I'm buying the book. And I'm paying for it too. Because:
-it's a great review you did
-you've written excellent stuff before
-people doing what you do deserve to be supported.
I appreciate the free link, thank you very much, but I'm paying. Cuz that's the way things should work.
What are your thoughts on freemium? IE: Offering some of the features for free but the really special ones have a cost?
Thanks for the post and book review. Timely as I'm working on pricing and package offering for a B2B buying network. I too would be interested in your thoughts around free, entry level offerings - hubspot certainly has this in its portfolio.
Excellent write up Dharmesh - thank you. I've been a product manager for years and determining pricing is always a challenge. I'm going to go buy this book now!
Great post, we have worked around a few different pricing plans on our software and we finally feel like we have it dialed in - for now!
I have downloaded the book and hope to read it soon.
Great article. I think that everything mentioned here applies to product pricing in general, not just software; and this information is especially relevant in this economy. Poor companies and products cannot just "get by" anymore, as consumers have sharpened their buying focus and tightened their purses due to the economy.
Ok since you did such a good job of describing your guessing on Price and the associated pain with changing it (adding a second tier) I will get the book so that I can learn more about Neil's approach as well as how to apply for my business endeavors.
Great post! We had a difficult time as well determining the price for our SEO management tool.
We kinda knew what the computational resources were (servers, API usage, etc.), and we did some homework on what other companies were charging for something similar, but it came down to what price did we think users would be willing to pay for the service, and not have to go and get multiple approvals for. Someone told me "you should take the price you are thinking and multiply that by 4" as their argument was if you price it too low, you will have a much harder time raising prices later. Well, I didn't do that, and the product is in free beta trial right now anyway. Thanks for the post - I'm going to buy that book too!
Very informative, thank you for posting!
Just saw some Hubspot guys at the ULS meeting in Boston a couple of weeks ago. Cool stuff, congrats on the success, and all the power to you. Good article and I agree with previous comments, definitely applies across the board product wise.
Just got the book. Sounds like a fantastic read that I wish I had six months ago. A big struggle of ours was the pricing model.
Great article. As a business coach I find that mis-pricing is a mistake that many small business owners make. This article should make them think.
All excellent insights. From a broad perspective, I look at pricing as top: what the market will bear; bottom: your absolute minimum that makes sense to stay in business. Use reference points as well as a starting point, i.e., how are similar products/services priced and the associated consumer behaviors. Then, differentiation value moves the price up; competitive forces move the price down. And don't forget, your price will influence consumer behavior -- be sure you understand what actions you're trying to drive, i.e., signups, usage, etc.
If you happen to skip it until now, that MYPS site is spam. Maybe it's great, but not as helpful as this post for sure.
Thanks Dharmesh for another excellent review!
Really a "good" read...
The main point is to have a clear idea of what is value the customer is giving to the product and what is different from other "similar" solutions. In software products / solutions what you folks shouldn´t be doing is to base a price on your costs.
Regarding the book, since I live in Mexico City I´ll take the offer download it.
Thankyou for a great article. Pricing software is an issue that my partners and I are struggling with right now. And yes, I've ordered the book on Amazon,
Thank you for a great post, and for linking the book... I will delve in ASAP!!! Appreciate all the pointers...
Good post. I think there's a better way if you're doing webapps though. Since you can change the price for each customer in the backend code you can actually start doing statistics and find out where you maximise your profit.
I wrote about how it can be done here: www.maximise.dk/blog
This is the right link for the above comment: http://www.maximise.dk/blog/2009/01/getting-product-pricing-right.html
Since you can change the price for each customer in the backend code you can actually start doing statistics and find out where you maximise your profit.
Not a good idea. Go to the Google Sketchup site and buy Sketchup Pro. You'll be charged £341.00 + VAT (in the UK).
The problem with this is that there are other Google documents that list the price as £318.00 + VAT.
How do I know this? My girlfriend purchased Sketchup Pro, then a few days later an email from the evaluation program arrived with a link to the page with the £318.00 prices in it. She was livid! She called them "bastards".
I contacted Google Sketchup sales team and sorted the issue out (she got a refund of the difference).
Think you can get away with this? People will find out. Private, per customer deals based on volume are one thing, but split testing them like you are saying, thats another kettle of fish.
As for Neil's book. Its a good read. I'm not a fast reader. I read this book in two sittings in one day. Worth reading.
When posting the previous comment I noticed that you site contacts Google Analytics. Why? Surely you are using Hubspot on this site? If you are using Hubspot on this site, why would be using Google Analytics?
Thanks everyone. All of your interest has helped drive Neil's book up the charts on Amazon.
Stephen: I do use HubSpot analytics as the primary tool for tracking things on this blog, but I like to keep GA running just so I stay up to speed on what's going on.
I'm with Charlie on this one (Charles H. Green) and buying the book!
thanks for the excellent post,
You have a good point, and the problem hasn't escaped my attention.
It's a tradeoff of course, and I think the model should only be used initially to find the right price point. I haven't done the math, but I think you can hone in on the optimal price with surprisingly few samples.
There's of course also the possibility of letting potential customers go through with the purchase, and only afterwards inform them that the price they were willing to pay is above the price that is charged, and they will only have to pay the lower price. The problem can certainly be solved with a bit of psychology.
Great Posting at good timing at least for me.I am planing my product pricing at http://theinfoz.com and I got this article.
Thanks for sharing such a valuable with the community
I hope I will be able to find out the right price for my new product which is online assessment for students and professionals, considering all the factors you have pointed out.
In my view doing this exercise twice or thrice and seing the result can make a technical person also do the costing.
Good luck and thanks for sharing the points.
Very nice and informative article. I have downloaded the book and am sure it would be a nice read too.
I am offering my products through my websitewww.apnitaly.com
which provides free service to the users of Tally accounting and inventory management software. Lets see how successfull i will be in my product pricing.
I do not like the most popular SaaS pricing model- freemium. Here
I talked about why? The ethical question here is who is paying for all the free accounts? You guessed it right- the paying customers. What a irony. However, freemium model makes sense when I group users say buyers are subsidized by another group of users- the sellers. In this case everybody wins. See why we priced
I would be interested to hear from you all the issue I raise about freemium model.
Yet another great article from Dharmesh. Pricing is an area that can be very tricky for most entrepreneurs. Particularly love point #8. This is the Jobsian (Apple) approach - keep the pricing tiers to the minimum to avoid customer confusion. Another mistake I have seen people make is to use "cost-based pricing" (adding a markup over one's costs).
On a lighter note, here is my favorite pricing model. "Flinch-based pricing". http://lsvp.wordpress.com/2009/04/23/flinch-based-pricing/
This is a great article, you could even take out the generic principles and use it accross any business. Thanks for the link and the free download. You deserve to be successful for all your efforts and supported. All the best with your business! Roisin
Starting from the same source I wrote too my ideas about pricing for the particular case of new online services: Pricing an online service
It works for startups.
Ah, the age old problem of 'how much is it worth?'.
Good article here, and yes you should do some analysis of what the cost will be. Whether it is a product or service, you can calculate what the cost is of production - you can also check out what the competition charges.
Remember it is very hard to put your prices up!! So get it right first time.
I tried to buy it on amazon, its out of stock. I am downloading it as of now. Is there a way I can pay the amount directly to the author?
Dharmesh, thanks for the great post! I've been looking for a better way to make decisions about pricing our different software modules, so this is very timely Incidentally, the book was sold out on both Amazon and B&N (speaks volumes to your influence :-) but I found it at a smaller online bookstore.
My startup is just at the point where we are deciding on price, and I stumbled across this ebook some time ago. I posted a mini-review on my blog with takeaways specific to my company -- a pre-revenue SaaS startup. Feel free to take a look:
Great Post! Your summary was great and the topics covered validate my own experiences. I will be buying multiple copies of the book as xmas gifts for business partners who may be tired of my thoughts on the subject and more apt to accept the concepts when espoused by others (especially in print).
Be careful what you do. It is illegal in the UK to advertise at price X but then charge more than X for the purchase (*). Charging less is OK.
Other jurisdications will be different.
Hence my comments. If Google Sketchup had refused to refund the difference they could have ended up in court with all the negative publicity involved. The did the right thing, with the minimum of fuss etc.
(*) Unless the higher price is a result of VAT being added to the price.
You are meant to advertise prices including VAT, but with the internet that isn't possible - to cover all possibilities you have to advertise the non VAT (sales tax) price and include a notification that VAT will be added if applicable.
Good and lots of information in this article.
My advice, start of course by taking all the existing info that you can find but then don't forget to ask your potential customers about the price they would be ready to spend on your service/product.
Do some primary research
, quantitative research
First of all, kudos for this book. Having been involved in pricing for my company's product line, I followed many points the book outlines, although that was about a year ago. That's why I can relate to it - the product we sell is actually doing quite well. We being an Indian company (now 6 years old, with multi-geography location, self-funded) had to think a lot before the pricing, especially for different regions for different packages and the points I read about make a lot of sense even now (now that I am a lot wiser).
Couldn't have come at a better time, and my heartiest thanks to the author for sharing it. Look forward to more stuff like this coming our way.
AVP, Marketing Strategy and Channals
Thank you for your post. Very informative and great thoughts to keep in mind during the process.
I'm good with everything except for #4. That one just doesn't seem right. I'll have to check that one in the book. With #6 I would not be too quick to change you plan just because the market responds. Hopefully you took this possibility into account in your planning. If you just pull your price out of a hat how do you know how to respond? It's curious. Thanks for the article and the reference to the book.
Pricing isn't rocket science. But software pricing is especially tricky because of all the "moving parts" in an offering which includes product characteristics - features, UI, speed, reliability - and services.
"Rolling the Dice..." is a great start but life gets really complicated when it comes to the use of packaging, positioning against a range of competitors and sales across multiple segments.
With all the competition in SaaS, it is crucial to get the price-value balance correct. Some of the resources atwww.softwarepricing.com
might be useful.
Great information - thanks for sharing. Any chance you'll drop your price any more or offer a "small business" starter plan ;-)
Great advice for startups! I wish I'd read this two months ago when we started creating (then scrapping and restarting multiple times) our pricing algorithm. I'm going to read that book though...we might have to modify our pricing after I read it! Look forward to reading more posts.
Great advice, especially item 1 and 2, which we most often tend to overlook. Thanks
Thanks for the timely pointer. I just downloaded the book. During our pricing exercise for our <a href=http://www.Leadpro247.Com>LeadPro247 marketing automation service, we went through several iterations before zeroing in on a suitable pricing plan. It is certainly not a pure science, though it cannot be finalized by rolling the dice. It is difficult to quantify the perceived value and hence takes time. I guess Neil's book will be of great benefit; let me go read now!
My son sent me a link to this blog question as I am the owner of a Software Company that had this challenge a number of years ago. I enjoyed the topic and the comments so I thought I would add to it.
At the time I worked for another company and I was nurturing a new software product I and a partner at the time developed. The new product’s best fit was the manufacturing sector. A colleague at that company was working towards his MBA at a very prestigious Canadian University and suggested he would speak to his professor and have the pricing of the product as an exercise for the class. The professor agreed and they went to work applying the best techniques of the time to the pricing exercise. At the end of the process the professor commented to my colleague that the results were only to used as reference material for the ultimate decision and he then added “tell him to test a high price, a middle price and a low price and go with the best result”.
Needless to say I was somewhat underwhelmed with these results and felt no further ahead.
Ultimately my decision on pricing was determined by my work on a Purchasing System and had to implement signing authority levels. I knew from experience that the customer who would make the purchase decision of my new product would be a first or second line manager. My work on the signing authorities told me that was between $500 - $1,000 at our company. A little more work told me that the $500 mark covered the majority of companies I researched so the price became $499.
To date that product has sold in over 70 countries around the world. Not sure what mark the thought process would get in an MBA program but it worked for us
Very useful article. I'm halfway through the ebook and it's been really enlightening. Great for entrepreneurs to get a real understanding of how pricing works.
Very Usefull article. I guess Neil's book will be of great benefit
Fan Of Google
I forgot to mention that dharmesh has won so many awards.. that really great.
Fan Of Google Jay
this is a great commentary. For those of us Geeks who love technology and have no idea what a pricing model should look like, this seems like a great place to start. I will definitely be picking this one up.
As a recent buyer of CRM software, I find it very difficult to accept when a big quote is provided (me not coming from a software background). So, we have just employed an IT manager who deals with all issues related to IT.
Quick Lingo Ltd
Great post Joe very useful
Dharmesh, I cant believe that the $250/month price was picked just like that. When we were picking the price for our product, we figured (based on several assumptions) how much it would cost to reach 100 ppl and convince one of them to buy the product. The price was based on that cost and some margin. And we are nowhere as successful as HubSpot.
I just signed up for HubSpot btw - the $250/month product. Perhaps inbound will be more successful than outbound and the analysis will not matter even a bit. Or so I hope!
Well said, I fully agree as I posted these articles for startups to remember:
<a href=http://reboltutorial.com/businessmarketing/cutting-edge-technology-is-just-half-the-battle/>Cutting Edge Technology is just Half the Battle … I Know It When I See It: A Modern Fable About Quality
Marketing as an entire process also includes the vital auxiliary functions of production planning, production and dissemination of market information, financing of markets and their administration, the activities of marketing intermediaries, the provision of training and extension to individuals and groups involved in marketing, and research activities which seek to improve the marketing system in some way.
Dharmesh, thank you for the wonderful post! I've been looking for a better way to make decisions about pricing our software product.
Great info as usual Dharmesh, joined Hubspot about year ago and it has been a very helpful tool.
Great post Dharmesh. Happy DeLurking Day 2010. http://www.jeffbennett.com/2010/01/today-is-delurker-day/ ...a few days late. I have you on my blog roll and lurk @ your blog often. i am going to try to get more into the dialogue this year with comments. I encourage you to do this same on my blog. Rock on.