Ive been thinking about how to deal with early adopters of a SaaS web application in terms of ramping them up from free trial early access users to fully paying customers. Im wondering if there might be some standard approach to this? If done incorrectly can early adopters feel ripped off because they have in some way contributed to the value of the application that you now want to charge them for?
Should trial periods for early access users be longer than you eventually intend them to be? Say 90 days instead of 30 days?
Should you charge early adopters full price straight away after a trial period?
Are there any interesting strategies for how to ramp up pricing over time in general? Right now I only have a minimum viable product worth $N / month, but feel as though it could be worth $Nx2 in 12 months. How can you deal with price increases when selling subscriptions?
Should I just charge full price straight away and grow into my pricing model?
All thoughts welcome
It depends on the target size of your custoemr base in say 2-3 years.
If your targeting millions then you will pretty much need a free offering forever and a paid premium on top for key users. Best description of this model I've heard of so far is the evernote inverview on This Week In Startups.
If your targeting a much smaller, more specific customer base or doing something with very rich functionlaity like an accounting system online then charging for it upfront is quite reasonable. If you can afford to then I would keep the early adopters (say first 6 months) at a very low "grandfathered in" rate as a thankyou and then change the new comers the standard (ideally scaled) rates. Have a look at UserVoice, ZenDesk or a heap of others that have the scaled up rates.
For the subscriptions I would put in the terms of service that you reserve the right to increase the monthly charges (by a max of say 10% in any one year) or something. The early adopters will then start climbing after the second year but you have given them a grace period suitable. You can also at your discression not increase the rates for some or all of the accounts. New accounts would then be on your x2 amount and the others would catchup over time.
The fact is that every product and service is being improved continually; if you wait a year to buy a computer you'll get a better computer for the same price. Your customers won't want you to stop improving the application after they subscribe. How do you know what it's worth to your customers? How close to "perfect" does it need to be for you to charge full price?
It should be an easy decision to buy at $N (spend $50 and save $500+), so why wouldn't it be an easy decision at $2xN? I don't think a lot of good sales are made on a marginal benefit that requires precise calculations; if it's a clear value then it's easy to sell and you have some room to move around.
As long as you're making incremental improvements the pricing should be driven by the business model rather than the fact that you're offering 5% more value this month. If lots of people choose to pay the full price now that might give you the resources to deliver the additional value much sooner than a year from now and everyone wins. But if your service is a task manager and you later add an accounting system then definitely charge more for that as an optional add-on. I would draw the line at "doing the same things better" vs "doing new things".
It looks like you're creating a business service rather than a consumer service, so if you decide to ramp up the price how much does an early user really save over the 5+ years they're hopefully using it? It can be a nice gesture, and with more new customers paying the higher price it may not cost much. But unless it's a very expensive service I wouldn't expect it to have a significant economic value to your customers.
What probably has more value to them is if you listen closely and provide them with extra support (since you only have a few customers at first you can help them in a way that no future paying customer will get). They spend a lot of their own time researching what products and services to buy, so having you there to hold their hand and create what they're looking for could actually be easier than buying an existing product.
This could be done during an unpaid beta process, after which you launch and start charging them. This is what I'm doing with a business service I'm launching - because I know the price will be a great value. You can err on both sides but it sounds like you may be undervaluing the service you provide because it's not everything you think it could be (I've done it too). And if you charge less than you should you might not be able to provide the service your customers want so they miss out in the end.
Whatever you do with the pricing, make sure you don't start off targeting one market initially and then have to start over in a year because you're offering new features, charging a new price, and losing your initial market. As long as you don't change things too quickly for any individual customer and you manage expectations (underpromise a little so they have good surprises) a lot of people won't get upset over small things and they'll be happy to see you keep adding value.
"Starting at full price and growing into your pricing model" isn't going to make sense. You need to be clear about the value your SaaS delivers, and your objective is always to price close to that level.
If you're comfortable that you're past the buggy beta stage, my rule of thumb is to use the pricing and terms you believe are appropriate, and overlay that with any offers that will build the initial base. The right time to think about how to make a price change is when you're clear what that change is going to be. There are too many variables in play between now and then, and you're more likely to complicate your own life and confuse your customers if you plan in a speculative future increase.
Price Increases Setting aside for the moment your existing customers, how to increase prices at a significant rate?
One of the techniques I like for some situations is combining a price increase with a promotion. For instance, you've been charging $30/month, you raise that to $60 but there's a promotion at $45 per month.
If you see a serious drop-off in demand, there's a strong indication that there's very little headroom for a price increase at all - and in fact you may be over-priced at present. Withdrawing the change is easy, while you look at whether the problem is in the value of your service, your communication or some other factor.
If demand declines in new customer volumes but grows in dollar terms, you can be confident that at least the $45 price is robust. The next test is to reduce the promo discount - to 10%, say.
If volumes remain constant, end the offer, and now you can see for sure whether the $60 price is sustainable.
If volumes grow, you are in a more complex and more exciting situation! Possible causes include: your target market being more receptive to offers than to price per se, the higher price level being more appropriate for intrinsic reasons (for instance, security products with suspiciously low prices will suppress sales), or the higher price signalling a different comparison (en route from MVP you may have jumped a division of competitor products). This is a trigger for some rapid research!
Existing customers There are a number of sensible pricing policy approaches, and they each call for different handling of price increases. Whatever terms you have established, be careful that you always honor your side of the bargain, be ready to err on the side of generosity, and make sure you have thought through the situation where part of your existing base won't pay more regardless of the service.
If your current terms naturally spread out price increases (for instance, you honor sign-up pricing for at least 12 months) then you can test out the price change with existing customers very naturally.
Grandfathering Your ultimate defense here is grandfathered pricing, where you maintain old price plans for existing customers - but be aware that this is pretty much a one-way street. Once you've offered it once, you will have to offer it to all; and if you're expecting that next year you will be aiming for another 2-3 digit price increase, it's even more unlikely that these customers will reward your investment in your product.
So wherever possible, grandfather the proposition, not just the pricing. Then you can run a test campaign to the existing base, so you can learn what responses you'll get to the combination of an improved product and higher price.
Calling time Many start-ups I know are great at learning, lousy at forgetting. It's not at all uncommon to find that your service and your target market have changed radically since you set out. Knowing how hard you worked to sign them up, it can be hard to face up to the fact that part - maybe even a big part - of your established customer base is just too far from your present focus.
Be realistic. Do the math. It may be viable to serve all your existing customers indefintitely. Or the costs in serving what are now secondary needs, and the complexity of looking after customers who were sold on very different propositions may be unrealistic.
Sometimes the best way of serving some of your established customers is to help them to move on. In the end, the question is, "how committed am I to delivering great value to these customers?" And when the answer is, "not very," you need to call time.