Pricing strategy · Psychology

What are the best options for a soft launch of a subscription based platform?

Misha Britan

May 10th, 2015

We are a platform for real estate agents to both upload their own content and can use ours as part of a marketing strategy. 

I am thinking to roll out with 3 sandwiched options, where the two less attractive ones, steer the client to another more attractive one. Options would be: 

1. Blank platform, to use your own content - $10/month. 
2. Use of our content only, and not upload more - $12/month. 
3. Upload your own content and use ours - $15/per month. 

Is it obvious which I hope they will choose? Is there a better pricing strategy? 


Daniel Farmer Vice-President Sales & Operations at Baldgorilla

May 10th, 2015

My input as both having done some SaaS pricing models contract in the past and also being a real estate agent (personal transactions)

The price of something is the willingness for another to pay that price. Simple terms is you need to find out what is the problem you are solving, then establish the cost of that problem for real estate agent. Then anything below that or equal (if you dramatic ly improve the problem) is what you should charge.

If too high above current cost then nobody will adopt if too low your leaving money on the table.

I also agree with the above comment to have a simple price structure. Unless there is a need for two tier pricing than I would analyse more.

My approach would be offer a free service that has the common functions from other solutions in the market then offer your secret sauce for a month. Then have a paid model.

Check out linkedin approach to revenue generation.

No one right answer.

Good luck

Michael Brill Technology startup exec focused on AI-driven products

May 10th, 2015

Just have a single price.

It kind of sounds like you just read Predictably Irrational and are creating a problem that doesn't exist just to solve it. If you have a domain where there is there is too much choice then employing this sort of model may make sense. 

Here, not so much. Once someone has decided that they want to use the service, make it as easy as possible for them to buy. On a side note, your price band is so narrow and the feature selection so random that it looks completely contrived - a big turn off, even if it made sense.

Michael Brill Technology startup exec focused on AI-driven products

May 10th, 2015

I'm not sure what $1/month buys you... except some grief. You create a barrier to pull out a credit card without an associated revenue upside for you. What about just a free tier and a priced tier? Or a priced tier with 30 day no credit card trial?

Just don't see the rationale for multiple pricing tiers.

Misha Britan

May 10th, 2015

Thanks Michael, 

I have indeed read that book, and thought to act on that advice. 
But I do hear your point, perhaps a simpler $1 per month blank, and $10 per month with the content would be best. 

Misha Britan

May 10th, 2015

In my experience, when something is free, people forget about it too quickly; paying even $1 makes their return more likely, once they overcame the CC barrier, and thus spent that energy. 

On the flip side, you could say that such stickiness is a good way to test the true value of the platform. Thus an argument for the free use. 

Michael Brill Technology startup exec focused on AI-driven products

May 10th, 2015

Misha, can you point me to some successful sites that have a $1/month option? That strikes me as a gimmicky turn-off, but maybe it looks different in person? Also, is there a reason you feel like you need to innovate on pricing models?

Misha Britan

May 10th, 2015

No, I can not. Not without looking quite a bit. 
The reason would be a very limited audience, with very high touch. 

In other words, I am only considering this for this initial and special case.. 
BTW, this is not to counter point, in fact by now, I agree with you, and appreciate your thoughts. 

Sam McAfee Building better technology leaders and teams

May 11th, 2015

Pricing should be related to the unit economics of delivering the solution. Each of the different pricing options has its own set of assumptions around that, right? If you have a financial model, you should be able to sketch out each of the different options and see which one is more realistic.

For example, let's say it costs you $10k / month to operate (I am just making that up). You need 1,000 customers paying $10 / month just to break even. Part of that $10k is presumably some kind of variable advertising or other customer acquisition cost (CAC). What's your cost to acquire 1,000 customers? What's the average lifetime value (LTV) of a customer (which of course you don't know, but you'll have to take a stab at it). Cost of acquisition should be no more than 1/3 of lifetime value from what I understand.

What if the CAC portion of that $10k has only got you 500 customers so far? Maybe you need to increase your ad spend. Well, that just changed your monthly burn. So you have to factor that into the model. And you have to continue to update the model as you collect data. Because when you start out you have like a dozen customers and all of this is just speculation.

So if you are offering a free tier, that's basically marketing costs, right? You're trying bring enough people in so that some number of them convert to paid to make the unit economics make sense. Well, how many people is that? Are there enough of them? Can you get to them? How much does it cost you to do that?

Freemium only works well for products that either have a viral component, or the user comes to depend on them for personal data or storage (a la Evernote). If your real estate agents are going to be storing tours that they reuse over and over, and you set a limit for the free tier, maybe they are incentivized to upgrade.

I don't think the $1 thing makes any sense, and I haven't seen any products doing that (and I review a lot of SaaS products). It sounds like your intention is to reduce churn by erecting a small barrier at the point of sign-up. If you want to try a free tier, why don't you try looking at your engagement model more closely. Maybe there are features in that free tier that can help with referrals, reducing your CAC?

You're basically segmenting the market, or not, and assuming that some users will always be freebies, and some will be paid, or they are all the same. What's different about their behaviors in these supposed segments? If that segmentation doesn't exist, then you shouldn't try and split the market with freemium. Are there agents that only look for free tools, but will gab about it to their colleagues? If not, forget Freemium. Also, you can offer coupons to emulate free and see if your conversion of those folks to paid make offering a permanent free tier worth it.

That's what should drive your decisions, not these abstract notions of perceived value or not. (1) What is the market segment used to doing for products like this? (2) What do they pay to solve this problem with other solutions currently, and (3) if there is a segmentation around price, does the lower segment do something that inherently helps market to or convert into the higher segment. And (4) does the model work with which ever the answers are to these questions.

I honestly think that wrangling with pricing experiments with too much precision at this point is way too early. Just pick something that doesn't have you loosing money and start trying to sell it. You can always adjust it later if it's not too drastic.


May 11th, 2015

I agree with most of the above comments, but I would also like to add that my initial reaction was that there might not even be any users who want to use both. It could be that you drew the bundle lines right down a natural segmentation divide meaning that no user would feel inclined to opt for the bundle.

If I am the type of person to want to use my own materials why do I want any of your content? If I want your content maybe I lack the skill/time to make my own.

Bundles are valuable because they are able to sell features to people with variable valuations. In terms of cable TV you pay for hundreds of channels but everyone only watches about 12 of them. Lets say everyone values their top channel at $20/month, the next 11 at $2/month and all other channels at $0/month. The entire package of 100 channels is worth $42 a month to everyone, but if they each have a random preference of channels then selling them all together is the best option for the cable company. That way they get $42 a month from everyone. If, instead they charged $2/month per channel people would just buy about 12 channels and would only pay $24/month. That is an appropriate time to offer a bundle because the company gets to keep the extra value customers attribute to certain channels by obfuscating how much each individual channel costs.

The proposal you made, however, might have just given all potential customers the ability to select the part of the package they wanted at a lower cost. They may have a near $0 valuation of the other part of the bundle and actually have no incentive to go for the third option.