You Can’t Make Money Charging $1 Per Month

It is exceptionally difficult to run SaaS businesses with low price points, principally because you'll often be cash flow negative with regards to marketing spend. e.g. even if the LTV of a customer is a few hundred dollars, to scale the business, you may well be paying $200+ in customer acquisition costs. (Check the price for AdWords clicks on e.g. project management or invoicing sometime. Oofdah.) If you quickly recruit a couple hundred users, you may well be tens of thousands of dollars in the hole for the better part of a year. That can be challenging without receiving external investment. Even funded companies can fall into the same liquidity issues, typically by hiring large sales forces who take years to ramp to the point where LTV from customers exceeds the costs and commission of the sales guy who closed the deal.

Also, with regards to selling to teachers: I know you think they're stingy. I thought they were stingy. Empirically, there are at least 5,000 or so teachers in America who have paid $30 for a bingo game they used once. $1 is not not not not not not not not not not not an appropriate price point. For those teachers who think $30 is a lot of money, wish them happy fulfilling lives and move on.

Obviously, the main argument against a $1 per month is the fact that you need to provide a lot of support. From my experience, this depends heavily on the target audience I guess, but I completely disagree.

I ran a website for a couple of years without thinking about turning it into a business. Finally, shortly before I graduated, I decided that I need to make money from it, otherwise I can't sustain it any more. Over the years, 30,000 people used my "startup" and in the end, I had a round 5,500 active users.

I thought a lot about the pricing model, but turning a free service into a paid one, is not easy and truth is, I'll never find out how it would perform with a different pricing model. So I just made a decision and tried it. I decided against freemium and started charging 1€ at the beginning of this year. The intention was to make it a no-brainer and convert as many users as possible. I converted about 50% of them. People pay either 6 or 12 months in advance (to lower the transaction costs).

My greatest fear was that there would be a lot of people who are not satisfied and want their money back or that I'll end up spending a lot of time on support emails.

Thruth is, from now 4,000 paying customers. I had exactly 1 person who wanted his money back. I receive about 2-5 emails per day, mostly telling me how great the service is and what kind of features they would like to see.

I literally spend 10 minutes per day on customer support.

Fact is, it depends on your business and something that doesn't get mentioned in the blog is that people don't care too much about a lousy dollar or euro per month to complain about something (some do, however, but rarely).

Most people who run cheap ($1-3/month) services don't bill monthly. They usually bill in 6 or 12 month increments for exactly this reason.

We're in a similar position at the moment, trying to decide how to price a specialised monthly subscription service.

Our potential global market ranges from people who tend to have very limited time, and who might therefore put a substantial value on services like ours that help them save it, right through to university students with very limited funds (and, let's be honest, a tendency to obtain media content through not entirely legal channels).

We've been working on ideas for pricing plans, and soliciting feedback from people within our market, but you never really know how things are going to go until you launch and ask people to put their credit card numbers into your system. That goes double when much of the informal feedback you get in the early days comes from friends/family who will have a tendency to be kind.

If anyone has any experience of this sort of decision and how they changed their plans over time, I'd love to hear it.

(Shameless plug: We're also interested in any experience of making informed decisions using metrics in the broader sense. Unfortunately my question last week only got a couple of votes before it fell off the New page, but please feel free to comment there as well: http://news.ycombinator.com/item?id=2686151)