Pricing Web Services: Step 1 – Three Buckets

In February 2005, 2ndSite went from Bronze-Silver-Gold (“three buckets”) package pricing to a total user customized pricing strategy.  What’s better?  Three buckets.

We switched because a handful of users complained about having to pay for things they weren’t using.  You cannot please everybody all the time, but we decided to try.  We switched to customizable pricing. Our new pricing did a lot of good for 2ndSite, but along the way we confused a lot people with the way we presented our pricing.

After spending time with Tom Wellner (2ndSite Advisor) over the holidays, we changed the pricing PAGE – but NOT pricing structure – on our website back to buckets.  The pricing can still be customized when you upgrade, but we chose two of our more popular packages and presented them as buckets.  Tom impressed upon me the importance of having your pricing in “three buckets” to make it SIMPLE.  Basically we had been trying to please everybody and therefore we were confusing people with our pricing plan. 

Again, what is better: buckets or custom pricing?  Buckets.  How do I know we learned this?  Since changing the pricing page on our site, our sign-ups/trails have increased 30%.  We had VERY good conversion rates prior to that.  This bump is great.  What’s amazing is our actual prices are identical, but just by presenting our pricing in three easy to understand buckets, conversions of first time visitors to trials have increased about 30%….that will affect our bottom line from here on in…Amazing the power of a single web page, no?  You know what I find weird?  The exact same number of people exit our website on the Pricing page as they did before.  Had the redesigned page not been the only site change, we never would have been able to be certain about the BUCKET FACTOR.  That is why we try to make on design change at a time and track the results.
 
I still have lots more to say about pricing.  I’ll get to it.  But step one is to think in buckets.  Thanks Tom.

11 thoughts on “Pricing Web Services: Step 1 – Three Buckets

  1. […] A while ago I wrote a piece about pricing web services and getting them into buckets.  I mentioned I’d write more so here goes. […]

  2. […] While I could go on for hours talking about the way choice could effect a persons buying behavior (I meant I could LINK for hours) I have found an interesting and very relevant article over at Michael Mcderments blog, developer of FreshBooks a billing app, about pricing structure and user choice and how it effects the bottom line. […]

  3. Freshbooks experimented carefully with customizable pricing and lived to write about it. Reader’s Digest version: they returned to three simple tiers and increased customer conversions 30%.

  4. […] Finesse Your Pricing– getting your pricing right is vital to your success and to ensuring you promote uptake and don’t leave money on the table.  Don’t be afraid to rejig it over time.  We are on our third pricing model and we have increased our rates every time and each time we do more people sign up and pay more.  Here are two articles (one, two) with more of my thoughts on pricing. […]

  5. […] Keep your pricing simple. The simpler your pricing, the better you’ll convert people into customers. I’ve always felt that having 3 plans is a good number. It gives you enough flexibility to put the right features into the right plans, and gives customers as few choices as possible. […]

  6. […] People pay FreshBooks to use their software. Check out their pricing. Mike McDerment has written about their experiences iterating through pricing models including the impact on conversion rates. But the business model is very simple get people to pay for your software. There are challenges related to the Freemium Pricing Model, where about 3% of registered users become paying customers. There are then 2 key metrics that the FreshBooks guys should be tracking: reach and conversion rate. Reach – how many people in their target market have had contact with FreshBooks advertising, at a conference, through customer evangelists, etc.? Conversion rate – how many registered users become paying users? Does pricing, features, adoption cycles, integration with other products, what are the pieces that drive the conversion to paying customer? The additional questions around customer retention exist, but lets assume that there is a high customer retention rate. […]

  7. […] Freshbooks (a software company) carefully experimented with customizable pricing and lived to write about it. Reader’s Digest version: they returned to three simple tiers and increased customer conversions 30%. […]

  8. […] “What is better: buckets or custom pricing?  Buckets.  How do I know we learned this?  Since changing the pricing page on our site, our sign-ups/trials have increased 30%.” – Michael McDerment, CEO of Freshbooks (Source) […]

  9. […] If you decide to go with a subscription model, you then need to decide whether or not to offer yearly pricing. It’s great for cash flow, but often less appealing to customers. A lot of software companies offer monthly and yearly packages, with incentives to secure long-term relationships. There’s no right answer. Each has its pros and cons. The most important thing is to keep the pricing simple. Don’t overwhelm with options. […]

  10. Hello,

    Just wanted to point out that your current pricing table is now offering five buckets, with two buckets/plans named quite similar: “Solo” and “Solo Unlimited”. So please be so kind to update your “three buckets is best” recommendation.

    Thanks in advance,

    Jens

  11. That’s a fair point Jens!

    Truth be told, I bet three buckets would be better than what we have, but we are using our pricing page to communicate some other things we feel are important for the business. We’re constantly testing and changing, but I’m inclined to just tell you: I think we would do better with three…at least in the short term.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s