Thursday, 16 October 2008

Pricing - What should I sell at?

Well I've had three pieces of advice on pricing and I'm trying to pull these together into a pricing structure that will allow me to charge a low price (I'm trying to serve micro businesses that have little free capital) but make enough money to fund the development of the business. 

Our initial idea was to charge nothing for the users to set up their service, so reducing the barriers to adopting the service, and to charge a reasonable fee per booking request accepted, so the businesses only have to pay if they have work coming in. The level of this fee was our first question. What is reasonable? 49p (high?), 9p (not enough to make money on initial low volumes). 

To expand on this we could look at an augmented product model, provide the core product at a low price and then provide additional services, at an additional cost banking on the fact that users will take enough of these to make an income.

Paul Mabbott from Jennings was keen that I look at a value pricing model. Look at the value that my core product and ancillay services provide to the customer (providers) and look to set a price on this basis rather than just a cost plus margin model. Putting emphasis on perceived value but still considering the cost of providing the service (we are a self funded business so cannot afford huge loss leaders) and the market sensitivity (what are our competitors charging). Paul advised against giving too much away for free as you are just robbing yourself of margin. The example he used was the prebuilt business templates I was planning to give away for free to help set up for less technical users. Paul suggested that as these provide value to the customer, try charging a small additional fee for these.

DHH at 37 Signals in the Getting Real book (read it) talks about giving part of your product away for free to attract customers than charging more for additional features. The pricing seminar run by Thames Valley Enterprise talked about a variation of this, a Goldilocks pricing model. Have a small cheap product with some basic features so you can say you have a cheap product (Vista home basic), an expensive all singing and dancing version (enterprise) and then a middle product (just right - vista home premium) that you want people to buy.

So the first pricing model we are going to try is to have three products:

  • Basic, which provides the core booking engine with a basic website and email notifications (should we limit the number of bookings per month?). 
  • Professional which provides the basic service plus templates and SMS notifications
  • Enterprise which is Pro plus the customer growth tools (CRM for small businesses)
I'd like to be able to give the basic version away for free but what do we include in this service to make it attractive enough to try but limited enough to encourage people to upgrade if they are making the use of the service. Ideally I'd like to charge for every appointment placed (so we are making some money to cover the basic costs of providing the service) but it does make it harder to call the product free. 

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