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Many customers gives you more flexibility. Your incremental return goes up with fewer customers, meaning losing 1 hurts more the fewer you have.
Earlier quoted context omitted.
Maybe it's not that they pay more that makes them more likely to work with you, but rather there's something about people who have more money to spend (ex Enterprise-level customers) that changes their awareness of the realities of the solutions they buy.
They are convinced of the value and therefore less likely to abandon the product because of one negative. Whereas if you aren't sure the app is really doing something for you (making/saving you money), you're more likely to bail and just get your money back the moment it goes South.
My favorite part of this article was the first half of the summary: "If you want happiness and fulfillment from a small company, strive for B" $10,000/mo revenue with only 10 customers to keep happy vs. 1000 customers to service? Yes, please. Company B could have just as much potential for growth as company A. Sure A has the potential to have more brand evangelists bringing in new customers but B has more time to dev…
On the other hand you need just one cost-cutting round or one unforgivable support foul-up to lose 10% of your revenue overnight. Model A likely won't see that kind of volatility.
Strive to get many customers paying a high price for your product. Apple computers and IBM mainframes are two of the most profitable product lines in IT history. Personally, I love the high stability of a broad consumer base. However, you can architect a successful business either way.
Easy...both. Keep the $10/mo plans for consumers. And offer the $1,000/mo enterprise plans for enterprise. That way your cheap customers will drive a lot of your high end sales.
Maintaining two product lines for two segments is a recipe for lack of focus and serving two masters. In the end you will choose to focus on one at a time and may never do both.
nothing is stopping you from just limiting the products.
Normal Accounts? Max 5-20 users.
Enterprise? Unlimited Users
no real difference between the products except for a single value
It has to be low, but it shouldn't be too low!
- Early adopters really don't mind paying more
- If the app has some intrinsic corporate value it can be priced higher
- Pricing "sets the tone" of the product
For example, a regular user won't mind paying $1 compared to a $0.10 product. So charge $1
And think of how many copies you have to sell more at price X to profit like price Y.
Suppose an exageration: price X is $1 and price Y is $100. Is selling at price X really 100 times more difficult than at price Y?
Selling 5 units at Y price may be difficult but selling 500 units at price X may be harder
You don't want to celebrate 1000 sales at $1, you're still starving at the end of the month.
Strive to get many customers paying a high price for your product. Apple computers and IBM mainframes are two of the most profitable product lines in IT history. Personally, I love the high stability of a broad consumer base. However, you can architect a successful business either way.
Apple charges a high price relative to its cohort but not its customers' aggregate spending - recent times see it it pushing towards r-strategist behaviour (lots of lower paying customers, e.g. iPad).
If Apple were pursuing a k-strategist mentality (few, high paying customers) I would not have to wait an hour to get serviced in New York, I'd have small batches of product with bleeding edge technology, and I'd have a personal support rep and probably custom app developer.
— always —
prefer a higher margin and fewer customers.
On the plus side, things can move more slowly and in a well thought out way. Also, there's no worry around your usual "web scale" issues. There's also a lot of freedom around exploring new ways to do things because of the slower pace.
On the down side, the customers sometimes put insane requirements in our contracts. Security audits, source code in escrow, huge amounts of insurance, long weekly meetings. The culture of bureaucracy bleeds if you're not careful. Also, income is lumpy and one client can end up costing more than they're paying you if you're not careful.
All in all I think it's the best kind I've experienced so far. That's probably because my employer has done a great job of insulating me from the down sides though :).