Craft An Irresistible Price By Focusing On Your Users

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Price influences behavior. In order to craft an excellent user experience, the price — and how your users interact with that price — must be central to the development of the product, especially applications. No user will welcome an application if the cost is prohibitive. This makes price every bit as important as design, information architecture and wireframing, and it goes deeper than just getting people to click “Buy.” By focusing on users in setting and maintaining a price, you will increase revenue, lower overhead and, most importantly, significantly improve the user’s (read customer’s) experience.

For just about a year now, between designing and developing client’s websites, I have been running a little app that I created with co-workers. In that time, we have launched, added features, raised the price, added more features and just now begun the early stages of marketing the product. So far, we have done all of this without borrowing a cent, and we have managed to at least cover our costs, if not generate some modest profit. I have no doubt that this success comes from our choices of model and price point.

This article is not about “How to price your app.” There are plenty of good resources for learning how to find the right number. Pricing for use is a framework for continually adjusting your price, when needed, to suit your profit goals and the experience of your users.

Your price is the nail from which you hang your masterpiece.
Your price is the nail from which you hang your masterpiece. Image source

Me First

In any pricing endeavor, think of yourself first. Many people think that apps have no overhead. They basically believe that “selling an app is free money, pure profit!” (ahem, Mr. Anderson). As a professional who has been running a application for just under a year now, I can tell you, this is patently untrue.

Digital goods and services have a very tangible overhead: time — time to innovate over competitors, time for customer support and time to cultivate your unique point of view. Each of these requires constant effort if you want to succeed. If you cannot afford this time, you will sacrifice your product, and possibly your livelihood.

Keeping the app running is the only imperative in pricing, so first make sure that your price covers your costs. After that, pricing is really a matter of how much you can gain — and not just in profit, although that will affect your bottom line.

User-Centric Pricing

Matt Linderman of 37signals said it best: “Pricing can be usable, too.” I would only add that pricing not only can be but should be usable. Predict (or just ask) what price point would feel reasonable to your target users, and when they will want to pay for your product. You already agonize over how users interact with your product; why not agonize about how they interact with you at so sensitive a time as when money is involved?

With so much being offered for free these days, paying for an app can be considered an annoyance. Ease this pain as much as possible by making it simple for customers to work payment into the flow of their lives. This could be as basic as setting up an automatic payment system, or it could require a complete re-evaluation of your pricing model.

An Attractive Price

Somewhere between covering overhead and your zeal for profit (Go on, admit it), there is a sweet spot of what you can realistically charge for your product. This is where it gets dangerous — and where many tend to undervalue. Set your price too low and you leave money behind that could be used for growth and reinvestment. Too high a price could be an insurmountable barrier to potential customers.

Ask yourself, “Does this price feel right?” Feel plays a major role here, and intuition is the perfect barrier to push against. If the price feels right, the product will feel right. In Human Action, Austrian economist Ludwig von Mises writes that prices are social phenomena. According to him, “the ultimate source of the determination of prices is the value judgment of the consumers.” So, what would a reasonable customer pay for your product?

A Model Tailored to Your Users

A pricing model determines when users pay you. The best model is tied closely to your audience and the way they will use your product. Forcing the wrong model on an app (to increase profitability or just generate more consistent revenue) can cripple the product.

Freelancers, for example, work mostly on a per-project basis, and any solution they may recommend to a client would need to be easily slipped in as a line item on an invoice. A one-time fee would be the most appropriate model in this case. If the freelancer might come back to the app frequently, though, a monthly or yearly fee would be more palatable. Any cost incurred by the customer must be exceeded by the return in both value and frequency of use. If the app comes with a monthly fee, then users should feel like they are getting their money’s worth every month.

Your price is the nail from which you hang your masterpiece.
Prices are fluid. Gas, groceries, electronics and many other products fluctuate in price, and consumers accept this as much as manufacturers embrace it. Image source

Be Flexible

If you feel your price is already too low, raise it. Too high? Drop it, and be a hero to your users. Recently, we raised the price of our app by more than 50%, and I kept a close eye on our stats for the months around the change. Comparing the time frame one month before to the month after, we saw a loss of 17% in number of sales, but a gain of 9% in revenue. Same effort, same overhead, but now more profit to reinvest in support and innovation.

Prices are fluid. Gas, groceries, electronics and many other products fluctuate in price, and consumers accept this as much as manufacturers embrace it. When accompanied by new technology, the price of a high-end television is ridiculous, but the reason is not that the perceived value is so high. New technologies require new production methods, new parts and much more customer service, all of which add to overhead. Early adopters recognize this and are willing to pay the premium. New apps meet similar demands for support and marketing, and the pricing should bend to these needs.

The “U” In Usable

Your price is a workhorse. It can help you solve problems before you ever set up a help desk. It can stymie the competition and even do some marketing. It sets expectations for your product the moment it is introduced, and it continues to work on your behalf (to your benefit or detriment) throughout the entire user experience.

Support Where You Need It

Very early on in the development of our app, we understood that pricing was key to our internal operations, especially support. Our small shop did not have the resources to deliver the kind of support expected of a high-priced app, so we set an initial cost that reflected the investment of time we could afford. This lowered user expectations and allowed us to run our customer service sustainably. As the product grew stabler through revision, and therefore more profitable, we were able to raise our price to more accurately reflect what we considered to be its true value.

Your price determines how demanding or forgiving the person at the other end of the support line will be. Assess your resources and what you can realistically cover. Then, modify your price to fill gaps in service that you cannot afford to offer. Or if you have the manpower, raise the price to reflect the added support time your team can deliver.

Protection Money

If you’re selling to other developers, would they rather improvise their own solution? Would pirating your product be easier for them? Dismissing this possibility on purely moral grounds ignores the free nature of the Web. Look at peer-to-peer sharing: as soon as Apple and others eliminated the arcane barriers of music sharing, people were willing to ignore their compunctions about pirating. Only then did the issue become a question of morals.

Your price protects your product. Choose a price that is easier to pay than to circumvent by stealing or hacking. This frees you to focus on making an excellent product, rather than policing deviants.

The Loudest Voice

Price can market a lot for you. With a lower price, whatever income you lose, you make up for in word of mouth. People love to brag about doing things cheaper and more efficiently. With our product, we set a low price because we deliberately excluded many of the features offered by higher-priced competitors. Our perspective is that simplicity rules, and that point of view is demonstrated in our pricing.

A higher price, on the other hand, could position your product as the market leader and make it more palatable to a wider audience. The majority of people want to pay up to a 30% premium for the leading product on the market, according to Keith Moore, author of Crossing the Chasm. A higher price sets expectations for better service and a better quality of experience.

Pricing At Work

Plenty of great, usable prices are out there. There are also many prices that users barely tolerate. Let’s explore both (but mostly the former).

Campaign Monitor

Campaign Monitor Pricing

We wanted a model that was as simple as possible and didn’t require any commitment. For a product like ours, the first-run experience is critical for converting an interested party into a long-term customer. Pricing (and especially requiring credit-card details) can add a lot of friction to this process.

— David Greiner, co-founder of Campaign Monitor

Campaign Monitor’s pricing is as simple as it gets. It provides no barrier to entry and is completely transparent. By building a model around low one-time fees, Campaign Monitor’s product suits the needs of everyone from freelancers to large corporations.

MacRabbit’s Espresso vs. Adobe’s Dreamweaver

MacRabbit’s Espresso vs. Adobe’s Dreamweaer

Aesthetics aside, Espresso’s price feels simple. Dreamweaver’s forked pricing adds complication, and the $200 gulf between an upgrade and the full product suggests a bloating of price and possibly features. Both companies offer a trial, which is essential to demonstrating value to new customers.

37signals’ Basecamp

37signals’ Basecamp Monthly Pricing

Pricing for 37signals’ Basecamp feels right for the audience: professionals. It may be a little steep for individuals who want to organize a group conversation, but a free plan is offered (though heavily de-emphasized). Basecamp is a product that customers use every day, so a monthly plan feels worth the cost. I should know: I have been using it for seven years.

Think Vitamin Membership from Carsonified

Think Vitamin Membership Pricing

Whether the experience is understandable and fair will determine whether the user signs up, so it’s the most important thing. It sets the “value” for the user. It prepares them for what kind of quality they will be getting. The higher the price, the more they expect.

— Ryan Carson, founder of Carsonified

The Think Vitamin membership gives users a good understanding of how price aligns with perceived value. In a tiered system, each level should be tied to cost, whether it be in the form of support, bandwidth, memory or, in this case, proprietary information.

Typekit

Typekit Pricing

Typekit is a great product at a very reasonable price, but it comes with unnecessary inconveniences. By tying recurring costs to domains, it makes for difficult interfacing with project-based design work. This renders the product useless for designers who want to use great typography but chafe at the thought of burdening their clients with the cost of fonts or absorbing the cost themselves for clients they may never work with again. Typekit greatly alleviates, but doesn’t solve, this by offering unlimited domains in the “Portfolio” option.

If You Know User Experience, You Know Pricing

Pricing is merely estimation, our best guess at the perceived value of our offering. But this does not mean that we should do it blindly. To quote von Mises again, “All prices we know are past prices.” According to him, prices never reach a final state of equalization. As long as people continue to grow and change, so will their behavior, and so will our markets — just as our products and their interfaces do.

Focus on your product and its target audience. Work towards pricing that makes cents for you and sense for your users, and continue to refine it to show that you understand and respect your current customers. Do not shy away from intuition or change. Set a price with confidence, knowing that you can adapt as needed.

Usability is relevant beyond the screen; it reaches as far as a user’s wallet. You’ve already honed the skills to create great experiences. Now apply those same skills to crafting a price and model that balance your product’s needs with the expectations and behavior of your customers.

(al)

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Nathan Ford is a Texas-born designer/developer happily working at Mark Boulton Design in Penarth, Wales. His free time is consumed creating things – some you may have used before, including tools like Fount, MIN, and Unify. You can read more of his work at Art=Work.

  1. 1

    Another great article!!!!!

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  2. 2

    I’m totally agree

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  3. 3

    Great article!

    I do not sell an app, I sell a service and I was contemplating removing the prices from my website in order to generate more enquiries. Is this a good idea?

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    • 4

      Hi Tom: I personally don’t like when a site forces me to make contact in order to get prices, when it feels they should naturally be informed on the site due to the nature of the service. In these cases, I usually look for another provider that relieves me from the hassle.

      Our company offers services (not web related) through the web. We did a comparison between our service and those our competitors offers, decided a competitive – but not cheaper – price, and now are informing it on the site. It also is worth mentioning that our competitors DO inform their prices on their website, so customers are expecting this.

      I guess it all depends on what “feels” natural to your prospective customer.

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    • 5

      @Tom:

      I have to agree with Carlos here: Unless you are selling the Bentley of web apps, you definitely want to list your pricing on your site. This eliminates the casual browsers from your inquiries, and filters them to only serious buyers.

      Plus, obscuring cost could be seen as dishonest, and puts one more barrier between browsing and purchasing.

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  4. 7

    Thinking of creating a web application myself, I think this article is a great resource. Thanks for sharing your thoughts! There are ideas I hadn’t thought of!

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  5. 8

    Owen Curtis-Quick

    August 5, 2010 8:44 am

    Pricing is difficult. I’m still fighting with it at the moment. 5 weeks ago released an iPad app (for those interested).
    The dilemma is being in line with the price of other apps, whilst not selling yourself too short. The iPad app market is more expensive than iPhone apps, but relatively speaking they’re still all very cheap. People have got used to the low prices and whilst they are happy to blow £500 on the device, apps over a few quid are considered expensive.

    There’s hope though! Recently apps like OmniFocus and FilemakerPro have been released and have broken away from the standard price range. I think they’re around the £24 mark. These pricey apps will hopefully raise the whole market so that £5 is once again seen as quite cheap.

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  6. 9

    Nice to hear a more-nuanced-than-usual discussion of pricing; thanks!

    You spoke broadly of the fact that flexibility in pricing exists only above the break-even point. I’d be interested to learn a little more about how, concretely, one might calculate the overhead costs of an app — especially in a business model like Unit’s, where you’re doing client work as well.

    Does it just come down to tracking your time maniacally and multiplying hours worked by internal labor cost? Or is it a little more subtle than that?

    It also seems like, in order to price in a way that will cover your overhead, it could help a lot to have some sort of reasonable expectation of sales volume when you first release the product. Did any kind of market research go into your initial pricing for Unify, or was it more of a gut move, à la 37signals?

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    • 10

      Thanks for the questions, Ben.

      Our pricing for Unify came first from the head, then from the gut. Any approach to pricing that I have read requires both. First, we did look at hours, especially for support. As a small shop, we have never been able to allocate tons of hours to the project, so our overhead has stayed low and our price has followed.

      Once we knew the general area our price needed to be (low), we set our margin based on what price felt right. When Unify had grown to be more robust and stable, we adjusted the price again to what felt right now.

      The interesting part was recouping the initial investment of hours. We did not include that in our pricing. We looked at the dev process as enriching through experience. This was only possible, though, due to the client work we do at Unit.

      Hope that helps!

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      • 11

        “The interesting part was recouping the initial investment of hours. We did not include that in our pricing. We looked at the dev process as enriching through experience”

        Nathan, thanks so much for pointing that out. Sounds hugely sensible: make some profit doing client work; re-invest that profit in product development (which is also staff enrichment); then price the product to cover its own newly-introduced overhead and make a bit more profit, which of course takes you back around to “re-invest”. Beautiful.

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  7. 13

    Unless you are doing something nobody else is doing, I won’t remove it. People usually like to shop around. Not inquiry around.

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  8. 14

    Very true, a new perspective and item on the usability checklist. Enjoyed the article!

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  9. 15

    Excellent article. How about one on how to deliver your software and e-commerce details.

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  10. 16

    Thanks for the article Nathan,

    Just wondering why you settled on a $24.49 price for Unify instead of a round $25? Did you run any testing to confirm this might lead to better sales or was this just a feeling you had?

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    • 17

      @Scott:

      Without pulling the curtain back too far, I can say there is a definite logic to the cents of our price. We felt that $25 correctly reflected Unify’s value. By taking it down to $24.49, though, we give that much more back to our users, yet the price still FEELS like $25. By manipulating the cents, we were able to strike a balance between the lowest price and the correct estimation of the product’s value and this is hopefully–but maybe not explicitly–understood by our users.

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  11. 18

    Rupnarayan Bhattacharya

    August 5, 2010 11:37 pm

    The most sensitive part of any application pricing is to guess the target market, the pricing should not be too low or too high. The balance should be kept. From this article I learnt a lot about the balancing.

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  12. 19

    Good article, Nathan.

    The analysis of pricing models was fantastic.

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  13. 20

    “the price… must be central to the development of the product”

    “This makes price every bit as important as design, information architecture and wireframing”

    Disagree. Few people are going to buy your product if it doesn’t work well, no matter how attractive the price is. People WILL buy an excellent product, even if it is expensive. That is why IA and UI design trump all.

    I’m not saying pricing is not important: it is. But not as important as focusing on the best software engineering practices.

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    • 21

      @Asrar: Thanks for the contention! I was hoping someone would bring another perspective.

      I am by no means stating that Price trumps all. I am advocating bringing up thought about price and model in to the earliest stages of developing an app, and continuing to adapt that pricing structure to continually make it relevant to your users.

      When I begin developing an app, either for myself or my clients, I always dive in to the pricing model early on to make sure that there can be profit in such an endeavor. If there is no plan for profit, there’s a large initial burden on the creators (or investors) to fund all of that great IA and UI altruistically. If the project involves a cumbersome pricing model, it will fail to generate profits. And if the project cannot eventually fund itself, it has an expiration date. Pricing is central, therefore, to the life of the app, and can help tremendously in allowing creators to afford all that great design work that we both know is integral to success.

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      • 22

        Outside of web apps, pricing is a reflection of value and also of authenticity. Offer a laptop at 1/5th the price of your closest competitor and people will get suspicious. The price and the perceived (authentic) value don’t match.

        Offer 15c worth of coffee in a certain atmosphere and prepare it for the customer, and people will gladly pay $5.

        With prices, covering your costs and earning money comes first, of course. But I agree that the price says as much about a product as anything else, and the right pricing will endear you to a very specific target audience.

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  14. 23

    Even thought this post is very old, a lot of the information still stands. Must be why I hit it using StumbleUpon. Very popular work.

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  15. 24

    Note: the author of Crossing the Chasm is Geoffrey Moore, not Keith Moore.

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