However, there's a customer involved in all this. Are you really going to go back to him 52 times a year for money? Either you have to approach him to pay manually each time or you collect money on an inertia subscription model. The first creates friction and the second often crates resentment or even aversion. I am not alone in point blank refusing to sign up for any service which has more control over my bank account that I have.
There's a third element involved here. It's a psychological one and it relates to the message you are sending out. Have you really got so little faith in your product that you only dare to sell seven days' access at a time? That's a really powerul, negative message to put out to the (rapidly and increasing) non-buying public!
So what if the natural cycle of this mysterious product or service is weekly. It is so good that customers will want four weeks' worth! If you don;t think they will, time to create a better or even a different product!
Pricing is not just about logisitics. It is also about perceptions - ease of use, value for money, addressing a core need ... all of those things.
So, set your sights higher. Monthly, quarterly (perhaps not even that) and annual plans with a 14 day no-quibble refund policy. That way, you ooze confidence in your product, you can increase your proposed prices because you are now more confident and the customer won't wonder why you are acting so scared.
If weekly pricing really makes sense, one option would be to start with that, and then switch to monthly or annual once someone's bought in.
So like, if you think it's easier to convert a customer with weekly pricing, give them the $1/week price. You won't make much money off it because of the fees, but they'll still be paying which will act as a way to validate that they're bought in. Then after a month or two of that, offer them $30/year. If they don't take you up on it, your margins will suck since you'll be paying Stripe 33% of your revenue, but most "good" customers will convert and then it's not an issue.
Put another way: assuming there's not a major cost to providing the service, I'd suggest basing your pricing around the good customers, not the bad ones. It doesn't hurt you to have a bunch of tire kickers paying you $1/week as long as the ones who stick around eventually become more profitable (this is also the whole idea behind freemium / free trials).
I’m confused why you want to reinvent the basic subscription model of monthly and annual options. Let people buy how they are used to buying. If it’s a mobile app -> in app purchase.
If I need something on a weekly basis I’m in a temporary situation or event. Is that how you imagine your users deciding to pay for your app?
You’re not alone in delivering the value of your product — your costs for CC fees and sending SMS have to be integrated to your pricing in a way that’s sustainable.
The tool itself is a weekly spending journal where the person (and typically their spending partner) self-evaluate all their discretionary spending. So the idea (maybe ill-conceived) is that they could see the $1 weekly charge and mark it a "good" spending decision. It's really a way to reinforce the idea that, "Yes, this is still important to work on becoming a better spender."
My hope was that because the tool itself is about initiating positive spending behavior, that I could eliminate those on the fence who may not be all that serious about their commitment to use the tool to improve their habits.
I'm totally receptive to the advice to just keep it simple... go conventional, charge more, exude confidence.
Two choices, (1) Charge what the competition does (2) Price for free and find some other revenue stream. --- Your idea will fail due to lack of marketing budget supported by your pricing model.