Pricing a product is one of the most daunting challenges in business. The stakes are high. Undercharge and you leave money on the table. Overcharge and you scare off prospects. For freemium products, knowing which features to hold back (in order to drive upgrades to premium accounts) can be like blindly navigating a minefield. Until now, that is.
Charge for features no one cares about enough to upgrade, and no one will upgrade. Charge for features essential to user engagement, and no one will stick around long enough to build a relationship with your product and upgrade. Knowing what to charge for is essential and specific to every product.
Fortunately, some patterns have emerged that we can understand and use to improve our own pricing methodology. Let’s look at 3 SaaS products that intelligently aligned user experience and pricing to capture maximum value.
Buffer lets you share content to social networks more effectively. The value is both convenience and efficacy. You can share to multiple networks (Facebook, Twitter, LinkedIn, etc.) with a single click.
Moreover, Buffer automatically schedules posts for you and spaces them out. This way, you avoid overwhelming your followers, appear to be active on social media all the time, and most importantly, get higher visibility and click-through rates because Buffer is helping you optimize the timing and distribution of your content.
You can get all of this value without paying a dime. Yet Buffer is on a $1M+ run-rate with more than 10,000 people paying $10 every month for their Awesome Plan. Why? Here are some of the things they do that make people upgrade:
Put a Cap on Core Functionality: More Posts
Suppose I am a social media personality that other people follow for advice on certain topics, like user experience or product management. Or, maybe I am a community management team for a brand that needs to maintain an active presence for our followers. I will be sharing a lot of content. But once I have 10 items in my Buffer, I need to upgrade in order to add more items.
Given that the core behavior of sharing on Buffer is indeed valuable, users who need more posting capacity are likely to pay when they hit the limit. However, it’s important that Buffer allows users to first share up to ten posts in order for them to experience and understand why this sharing is valuable. Paying upfront with no free option would require a pipeline of prospects who know the value of social sharing optimization. In a new market like social sharing optimization, this level of consumer understanding is unlikely.
Identify an action that your best users take. Does that action provide users with value when they take it but cause a little pain if you limit how many times they can take it? If so, it is a feature that could be given some sort of cap among your free user base.
Make Life More Convenient: More Synchronized Accounts
Earlier we pointed out that Buffer is a convenient way to share across networks. It would be annoying to have to post the same content across additional networks instead of just once, seamlessly.
Notably, Buffer lets you sync a couple of accounts for free. (I have my Twitter and LinkedIn accounts connected.) But as soon as it is clear that a customer is, say, a business with a social media presence across multiple LinkedIn groups, Facebook pages, Twitter accounts, and so on, then there is a pay wall. Buffer deliberately lets you get a taste with a couple of free synced accounts without giving away the entire sync system.
If users could get away with syncing unlimited accounts and there was a cap on only the number of posts, I would guess that fewer people would upgrade, and those people would just cope with slightly slower content pipelines.
Can your product do something automatically that is mindless for someone to have to do on their own? Making it clear you can do it for them, but requiring an upgrade to unlock the convenience, often tempts people past the free plan.
WebEx is a conferencing solution that allows users to start for free, but they must pay for premium features, such as including more participants and a dial-in number.
Help People Avoid Looking Unprofessional: Add Participants
WebEx charges if you want to add more than just two participants to a call. Sure, you could just forward the invitation to as many people as you want, but they won’t be on the meeting invitation formally.
Meetings tend to be defined by the attendees. If you leave people off of the invitation, so they don’t receive a formal meeting invitation, they may feel unwelcome or think you behaved unprofessionally (if they even attend!).
There’s a certain standard expectation for invitations that come from systems – either Google Calendar, Outlook, or a conferencing system like WebEx. Receiving a two-liner from a vendor with some jotted-down call information may not seem quite legitimate.
If you are serious about your conference call, WebEx makes the cap on invitees so low that upgrading is required to appear professional.
When your audience is in a professional setting, giving them the tools to appear up to snuff can be a chance to charge.
Reduce Friction for People: Dial-in Number
Nowadays, conference calls are taking place regularly while people are on the go. At least one of your participants may not be staring at their laptop with their ear buds plugged in, eagerly awaiting your call. A dial-in number ensures that people can call no matter what, even if they are mobile or even if they have no Internet, etc. The last thing you want to do is frustrate a sales prospect or your boss who just wants to join the meeting.
Also, a dial-in number is a bit of a standard these days; therefore, to some extent, it’s a matter of being professional.
Figure out if your product is a tool your users need in front of other people or if it is leverage they need to look good in their boss’s eyes. If so, then that’s a pinch point where you probably can inject friction until the user upgrades to the paid plan. No one wants to look bad in front of sales prospects, partners, or their boss.
HelloFax provides an online sending and receiving service that makes fax machines obsolete. Among other functionality, they charge to receive faxes and send faxes to multiple recipients during a single process.
Replace an Expensive Incumbent More Cheaply: Receive Faxes
HelloFax charges for receiving faxes digitally instead of via your fax machine. This lets you move off of your fax machine – no more repairs, no more paper, etc. This makes a ton of sense because the financial cost to support a fax machine easily outweighs the low end $10/month that HelloFax charges.
If your product allows someone to eliminate a more expensive alternative, your pricing can capture from 0% up to 99.9% of that value.
Make Life More Convenient (Part 2): Multiple Fax Recipients
Going through the process of sending a fax for a second time just to add another person is tedious. “Let me just add a 2nd recipient!” Imagine that for 10 recipients, and the pain of inconvenience becomes even more apparent, just as it did with Buffer and posting across 10 different social networks.
People are used to adding multiple recipients on content, whether it’s email messaging or mentioning on social networks, etc. By withholding this functionality, HelloFax ensures that people looking for the most convenient experience (who need to fax a document to more than just one person) will upgrade.
If your product can save someone time, and it forces them into unnecessary manual labor if they don’t upgrade, then (absent an alternative) they will upgrade.
Withholding useful features arguably worsens the user experience. But the real world doesn’t operate with people giving away free cars as soon as you walk into a dealership, or showering you with fresh fruit to feast on when you walk into a supermarket. So, there’s no reason to believe you have to give all of your best functionality away in your software, either.
- Identify who your power users are and make sure you’re monetizing their extreme behaviors without detracting from the core user experience.
- Work is social: customers, partners, and bosses. Charge for making your customer look good.
- If you can make the convenience and/or return on investment of your product obvious, be sure to capture some of the value you are saving the user.
Figure out what your users are willing to pay for without driving them away, and you’ll unlock a lucrative product and pricing strategy. In a future post, we’ll explore a framework for applying these patterns to your own product and the differences between converting free users to customers and up-selling paid customers to more comprehensive packages.
About the Author: Jason Shah is the creator of HeatData, a mobile gesture analytics platform for tracking how people interact with mobile websites. Jason is also a Product Manager at Yammer, where he focuses on building out new features for the leading enterprise social network. He blogs regularly at blog.jasonshah.org and tweets shorter thoughts @jasonyogeshshah.