Hot on the heels of last week’s Startup Chat, this week we talked about pricing, free plans and trials and had all sorts of fun.

I tried hard to keep this one to a much more consumable 30 minutes (versus last week’s 1 hour) and so I think this one will be a lot easier (and potentially more actionable) than last week’s.

Thanks to everyone who submitted questions and came and hung out in the chatroom!

Audio Transcript

All right, hello I am Josh Pigford and this is Startup Chat for now. I don’t know, I’m going to change the name of it or something, we’ll see. We will talk about today, specifically we’re talking about pricing, free plans, & trials. The big question, that’s say, “How do I price my product.” How do I price … What tier should I use? Should I have a free plan, should I have a free trial, should I have a credit card required all that kind of stuff.

We’ll talk about that stuff today, and all of the stuff as of last week, will be driven by your questions. I’ve got about 5 different questions here, and we will tackle those, at least those. If you have questions, in the meantime while I’m answering these questions, go ahead and submit those in that chatroom box below and we will … I’ll try to get to those before the hour is up. Last week, we running about an hour, and I felt like that went by pretty quick.

Personally I don’t care for like podcast that are like an hour. It’s hard to digest that stuff after the fact, I don’t know, well I’ll try to make it quicker, and we may knock this out in 30 minutes, we’ll see. Either way let’s jump into things. First question here and if you can’t here the audio, between this I think I fix this room last week. If you can’t hear the audio when I switch the questions, let me know and then I’ll fix that.

This first question here is from Chris and asked specifically, and this is really to Baremetrics. How did you come up with your current pricing plans? Current pricing plans here, on Baremetrics I’m going to try a little fancy here, not as to use, so I can Screencast my thing here. Okay, let’s see how this works. Does that work? As a matter of fact, it does, legit. Here are he current pricing plans on Baremetrics.

We’ve got this Hobby plan that’s 29 bucks, Startup 79, Professional 149, and Business that’s 249. How did I come up with these pricing plans here. You can see this ad baremetrics.com, they’re at kind of at the bottom of the page there. How did I come up with those pricing plans? That’s a good question, and I wish I had a really detailed answer that makes me sound like really wise, but I don’t.

I kind of pick these, not out of thin air I would say, but sort of the experience building previous assess product. Knowing that on those, initially there were these cheaper paying plan like classic, 10 bucks a month kind of thing. Then they would max at it like 99 bucks a month if that. It was less wanting to get rid of the cheaper stuff, and more wanting to go to the more expensive stuff.

How could I get people to pay more, essentially what I was trying to do. I picked some plans knowing that I ultimately wanted to have a customer that was between 50 and a 100 bucks a month, that what most people would end up paying. I kind of price that out, ultimately … I mean I love for the 100 bucks a month thing. Knowing that … That’s where the $79, that Startup plan that sort of the sweet spot there. That’s where most customers or these most revenue comes from is that $79 month plan.

The pricing kind of revolve around that, I knew I needed one, a little bit cheaper than that and I go back and fort about, where I should I even have the $29 a month plan and then past that, it’s just there’s more value as you have more customers anyway, because you got the larger business you stand to get more value, that’s kind of how that pricing came about. Then the next question here is from Gordon and others.

A lot of people had some variation of this question. Should you require a credit card on sign up and what about in a case of a free trial, should you still require a credit card on sign up even if you’re going to have a free trial there. This is a big one, Should you require a credit card on sign up, let see how we can pick this one apart. I … My personal preference is yes, I mean as with anything as on any subject, anywhere goes.

It depends is actually the answer. My preference in like my experience has been that requiring a credit card on sign up ultimately sort of not … There’s a few aspects of it. One it kind of weeds out the people who are just there, like wasting your time. People who don’t even have a credit card. There’s some people who will see free sign up and just put their name in there.

They have no idea what it is that you really do, or what service or actually signing up for, that will see “It’s pretty, I think I’ll sign up for that.” I just realize I’m holding a toy sword here, I’ll put that down. The reason that requirement of credit card upfront weeds out the people who have no … Who would have never been a paying customer to begin with, there’s that. Then there’s this aspect of sort of psychological aspect.

When someone puts on a credit card, they … In their own mind even if it’s free, even if you’re not charging them for the first 14 days or 30 days or whatever it is. You … They have … They are a lot more likely to see that trial period through. They are a lot more likely to try to make your product work when they put a credit card in, because they’re more committed to it. Even if they’re not getting charge, they think “Okay, I put my credit card in your … I’m not going to forget about this, because I might get charge for it.”

They are a lot more likely to fully try out your product and attempt to make it work. Because there was already this … Not hassle, they’re committed on some level when they have already decided they will put in a credit card number. That sort of, that’s the argument for requiring a credit card is that … You legitimize, you weed out the people who wouldn’t have ever paid you to begin with, and you …

Those people who do sign up are lot more likely to stick around and not just throwing the towel, because they either, A, forgot or B, they kind of forgot about it. When their trials comes up, they’re like, “I didn’t get around it to worry about it, and testing that thing out so I have nothing to … I’m not going to deal with it, I’ll just let my trial expire.” It requires that … It makes the person, the potential customer do more research into what it is that you’re offering.

They learn more about, like whether what you’re offering actually would be a good fit for them, they’re almost self select in that regard. What about in the case of a free trial, same thing here. You don’t have to charge them upfront, I’m okay with having a free trial period, we’ll talk about this in another question in regards to value. If it takes a little while to get some value out of your product, then having a free trial upfront can make a ton of sets.

I still think you should probably require a credit card. It hurts like, it’s so scary especially you haven’t required a credit card, and then all of the sudden you switch over to require a credit, your sign ups will plummet. That doesn’t matter if your revenue increase is ultimate like to pay conversion goes up. This first two days, or weeks is going to be kind or nerve wracking. Okay next question, let me take a question from the chat here.

When do you think the $5 user pricing value makes sense? Most asked companies have a per user plan, sorry I’m totally falling in there. Well, some people have their per user plan, I have a per user type of setup, versus like a five Baremetricses, you have like basically you pay a dollar amount, and you have a certain number of resources where that’s customers or team members that kind of stuff.

Or you have kind of like a support, a support app might charge per support rep kind of thing, like $5 per support rep per month kind of thing. I think you have the trial, you have to AB test that stuff. Some cases it makes a ton of sense when the value is by having more people in there, you charging by team member can make more sense, again it’s all revolve around value there.

Okay next question, this kind of Baremetrics specific here. Would you get more exposure if you had a free plan or free trial period? Baremetrics has no free plan, and no free trial period. There’s two separate answer there. What Baremetrics get better traction here, if I have a free plan, sure if the metric that I care about was purely sign ups like growth based on number of people who are signing up.

If the only thing I’m worried about is how many people can I get to hit register or sign up, then yeah free plan would be great. Let me find a quote here. [inaudible 00:10:37] have this quote the other day, I can’t find it in my Internet, wouldn’t go faster. Alabama Internet is going to select some times. All right, come on. I’m going to … I’m shooting myself in the foot here. Okay, is talking about should free sign ups, free samples is that the kind of stuff that you want?

He said when looking at free, the worth it question never comes up, because when seduce by the 0 price, and nothing but the 0 price we failed to answer the question about worth or value. Sure it’s free, but is it worth the price and attention, distraction and quality. His ultimately saying there, you get a ton of people in for free, but the thing that’s driving them there is not … Driving go to sign up, isn’t the value that you’re offering.

It’s the fact that it’s something free. I bet a bunch of our grandmother would sign up for our services if they saw free, because it’s free. That’s just people totally lose any ability to make decisions when they see the word free, like $0. It’s the source or the motivation for that person person signing up when you’re offering free is completely different than someone who’s signing up and saying I’m signing up because I stand to get value out of this.

By default free implies no value, I mean sure there are case you can still get value out of free things, but that’s again, that’s not the motivation someone’s not signing up purely based on the fact that they’re going to get value out of that. That’s one reason, Baremetrics doesn’t have free plan, because the type of people who sign up for free plans not that they’re bad people, but they’re motivation is different and their whole mind set about what your product will do for them is totally different.

On top of that, the people like the sort of parameters, the limitations I would put on a free plan, would be like something like you’ve only got 20 customers or something like that. In those cases, you shouldn’t be signing up to Baremetrics in the first place. I can’t give you metrics if there’s … You stand to get no value at that on your business at that level. Worrying about churn and lifetime value, doesn’t matter when you’re making like 200 bucks a month.

You should be focusing on something totally different than tweaking metrics. The people that would qualify for that free plan as far as number of customers or revenue or whatever. It wouldn’t get any value out of Baremetrics, so it’s kind of pointless in that regard. The other side of that coin is what about a free trial period, hey “Why don’t you just let them” they could put in a credit card, but they don’t pay anything for the first couple of weeks or whatever.

I don’t know if that person who’s asking that is actually, they might be saying free trial, no credit card. That’s not going to happen because I answer that a couple of questions back the reasons for that. But, what if I have a free trial period, wouldn’t I … I get more people to sign up, if they weren’t going to be charge for a couple of weeks. Maybe but, again this is … This is a question of value.

With certain services, you sign up, it requires a decent amount of setup, it requires a decent amount of inputting information whether that’s about your team, or your company. It requires getting people from your company on board. It could take a little while for you to start ripping the benefits of the worth that you’re putting into that. Baremetrics that’s not the case, you sign up and you connect your Startup account, and anywhere from a few minutes, to …

You got some massive side it could take a few hours. More or less, it’s instant, you’re not … It isn’t require a bunch of work on your part, you’ll just click the button, that was it, then you get all this business value. You stand to get a ton of value right off the bat. From the second you create your account basically. You pay for value, that’s life. That’s how businesses work, they’re happy to pay when they’re get value out of it, and they start getting value as soon as they sign up.

That’s part of the motivation or the reasoning why I charge upfront. There’s a 60 day money back guarantee, for most people they’re fine with that, and I give … That’s … I had allow some room if there’s issues with the type … The way they’re using stripe we might not be able to support or something like that. That’s 60 day money back guarantee is kind of help relieve some potential concerns with me like taking your money or something. That’s the answer to that question.

Listen to this question, this is from a chatroom here. What happens when users get upset with paying different amount for the same service via AB testing. You maybe AB testing, and I think you should, AB test different pricing plan. You might have a $50 a month plan, and then a $100 a month plan, and they offered the exact same thing. The only difference is that you are changing the price.

What happens if it … Somebody complains, just give them the cheaper plan. I mean that’s a customer support issue more than anything. Most of the time, people don’t notice that staff. Because you’re not AB testing for months and months or anything. A lot of times you might be doing it for a couple of weeks. If somebody complains, then just, if they stand to offer your business, a decent amount like you get there some …

If you will make some decent money from them, over the life of their subscription, then just give them the cheaper plan that’s just sort of that’s the nice thing to do. Okay, let’s tackle another question, let’s see. This is from Pedro, what is the right price to charge? What is the right price to charge … It’s kind of a loaded question, and there’s a lot more I think in that question there. Well obviously the right price charge is different for every single business. The right price, we’ll just go back to the value conversation here.

If again if you should be charging based on the value, that you’re sort of offering that the person stands to get. Base on … Are you saving the money, are you saving them time, or are you creating value for them. All those cases, you should be charging for it. Now what the right price is, depends on many different factors here. What I suggest is trying to … You need … There’s a certain price where it make sense to keep operating your business in a certain price where it just doesn’t make any sense.

You can’t get enough customers to support that price. Things like that, if you have … Most of your customers on a $10 a month plan, that’s going to be … You need a lot of customers to stay in business, and a lot of times it’s not worth it. If I’ve got a ton of people on a $250 a month plan, I need … That wouldn’t near as many customers to make that work. Finding a price point and saying I want to build my business around $99 a month.

If I can make the average customer pay $99 a month, and that means I can only … I only need a hundred customers to do that. A hundred customers for … If you’ve got a decent product, is doable, that will take a little while and it will certainly take a lot of work. But, a hundred customers is a lot easier to get, than say a thousand or 10,000 customers to make your $5 or $10 a month plan work.

Finding a price that you want to like said is the cornerstone of your business, at least to start. Then building the product that makes that price point worth it. What do you need to do, to make that price point worth it, and to funnel people people towards that point. Whether that’s, having a higher paying plan, that most people weren’t on, but it drives to them down to that $99 a month plan.

Or making the features on this particular plan, so enticing that the personal plan right below it, that’s on the $50 a month plan is happy to pay just to get those features, so they’ll upgrade. That’s … The right price is many times have shot in the dark as far as your pricing table like. How do I want to setup the whole, all my pricing. I do think you need to pick like one core price and then build around that.

Okay, some people seem to be having trouble with the video feed, I’ll blame YouTube but they’ll be recording on this available later for sure. This is the last submitted question here, and then I have a website tare down that I’m going to do that’s around pricing to some extent, but also just a startup ask question about that. We’ll tackle this last question, go ahead and post your questions in the chatroom, and I’ll tackle those before I do this website tare down, then we’ll do the website tare down.

Then we … We’ll call it a day. How do you sell enterprise plans early on. Some question about enterprise stuff. That’s a good question, how do you sell enterprise plans early on and weren’t all really. Enterprise plans early on can be a great in the sense you get this influx of cash, they can be also really bad because if you don’t accept that relationship up correctly then they will demand a lot.

Enterprise pricing or just selling those at all, again it’s depending on your business type, and maybe if there’s this enterprise market at all, kind of … Let’s see how do we put it this here. Enterprise customer, it depends on what you want to offer enterprise customer. For instance we’ll take Baremetrics here. On the site, there’s this 249 a month, that’s the plan you see there, and then after that it’s like send us an e-mail and we’ll come up with a custom plan if you need more than that.

We have customers like that up to until 700 bucks a month is my current top paying enterprise customer. How did those come about, that ultimately was a … Still a value thing. Those people still stood to gain a lot of value and to potentially … All those customers, those enterprise customers typically could be … They could be making tens or hundreds of thousands of dollars a month.

We’re having trouble with this stream here, stupid YouTube. Let’s see what’s going on here. Maybe it will catch back up here. Okay there we go. Enterprise, I think a lot of it is … here’s a tip, don’t put on unlimited on anything on your site. Your pricing plans, like how do you get enterprise customers. You don’t … One you don’t say that, that top playing plan has unlimited at everything, that’s the mistake I made early on with other stuff too was saying, “Okay well if this person want to pay me a hundred bucks a month, they can have everything.”

That’s really attempting to do, especially when you’re not … You haven’t actually, you haven’t made any money from your product. You think anybody paying a hundred bucks would be awesome. But what that does is that completely, almost completely spins or reduces your chance of selling your enterprise plan down the road. Because they get everything for hundred bucks a month.

That doesn’t make … Anybody that would be enterprise, has way more than a hundred bucks to give you. Would be happy to if you solve the right problem for them. Cap the plan, the pricing table that you see on your site, cap it at something and don’t make it too generous even that plan, and then make panel people into meeting to be that enterprise customer sooner than you probably feel comfortable with.

Then as a matter of deciding what worth it for you. Enterprise stuff is such a shot in the dark. Because every enterprise customers kind of different and most of the time you’ll come out with some kind of custom deal around the numbers, and then you’ll kind of settle into maybe some sort of pricing table that you’re comfortable with on an enterprise level. You could also say every single enterprise customers is a different deal, and it’s based on how much … If you got like Microsoft, or Apple, or Google, or whatever. These the companies who have all parts and purposes and infinite amount of money they could pay you.

You should charge them accordingly, because as a business, they’re staying to get a lot of value out of it, because they have a big business. A lot of that is just kind of trial and error, and figuring out okay I pitch this to that enterprise customer, and they didn’t go for it. I pitch to this other one, and they did. What, how … Why did that work, why the one work, and the other one not.

Again it’s a sales thing, and you have to get comfortable with the sales you’ve got and for me that’s that’s not something that came naturally, but after talking to tons of customers, it does, you can become comfortable … become more confident in your ability or you become more confident in your products too. You just have to start selling the value that it offers to them. A lot of times enterprise customers are actually can be pretty easy sales.

They can be really great customer. I also don’t suggest this crazy support deal with them. You can call me anytime, any hour of the day, I will answer the phone at 2:00 in the morning when you’ve got some of your question about your account. Don’t set up that expectation. Ultimately though frame it around value for them, they’ll often times will go for it. Okay, another question from the chat here.

You said before that you spent time on the phone, talking to the customers, do you still do that? Is it for sales or support? Do you think it makes a big difference versus being online only? Is it to get more … More to get feedback or to convince potential clients. Most of the phone calls that I do are with current … New customers. That’s not so much about … That’s helping them get more value about the service up front. It’s helpful for me to just getting the feedback from them on what work, what were their experiences been thus far.

It’s also to help them learn how to get more value out of the products early on. Theoretically would produce churn. It’s hard to attach the two phone call, churn reduced. That’s the thinking bond in that. Can you talk a bit about price inquiry, if you notice again on Baremetrics, they do this on other SaaS products too. Start the highest paying point on the left and then go down to the cheapest on the right. That’s classic price inquiry.

Somebody will read left to right. Somebody comes down on the pricing table. They see $250 a month. What, they see that it gets cheaper after that. That makes all those other plans a lot more palatable. That’s the whole … That’s just, that’s classic price inquiry. I think again that’s an AB testing, test out this flopping the order of your plans and see if you got more sign ups. For me, it’s always been a sort of easy win in that regard.

Okay. Let’s see if there are any more question before I do this website tear down thing here. Let’s see. Let me close someone does here. We’ll do this. All right. Okay. Website tear down here I have submit an email or send an email. Pricing question but also just a general business question, like how can we make more money kind of thing. I thought it’d be fun to try to tear down here live and see how that goes, we can have a whole episode of just website tear downs. Those are kind of fun to do and I think they’re fun to hear too.

Okay, what we got here. This window. Is let’s see, I think you can … Hopefully you can all see my screen here. Okay. This site is called Ipinfo.io. Basically what they offer initially, you come to the site, right, and you see your ip address and where you’re located and all the stuff. Then this … it’s clearly developer focused bit here. The question was around basically like they’ve sort of stagnated on their growth, they made a certain amount of money and then now it’s like … It’s just they’re not doing anything else from a growth standpoint.

It’s like how do we grow more. I think that to some extent, I can’t comment for sure on whether it’s worth it for developer. Maybe we can position this better so that it is worth it to developers or it makes more sense and easier sell to them. I think the problem here is this thing is positioned as a service at all. It’s positioned as an easy way to get an ip address but as far as that make … driving people to make money, I think that there’s a lot of improvement.

I think the entire site has to be … if you want to make more money from the site. If you want to grow the business side of this. The pricing plans themselves don’t bother me that much. I think that the … in this case, the daily request thing here is probably too high on this $10 a month. You should probably actually read it to learn more plans. Start it at least like 20 or 30 bucks but don’t jack up the daily request thing.

You want people to like … feel like they’re getting a little bit of value out of there. You want them to quickly get onto these. What I would do, this actually goes back to the front page here. Right now you’re positioning this to like this landing page to just come out and find this ip info. In reality you should be positioning it as a service that developers stand to get value out of. You stand to make their life easier. You stand to … The developers stands to get save a ton of time. Potentially save money if they’re using some other ip lookup service.

Again you need to make a developer look at this and say okay this will save a bunch of time and money for their business. A lot of times the developer themselves aren’t the one that are making the decision here on what to use. They have a ton of power because they recommend what to use. What you need to do is frame it so that it’s easy for them to sell to whoever it is that’s actually making the purchase decision.

Having a free plan here, actually I think does makes sense for developer focused services. Then from a honeybadger.io, I was talking about this at microphone a few weeks back. The reason that they don’t require credit card upfront is because they developer a lot of times isn’t the one with the credit card. They are the one who’s able to actually decide if the service gets used or not.

Having that free plan just to make sure that they can integrate it into their own app. I think is a great move. Actually I do think same with that, your daily request is probably too high for a free plan because your free plan should almost be like a trial. At the very least, you want … You just want them go … You want to get them in the door, get them using the service within your app so there’s some sort of lock in there. Then get them into a paying plan as quickly as possible.

Okay. I think that’ll do it for now as far as pricing questions go. Let’s give it about 30 minutes. I think that’s more doable and digestible. Especially even after the fact because listening to somebody out for an hour can be tiring. That will do it for this week. Sorry about the video issues or at least with the streaming stuff. I don’t know if that’s a YouTube thing or a bandwidth on my end side of thing, it worked fine last week.

Either way, thanks for tuning in, let me know how things … What you thought about this week about having the topic-based stuff. I’m debating on moving this to either like every other week or once a month or something like that. Maybe because it’s kind of … It’s a lot of work to get together and I have a product to deal here. Obviously it’s fun talking to everyone and getting feedback but at the same time, it can be kind of distracting.

Let’s do and figure out how to balance that. Either way let me know what you think either a challenge, shoot me a Tweet at @Shpigford. Shoot me an email at josh@joshpigford.com. Happy to talk more outside of this about pricing or whatever, any startup questions, let’s chat. Thanks for listening and check you later.