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.
Pricing is an incredibly hard thing to do. As I mentioned in the last post, getting things into three buckets is really important, so I want to talk today about yearly packages.
At first blush offering your customers a yearly option may seem like a great idea. For one, you lock them in for a year – this is good. For two, you have more cash right now – this is also good. There are two major problems with yearly packages though.
The first problem is too much choice. When you talk about getting your pricing into three buckets to make your pricing simple, adding yearly packages (assuming you are doing monthly packages in the first place) will double the number of packages you offer. So right out of the blocks you have 6 packages which is three too many. [Note: if you question this, read the pricing buckets post].
The second problem is the smoothness of your cash flow. Reporting, monitoring and improving monthly cash flow is much more manageable and consistent with monthly packages than when you try to manage yearly subscriptions. As a start-up cash flow is king. Demonstrating steady growth is key when you are talking with stakeholders. Monthly packages can derail your revenue reporting if you have a relatively high or low number of annual sign-ups in any given month. With monthly packages, these fluctuations and their effects are moderated.
I’m going to post more on pricing again in the future. By the way, Levi and I are presenting at DemoCamp 8 tonight. If you are there, please say hello.