Last week, Jason Calacanis (West Coast Angel Investor and entrepreneur) tweeted out that he was looking for advice from his users on whether or not he should start charging for ‘Launch Ticker,’ his awesomely useful news aggregation and “de-bullshiter” (my words) service.
Immediately, users began chiming in on all of the pricing possibilities: charging a monthly fee, going completely free with sponsorship dollars, keeping part of the service free and charging for premium features, and everything in between.
I guess when you have 5,000 passionate email subscribers you’re gonna get feedback--especially when they’re in the internet industry.
As you know from our previous posts on pricing strategy, this situation happens in companies at every stage of the lifecycle, every single day. What’s great is that Jason did the right thing in going directly to his users for feedback, but as you can see in the comments there was a lot of back and forth, a lot of options, and enough qualitative information to make Jason’s decision still pretty difficult.
What he needed was data, and more specifically, he needed to know: if he charged, what’s the current willingness to pay for the product? With that information, he would be able to take the qualitative information from his users and properly make a decision without just relying on “gut feeling.” What followed was some good ol’ pricing goodness involving our software, so let’s dive in and explain how we helped Jason get some data surrounding his product, before drawing out three big lessons for you and your business.
[ Note: The ticker already has $1,500 a month in recurring donations between $5-$100, so we knew there was some appetite for paying.]
Launch Ticker Pricing Process and Results
The process for getting data and results for the Launch Ticker was actually pretty simple. We put together a Price Intelligently study for his current users, sent the link over to Jason, and Jason put it up on the site asking for respondents from his user base. Since his respondents were already familiar with the product, the study was pretty straightforward, and since Jason’s already amassed a good number of users we had over 150 responses within eight hours.
Our pricing software then took the responses and crunched them through our algorithm to get the results you see below. For more on the actual algorithm check out our value based pricing post or our post on pricing out Groupon’s offerings.
Results - A Classic SaaS Pricing Opportunity
After crunching the numbers, the data revealed a few big points:
As is, there’s a willingness to pay of around $5/month for the ticker
If you take a look at the lower price sensitivity graph (pasted below), you’ll notice that the curve bottoms out at around $5, which is also right around the optimal price point (the point at which half of the respondents believe the item is getting expensive and half believe the item is a great deal). Notice how at this point, Jason would still be losing roughly 15% of the potential market (users who don’t want to pay).
Also, notice how below $4, the data suggests he’d lose a considerable amount of sales. We don’t always think about the potential “cheapness perception” of our products, but it’s important to keep in mind - a product can be too inexpensive.
Launch Ticker has room for multiple tiers
Typically we’d run multiple campaigns amongst numerous different personas group, but since this is a look at the aggregate, you’ll notice that there seems to be a group of individuals who are willing to pay much more. When we see the slow climb of a slope, such as that between points A and B below, it’s an indication that an additional persona exists beyond the main group, and if feasible, a premium version of the product should be developed to meet their willingness to pay.
The best analogy to this is when you buy a car: there are always base, premium, and premium-plus options. Qualitative data and comments also reinforced this idea.
Long story short, the advice we gave to Jason
If we were pricing out Jason’s product, we’d utilize ads to support a free product (as a marketing acquisition tool - more on freemium here), charge $5/month for a base premium product, and do some customer development to create a premium plus package to satisfy the subset of users willing to pay $10+/month.
Of course, Jason has a lot going on in his life and the team suffers from the same constraints as any other startup. As such, Jason may be able to just keep it simple with an ad supported free base product, and a $5/month premium product that in the purchase flow gives users the option to pay more per month to support the ticker (as many are already doing).
Enough about Jason and Launch Ticker, what about you
Reading through what we did for Jason and the Launch Ticker is a lesson in and of itself, but what are the big lessons that you can use in your venture?
1. You must include your customers - Pricing is a two way value conversation
Don't be scared. Talking to your customers about pricing can seem like having to explain the birds and the bees to a snapchat wielding pre-teen. Yet, the conversation is much less complicated. You’re already including them in conversations about product, marketing, the mistakes you’re making, etc., including them in the discussion around your pricing is just an extension of that feedback.
You’ll find yourself pleasantly surprised, because customers are more than happy to have the discussion. In fact, most appreciate it, because it’s an indication: 1. that you value their opinion, and 2. that you care about charging them at the point that they actually value the product. Long story short, have the conversation.
2. Data is king in pricing - collect it
Simply beginning the conversation is the first step, but like any other part of your journey, data will be the guiding light to removing the “gut feel” from one of the most important aspects of your business.
This isn’t a plug to use our pricing software. There are plenty of other (free) methods to collecting price sensitivity data, from price laddering to the van westendorp price sensitivity meter. All provide you with more data than you have now (which is probably not a whole lot). Just be sure to move beyond simply asking point blank, “how much would you pay for this product?” That question is cognitively difficult to answer, but if you switch it up and ask in ranges (“When is this way too expensive?”) you’ll be able to get purer data and triangulate your best pricing structure much more easily.
3. Make a decision - don’t worry, pricing is an iterative process
Collecting data is great, but you eventually need to make a decision. As the Launch Ticker data shows us, there’s a lot going on with willingness to pay, and even more when your product already has multiple tiers, a plethora of features, and numerous different customer persona targets.
Set a deadline and give decision making power to one person, because pricing is a process. You should be tracking the change in willingness to pay at least quarterly, and making price adjustments at least every six months. After all, your product, market, and customer are all improving, your pricing should, too.