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Is a $1/mo fee viable? (something like Acorns)
By
haroon
May 29, 2018
Just wondering if one could create a viable business bootstrapping at such a price point :)
As with nearly all questions on IH, the answer is: It depends.
The main problem you'll have is that basically no software is worth $1/month...
What I mean by that is that it's really hard to get people to give you their credit card details for any amount. But in 95% of cases, a customer who is willing to sign up to a $1/month plan would also sign up to a $5 or even $10+/month plan.
So if you do get people to sign up for $1/month, you're almost certainly leaving a lot of money on the table.
My personal preference (when you factor in customer service, sales, hosting etc)is not to build any software where I can't charge at least $30/month. Ideally $100/month or more.
That said, there are definitely business models where it makes sense to charge a low fee like $1/month. Dollar Shave Club for example uses this as a loss leader to get customers' credit cards on file and upsell them on more expensive products. There's no reason you couldn't do the same, although it's harder with software (except games).
Another thing you have to think of is that the payment processing fees/charges will be brutal.
Good luck!
I dunno man, Workflowy is a great tool, but when I can the entire office suite from Microsoft for $10, a do baulk at $5 for such a simple app.
Thanks for the reply Louis!
The payment processing fees are not a problem for us, fees will effectively be about, $0.002-$0.0025.
I understand completely what you’re saying and I agree, but for a app similar to Acorns I can’t see us charging over $2/mo or $20/year if we’re saving them $50/month on average. There is also more revenue streams that we could take advantage of, but we’d need some sort of traction to get retail partners on board.
Thanks again, didn’t expect any responses on a first post :)
Louis' point about getting someone to open their wallet and put in CC info is spot on, and he's right—it's the hardest battle. There's no price elasticity (aka large changes in demand based on price) at these levels.
If you're saving someone $50 a month, why is $1-2 the most you can charge? If it's low friction (i.e. limited setup/time investment), $20/month is fair game. Especially if you provide value in other ways (time saved, peace of mind, etc). If that's $50 saved that I would have spent otherwise, any reasonable person would pay into the double digits.
It’s the most I can change as our main competitor is charging $1/mo and our most similar competitor is charging $2/mo, but nobody is charging >$2,50.
If your payment processing fees are that low, and your competitors are charging that little, then it's possible that it would work for you.
Have you considered offering different price points? Maybe some users only want the features offered at $1/mo, but others are willing to pay for $5-10/mo given the right features.
Also, what does your business do? I'm curious what kind of service would be only $1/month.
It is similar to Acorns — https://www.acorns.com
Something to keep in mind is payment processing fees.
Stripe for example costs 2.9% + $.30 for each transaction. If you charge $1 each month you will instantly lose 1/3rd of your revenue. Compare that to charging $12/year, where payment processing fees only take up 5.4% of your revenue.
I would personally recommend trying to charge a larger flat fee or yearly subscription if possible
Thanks for the reply Noah!
The payment processing fees would not be a problem at all, we have a solution in place tht means our fees are $0.002!
Can you elaborate on this? I'm sure many people would be interested in fees this low.
Probably crypto or something .
Crypto 👆🏽 but everything is frictionless, people don’t even have to get their wallet out 👀
This comment was deleted 8 years ago
What payment processor are you using?
Crypto :)
Relevant:
http://bootstrap.money
This is so useful. Thanks for the share.
Nice! I had just created my own version of this with Soulver. :)
Got a link?
I pay $24 per year for Lastpass, which is only $2 per month. I could imagine a service that I pay $1 per month for (billed at $12 per year.)
It could be a simple tool or integration that solves one problem really well.
One thing to keep in mind, is that as soon as your customer pays you 1$, they are ready to commit, and if you provide quality, will later be happy to pay you more.
They already took out their credit card, it's a win waiting to be transformed in a bigger revenue.
Sure why not? But even with a high margin you are going to need a shitload of customers and great strategy to get them.
Don't underestimate using back-of-the-napkin math to create a few plausible models before taking your risks.
I would be more likely to subscribe to something for $12 a year, but not for a buck a month. The dollar per month makes me feel like it's either sketchy or something I don't need. If it's sketchy, I'm not buying. If it's something I need, I'm willing to pay more than a dollar.
As a founder, super low price points are scary to me. You're relying on extreme scale to make anything significant. The barrier to entry for a ton of users isn't how much something costs, it's whether it costs anything at all. Personally, I'd rather have 100 people paying $50 a month, than 5000 people paying a dollar a month.
I was going to say the same thing. I'm very wary of monthly fees and the only things I subscribe to are major parts of my workflow or life (Creative Cloud, 1Password, Spotify, Netflix, phone/internet/utilities). I'd be more likely to pay $40/yr than $1/mo.
It wouldn't even be worth the monthly time cost of getting the receipt by email and thinking "Should I keep using this service?"
There's risk with any new partnership and especially when giving over payment details. $1/mo wouldn't appeal to me as "wow, so cheap" but $40/yr would seem affordable and without mental baggage of monthly emails, etc.
That’s exactly what I was thinking but I don’t think that there is much room to charge more for an app that saves on avg. $50/month for the user.
$2 mo / $20 was the original idea but I’m debated which would be better since there will be more potential revenue streams within the app.
Also, thanks for replying, wasn’t expecting to get a response on my first post!
go after a bigger problem then...
did the experiment by trying to roll out the subscription plan with $0.99/mo for www.PDF.co that was completely free online service before the experiment (not it is freemium).
PROS:
CONS:
Let's do the math.
1 customer = $1/mo = $12/yr
100 customers = $100/mo = $1,200/yr
1,000 customers = $1,000/mo = $12,000/yr
*10,000 customers = $10,000/mo = $120,000/yr
100,000 customers = 100,000/mo = $1,200,000/yr
I definitely agree with @louisswiss here - it depends. But to pull this off, it has better be hella automated and require very, very little support. Just to go full-time on it, you'll probably have to have at least 10,000 paying users and that usually comes with a ton of support.*
In my mind, it's pretty unlikely you could build something and support 10,000 customers, fund growth and marketing AND pay yourself with $10,000/mo. The math just doesn't work out. But hey, what do I know? :)
The companies that do this kind of thing successfully are big companies with big budgets to experiment with (Apple with $0.99 songs, etc). To them, growing the user base is the primary goal while revenue and profits are secondary. Those later two are pretty essential to most small, bootstrapped companies. Probably safer to start at a higher price point for 99% of people IMO.
Apple iCloud stars at 2.99 month
What's your definition of viable? I'm going to assume you mean viable for YOU financially (though others have really good points about how to price a product properly that are worth some thought, too).
Say you get 100 customers your first month. Sweet, now you just made $100 (minus processing fees, ad costs, etc.) and can afford to go to Starbucks a few days a week for a month.
Viable for you to survive on this kind of growth? No.
Viable to raise some money off of this? Maybe...if you can prove a big TAM and believe you can convince users to pay even more for additional features.
This comment was deleted 7 years ago