- August 5th, 2010
- 24 Comments
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 resources1 for learning2 how to find3 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.
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. Anderson5). 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.
Matt Linderman of 37signals said it best: “Pricing can be usable, too6.” 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 Action7, 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.
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.
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 Chasm9. 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).
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.
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
Aesthetics aside, Espresso12’s price feels simple. Dreamweaver13’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.
Pricing for 37signals’ Basecamp15 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
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.
The Think Vitamin membership18 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.
Typekit20 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.
- 1 http://37signals.com/svn/posts/1287-ask-37signals-how-did-you-come-up-with-pricing-for-your-products
- 2 http://thinkvitamin.com/web-apps/how-to-price-your-web-application/
- 3 http://www.entrepreneur.com/money/moneymanagement/financialmanagementcolumnistpamnewman/article167198.html
- 4 http://www.flickr.com/photos/maldiviandude/3413857183/sizes/m/in/photostream/
- 5 http://www.wired.com/techbiz/it/magazine/16-03/ff_free
- 6 http://37signals.com/svn/posts/1658-is-there-a-better-way-for-you-to-price-your-product
- 7 http://www.amazon.com/Human-Action-Ludwig-von-Mises/dp/0865976317/ref=sr_1_1?ie=UTF8&s=books&qid=1279575578&sr=8-1
- 8 http://www.flickr.com/photos/comedynose/4058076929/sizes/l/in/photostream/
- 9 http://www.amazon.com/Crossing-Chasm-Marketing-High-Tech-Mainstream/dp/0066620023
- 10 http://www.campaignmonitor.com/pricing/
- 11 http://www.campaignmonitor.com/
- 12 http://macrabbit.com/espresso/
- 13 http://www.adobe.com/products/dreamweaver/
- 14 http://basecamphq.com/signup
- 15 http://basecamphq.com/
- 16 http://membership.thinkvitamin.com/pages/plans
- 17 http://carsonified.com/
- 18 http://membership.thinkvitamin.com/
- 19 https://typekit.com/plans
- 20 http://typekit.com/