To charge or not to charge? That is the MVP question.
There are different schools of thought on this, and it can be confusing to figure out, so I figured let's take this question to the community.
Non-chargers advocate for lowest possible barrier to entry. They want to build interest in the product first, grow a "sizable" user-base, and once you are at a certain level you can monetize.
Chargers advocate that you need revenue in the door to feed the company. There may be some magic psychology where users believe products that cost money must be better, or at least trustworthy. Plus, nothing validates a product quite like a customer plopping down cash. Investors love it too.
So what about you?
- How many of you are charging for your MVP?
- What made you decide to charge or not charge?
- Is it going better than you expected? Worse?
- Did you pivot from charging to not charging? Or vice-versa? What was the reason?
I ask this question because my product is a marketplace made up of a community of merchants. I will be charging a transaction fee on sales, but I'm trying to figure out whether or not to charge a membership fee too.
My fear is my product requires network effects to make it really valuable to those who join. I'm not there yet.
So if people pay me a monthly membership fee, will they think it's a waste and not come back? Or, will they be motivated to get other people aboard to make the experience worthwhile since they saw the value in joining?
I’d generally recommend charging right out of the gate so you’re attracting the right users and building the right product for them. I regret keeping my product free for the first 3 months. Marketplaces are hard though.. so in your case, I don’t think it would be unreasonable to wait on the monthly fee if you think it’s going to make it hard to get initial traction.
Hi @Gabe I appreciate the feedback. That's part of the lure for me to make sure I'm getting people who give a crap about what we're doing. As you mention, the more valuable the customers the more valuable the feedback.
My situation is slightly different than a typical marketplace since merchants are doing business mostly with other merchants -- somewhat similar to b2b barter networks. Many of those trade exchanges do charge entry fees, yearly memberships, etc. So it's not totally out of school. But... as a new product, without significant traction, it does scare me.
I do wonder, would a customer who is intrigued by the product look at a monthly charge almost like an investment in me / the product, and forgive some of the clunky stuff?
Sidebar, I think we were in the same Startup School batch latter 2019. Love what you guys are doing, I'm sure a ton of work! You mention you're charging, so are you on your way with traction?
I think it makes sense to optimize for building up the marketplace. Hopefully you should be able to talk to initial users and get a sense of what monthly price seems reasonable to them.
And thanks! Startup School was great. Probably keep doing it every batch. Not making a ton of $$$ (yet), but just enough to go full-time on it, which is exciting.
Sounds reasonable to me, thanks again for the feedback. Gonna continue to try to build the base up.
That's awesome, congrats on reaching Ramen profitability. A major milestone, and the first step to great things!
This is super relevant to me right now, so thanks for posting!
In my view there is no silver-bullet-advice out there. And all perspectives contribute decision support.
Free tier/plan: low entry barrier and free users doing marketing for the product. Helpful when network/viral effects are involved, dilluting the ability to go upmarket.
Fix-price charge from the beginning: MVP needs to be significantly larger than for a free offer. You probably need to do active sales work to catch the early customers.
In your case, adding a small transaction fee sounds perfect. In won't raise the entry barriers too high and you can still start charging. Could do sth like fist-20-transactions-free. Or optional premium memberships. For marketplaces free access sounds be attractive to drive growth
Awesome stuff @ThePass, thank you for outlining these. I've been drafting up some options, but need to sort through them a little more.
I like the idea of at least a free trial, or a free tier that limits the activity. Maybe users on this level can buy stuff at full price, and network w/ other businesses, but to get discounts and list products you need to join the first paid tier. That way, users experience value up front, as you mention, but will need to pay to get the more substantial benefits.
One idea I'm seeing more often is startups offering a free lifetime membership for a bulk price. I like that idea as it can help generate capital quickly. I think it would be attractive to a potential member too that instead of paying like $10 or $20 a month, pay a few hundred dollars and have a lifetime membership. I can see folks going for that level since the long-term cost savings would be great for them.
When we started our site, we charged immediately. I wanted it to be free to get the words out, but my partner wanted to charge to feel her work had worth. After a few years, she agreed that she was wrong. The charging right away instead waiting to build up a good base has limited our growth. This is just our experience. Each business will have its own experience.
Great question! I'm exactly in this boat. I launched a few months ago as a free utility app, and am currently weighing how to transition to paid.
For now, make it free. After some threshold build a few add-on features that merchants can pay for. Perhaps an annual fee for lower per-transaction cost or better placement in search.
The real reason to have people pay while you work out the bugs is to establish a product-market fit. Giving it for free may give a false positive. Charging money tends to be the best indicator of answering if someone will pay for it.
In my startup, we charged from day one. The reason was the important rush to revenue positive status. However, we charged a much lower price until we got the platform stable.
Many perceive free as not worth of money, so I would recommend charging a fitting amount. Don´t put yourself behind, you product is worth the payment! You can always try to lure people in with a free leadmagnet and give that away in exchange for their email adresses.
As for us, the decision to charge something was taken away by our backend provider that already charges 0,25% fees which we coulnd´t negotiate at this point. We just added the flatrate price that we have in mind anyway and came up with the 0,35% we currently charge for a coin swap.
Even in case of zero costs, we would charge something. We need money to build the next version of the platform to eventually attract angels or pre-seed VCs that are willing to fund us in exchange for equity.
Is it going as expected, I would say so, the time is too short to judge. However, I think it looks ok up till now.
Hi @JohnDE thanks for sharing. It makes sense what you write, maybe I just have to be more confident that what I have is going to be great for people -- even if the value will take time to build -- or I can offer other forms of value while the marketplace goes from crawling to walking to running.
Do you currently have paying customers?
Yes, confidence in your product is something you should never lack. Building a business is a step by step process, so just build something basic that people are able to use and go from there. Use their feedback to adjust accordingly and make it better. The better it is, the higher the chances people are willing to pay for it and invest in your venture again and again.
As for us, yes, we have some paying customers but we just started to make promotion. I think in 2-3 weeks we shold have the targeted 100 beta users together
Good stuff John, thanks for the reminder and motivation there.
That's super. Great job on getting some money in the door. I'm sure things will take off more once you ramp up promotions!
I saw some platforms (like WT:Social) free at launch with a waiting list. You could unlock the queue by bringing 5 people to the platform or paying a small fees to support the platform.
I find this interesting if you need to grow your audience.
Hi @michaeldelaporte thanks for sharing! Very interesting. So you cannot access the platform unless you bring 5 people, or pay?
I actually have an idea for a referral system that I can't wait to try, I just have to figure out how to manage it properly lol.
I just came across Prentus (https://www.prentus.co?kid=18NQ67) by @roddanan which has a similar concept. You earn points for following their socials and driving referrals.
Thanks for the shoutout. I’m using KickoffLabs for my landing page right now which lets you build a landing page and set up viral contests at the same time. Landing page editor is not the best but this is definitely easiest way to set up pre-launch contests.
Great stuff @roddanan, I can probably use this service. Do you already have a roster of Prentuses?
How do you like using KickoffLabs so far? Is it working? I was curious about them but never got a chance to talk to someone directly who was using them.
Yeah I have some vetted apprentices right now and working on getting some more this next week. Feel free to sign up if it seems like something you could use.
For KickoffLabs, their CEO has been really responsive with any of my queries. I think contests work better for physical products since there can be tiered rewards. Otherwise it’s fine but I am actually switching to Versoly for the next stage since I’m building out a blog too.
Interesting on KOL being better for physical products. I can see that. I signed up BTW, looking forward to your progress.
I remember Versoly, I think I recently went through his site. I build on bubble so the no-code aspect was appealing to me. I forget through what medium but I provided him feedback on it too.
I’m building landing pages and blog on Versoly and then hosting my app on Bubble at app.prentus.co. No code world makes things hella easy.
No you can also wait in the queue. If I remember it was one or two weeks.
At the beginning LinkedIn used this model also. It was free but could join only if you were invited by someone in. The goals was to make the users feeling privileged.
Hmmm interesting.
And by "queue", it's just a waiting period of a couple weeks as you mention, then you get in after?
Yes
Have mapped out your potential business model so that you can understand the market potential? Do you have estimates of the potential revenue for 'membership' + 'transaction fee' vs 'transaction fee' only?
It might be that having a membership fee reduces your serviceable available market, meaning that you get fewer transactions per month, as well as less value for your users overall.
It could also be that the only way to create a sustainable business is to have a membership fee, it all depends on your market analysis.
In pricing, it all comes down to value, is the membership fee going to create adequate value for members over time, do you think that you'll be able to offer that value right now, or in six month?
Perhaps you consider a 'founders' launch, or something to that effect, where you offer a free <insert period of time> to a select number of founders to get the marketplace flourishing, then roll out a full priced offering at a later date?
Hi @thatseika, we have. In the short-term a membership fee on paper would make us more money because we need less paying members than we would volume of transactions to make the same amount of money, if that makes sense. And volume won't quite be there at first.
The catch 22 is it's also harder to get a paying member up front for an unproven marketplace / community, and the perception of the value of a marketplace is usually how robust it is with members and transactions. A membership, in theory, would make it more difficult to attain that volume, however, it could also attract the right people investing in the solution.
One thing I thought was to try to provide other forms of value in this early phase aside from just the marketplace aspect, while I'm trying to grow it. For instance -- since my product would be a community of businesses / merchants -- a free marketing message consultation every few months. Something like that. My confusion there is am I getting away from the core competency, or is just making the value better to my community and I'm over thinking it?
Have you looked at the long term? Do you have estimates on how much a membership fee is going to cap your serviceable available market?
When thinking about successful marketplaces, my mind goes to Etsy, which has no membership fees, but charges per listing, and per transaction, hence I'm challenging you on the membership fee.
In terms of offering other forms of value, as long as it's authentic I think it's fine to try. Think about the challenges your customers have, and how your brand could offer value to your customer base as a whole, maybe through webinars, email marketings, etc. So that people who sign up get the value of using the platform, but also the value of your expertise too.
This would also give you a bunch of evergreen content which you could recycle for content marketing purposes in the future.
Just be wary of creating value which you can't sustain long term, otherwise this can be perceived instead as a removal of value, which could alienate your early adopters.
All in all sounds like an interesting business, I'd love to connect and hear more about it - https://www.linkedin.com/in/thatseika/
Long-term, my assumptions are that transaction fees will be the winner, but some level of scale will need to be achieved.
I don't have any reliable estimates on the SAM with memberships. I'm honestly not quite sure where to begin to figure that out? Just a guess, but I would think that having a membership fee up front would make it at least 50% more constrained but that's just a WAG.
Etsy is certainly an interesting case. Been a while since I looked at their model. The listing fee structure likely wouldn't work for me because Etsy only does $0.20 per listing, and with Stripe's cut I'd lose money doing it similarly. I can however, offer number of listings as one incentive in a member level. For example, "Get up to 5 listings for Level 1 membership"... "Up to 10 for level 2", etc.
What you said about being wary of creating value that cannot be sustained is what I'm most concerned about. But I think performing a special service for the first 500 or 1000 members as an incentive to join will draw a clear line that it's for a limited time so that I don't get myself in a bind.
Thanks for the LinkedIN connection. I just sent you a request.
I think you've got the chargers part of the equation wrong. You are building something and you want to be sure that it's something people want. By charging you will get a better idea if people are actually willing to pay for your idea, and you can focus on getting feedback from people who actually feel the problem acutely enough that they will pay for a solution, feedback from them is much more valuable than feedback from people who are not willing to pay for your product.
As to you in particular, I don't know. Clearly as a marketplace you need users, it's gonna be imperative to build up that user base. However you can't go indefinitely not charging, there would be a chance that no matter how good your product was people won't pay.
What % of your revenue is going to be from the subscription fee? I look at something like Amazon and figure their merchant fee of 40$ a month is just to keep out people who will contact support constantly without listing/selling anything, it's gotta be an insignificant amount of their revenue.
Hi @PayOffWizard, what you say about the paid memberships vetting whether the product is something people want I think is typically true, but the rules don't seem as clear to me for marketplaces that don't have much traction yet -- since the actual value of the product is dependent in many ways on the traction.
The % of revenue depends. Initially, without many transactions, if I can convince people to pay a membership up front the memberships would be the lions share of revenue. However, once scale is achieved, the volume of transactions will definitely supercede membership fees, like in the case of Amazon. So there's a breakpoint.
Currently we have it set to charge transaction fees. So something will be charged if sales are made, but it is not predictable revenue, and may be quite low for a while. Not the best selling point to investors. I wonder if I can add other forms of value to my members as the marketplace is in it's infancy, to help make a membership worth while, as I try to build a user base.
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@borodutch thanks for sharing and very interesting. Congrats on the progress you made with your project and utilizing this route!
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How that worked for you? Would love to hear more on that
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These are good numbers! Was it via paid advertising or Product Hunt listing (or something else)? I'm about to release my own product soon (B2B) so I'm curious about various approaches :)
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@borodutch very impressive!