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Ask 37signals: How did you come up with pricing for your products?

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Re: Ask 37signals: How did you come up with pricing for your products?

#11

Post by jcl »

aneesh wrote: post #10
staunch wrote: post #5

The first time I charged for a web service the hard part was getting over the guilty feeling that I was charging for something that cost me almost nothing. That's definitely not the case of course. I had to develop it, support it, pay for hosting, etc. Still, it takes a bit of strength initially to begin charging money for little more than adding a few rows to your database. From the inside it's really easy to underv…

> "I was charging for something that cost me almost nothing" Don't charge based on your (marginal) cost; charge based on the value you are delivering to your customer.

...which is another way of saying "Charge based on what customer is willing to pay". (Not that there's anything wrong with that.)

Re: Ask 37signals: How did you come up with pricing for your products?

#12

Post by cstejerean »

il wrote: post #6
ashleyw wrote: post #3

I think its just from their experience as customers elsewhere. For me — $10 for a simple service seems a little pricey, $9 is basically $10 still, $8 is still a a tiny bit high — but $7 is the sweet spot! Same goes for higher prices too — I like $37 rather than $40. I'd think less about paying $17 for a service than $20, $19 or even $15! Not sure why, maybe its because the $7 on the end becomes my focus:- its still t…

Numerous psychology studies have found that .97 is the new .99 - you're already used to rounding .99 up to $1 but not $.97

I've noticed some stores use the cent amount to indicate other things about the price like what kind of discount has been applied. So for example .97 might mean it's on sale, and .95 might mean it's on clearance.

Re: Ask 37signals: How did you come up with pricing for your products?

#13

Post by cosmo7 »

il wrote: post #6
ashleyw wrote: post #3

I think its just from their experience as customers elsewhere. For me — $10 for a simple service seems a little pricey, $9 is basically $10 still, $8 is still a a tiny bit high — but $7 is the sweet spot! Same goes for higher prices too — I like $37 rather than $40. I'd think less about paying $17 for a service than $20, $19 or even $15! Not sure why, maybe its because the $7 on the end becomes my focus:- its still t…

Numerous psychology studies have found that .97 is the new .99 - you're already used to rounding .99 up to $1 but not $.97

Yes, numerous, with the case here being that the number is zero.

Re: Ask 37signals: How did you come up with pricing for your products?

#15

Post by blurry »

37 guys write great fiction but let's look at reality. Their pricing is cost prohibitive for truly small teams. If I were to use them as a "productivity suite" for, say, a one-two person team (the lowest possible pricing combo) it would set me back $804/year.

Given that an individual freelancer is the most common scenario as far as their potential users, they are probably severely limiting their sales by setting their pricing the way it currently is. Personally, I subscribe to their backpack service only. I would like to use their other services but the high price tag keeps me from doing so.

Or how about this from their Highrise website:

Basic plan - 6 users - $24

Solo plan - 1 user - $29

Does that "feel right" to you?

Re: Ask 37signals: How did you come up with pricing for your products?

#16

Post by webwright »

blurry wrote: post #15

37 guys write great fiction but let's look at reality. Their pricing is cost prohibitive for truly small teams. If I were to use them as a "productivity suite" for, say, a one-two person team (the lowest possible pricing combo) it would set me back $804/year. Given that an individual freelancer is the most common scenario as far as their potential users, they are probably severely limiting their sales by setting thei…

No, it's really not prohibitive, though I suppose it depends on the team.

Take a 3-person team, each making $50k/yr (that's really low for consulting professionals, but hey-- let's aim low). Add burden/benefits/support costs and a fully loaded person is generally 2x-3x in cost. Let's say 2x (again, aiming low- maybe they pay for their own hardware/software/work from home and have modest benefits). That's $300k in employee cost per year. $70/mo is a drop in the bucket next to $25,000/mo in employee cost.

So I guess it depends on what kind of company and what "truly small" means for you. But if you're really talking about COMPANIES (with payroll, expenses, revenue, and a smidge of profit), they've priced it at "impulse buy" level where any shmoe with a biz credit card could thoughtlessly buy it.

If you're talking about "3 startup guys with no revenue living on rice and beans", then it's a different story... But that's such a tiny market that it's really not worth mentioning (or catering to).

Re: Ask 37signals: How did you come up with pricing for your products?

#17

Post by blurry »

webwright wrote: post #16
blurry wrote: post #15

37 guys write great fiction but let's look at reality. Their pricing is cost prohibitive for truly small teams. If I were to use them as a "productivity suite" for, say, a one-two person team (the lowest possible pricing combo) it would set me back $804/year. Given that an individual freelancer is the most common scenario as far as their potential users, they are probably severely limiting their sales by setting thei…

No, it's really not prohibitive, though I suppose it depends on the team. Take a 3-person team, each making $50k/yr (that's really low for consulting professionals, but hey-- let's aim low). Add burden/benefits/support costs and a fully loaded person is generally 2x-3x in cost. Let's say 2x (again, aiming low- maybe they pay for their own hardware/software/work from home and have modest benefits). That's $300k in emp…

I've never "met" a company that does tech consulting that carries just 3 employees. You either have more people (developers, designers, infrastructure, sales, HR, etc) and so the shop will invariably go Microsoft or something similar where they own the data (and by no means allow an "impulse buy" when it comes to their precious rolodex), or you are talking a couple individual freelancers teaming up on a specific project.

Of course there are some bigger clients for whom $70/month is not a big deal but I was talking scale. Would you rather charge $70/month to a 1,000 clients or $25/month to 10,000?

(And let's please not make sophistic arguments about "3 startup guys with no revenue living on rice and beans". It doesn't make for good discussion when you pretend that I made an obviously ridiculous statement and then refute it).

Re: Ask 37signals: How did you come up with pricing for your products?

#18

Post by webwright »

blurry wrote: post #17
webwright wrote: post #16

Earlier quoted context omitted.

No, it's really not prohibitive, though I suppose it depends on the team. Take a 3-person team, each making $50k/yr (that's really low for consulting professionals, but hey-- let's aim low). Add burden/benefits/support costs and a fully loaded person is generally 2x-3x in cost. Let's say 2x (again, aiming low- maybe they pay for their own hardware/software/work from home and have modest benefits). That's $300k in emp…

I've never "met" a company that does tech consulting that carries just 3 employees. You either have more people (developers, designers, infrastructure, sales, HR, etc) and so the shop will invariably go Microsoft or something similar where they own the data (and by no means allow an "impulse buy" when it comes to their precious rolodex), or you are talking a couple individual freelancers teaming up on a specific proj…

FWIW, I ran a consulting shop for 8 years-- early in its life, we had 3 employees. Then 4. Then 5. Then (ultimately) 15. Happens all the time.

Can you show me a real business (with revenue and profit) with any employees who would be concerned about $70/mo? Or more importantly, the difference between $70 and the price that you think would be more appropriate?

The rice/beans argument wasn't sophistic-- it was an acknowledgment that yes, there are certainly tiny/new companies with little revenue/profit for whom $70 would "move the needle". 37Signals fails to capture these customers every day.

The 3-person example was aiming at the lowest end-- trying to show that even the tiniest business with profit and revenue would be silly to care about $70/mo if it helped their business be more efficient. The larger the team, the more ridiculous it sounds to say that 37s pricing is "prohibitive".

The $70:1000 customer vs. $25/10,000 is the crux-- Are there 9000 (90%) businesses/teams out there who would change their decision based on $45/mo? As a guy who has sold products and services to businesses for 14 years, my gut says no. It's all about the demand curve.

Great read on software pricing here, if you care to read it: http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...

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