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How pricing plans evolved over time for a SaaS startup

Posted in Case Studies, News on April 26th, 2010

We are in the process of finalizing pricing for my startup Visual Website Optimizer, which is an A/B and Multivariate testing tool. As you can imagine, fixing price is one of the toughest decisions that a startup has to (inevitably) take. Once fixed, it could be extremely difficult to change it without annoying a lot of customers. We want to be extra sure that we don’t end up under- or over-pricing Visual Website Optimizer. So, how do we decide what to charge?

Asking beta users can be one of the strategies and we actually used that for VWO. However, it turned out to be not the best of our ideas because users actually correlate price with quality. Further, if a product is innovative (like VWO is), users aren’t able to rationally determine its price as they would do in established markets (read this research paper [PDF]). Hence, asking users what a new product should cost yields half-baked information as they have little or no reference points to determine the ideal price.

Another way to determine price is, of course, to look at what competitors charge. In the world of A/B testing, there is a lot of variation. While Google’s basic testing tool is free, Omniture and Webtrends solutions easily run into thousands of dollars per month. To be sure, VWO is not competing head-to-head with a free tool – it is a sure shot way to death for any startup. We are actually competing with pricey tools, at least in terms of functionality. In fact, our users’ feedback confirms our hypothesis that VWO is much better than any other A/B testing tool in the world. Does that mean, like enterprise tools, we should also charge thousands of dollars per month?

So, here we are: still undecided about the pricing. We don’t want to charge too high, neither we want to charge too less. To get better insights into pricing, I decided to research if there had been a successful startup in a complementary industry which was in a similar position. I was lucky enough to find Clicktale, a company which provides heatmaps and usability testing tools. Thanks to Archive.org, a great way to trace their progress over years is to look at their website and pricing evolution over time. (Note: I don’t have any insider information about their company nor I am affiliated to Clicktale in any manner. All material that I have used for research is publically available on the Internet).

The Story

Clicktale started in May, 2006 as a closed alpha. Within a month, they quickly transitioned to beta and did not exit from beta until May, 2007 (a full year in beta). However, they still remained invite only till July, 2007. Within this beta period they started taking feedback from their users on what they can pay for the tool. Read the thread titled ‘Pricing for Clicktale’ on their forum (dated Feb 14, 2007). Every reply on this thread is a must read, however the poll results summarize their users’ feedback on pricing:

All startups in beta take note from the poll above – chances are that more than half your beta users won’t like to pay for your product. In our survey too, many of VWO users either did not want to pay or wanted to pay a very small amount $9 or $15 per month.

In the forum thread above, two contrasting opinions are interesting:

One user thought that higher pricing is justified as the tool is a direct value addition to business. He also rightly pointed out that the target market is online business owners, who are already conditioned to pay for services. To quote him from the thread:

So $99 is really low priced. If someone cannot take the $99 or even the $49 ClickTale product, and use the information to at least create a positive ROI every month, they probably do not need the product in the first place.

Then there is a user who thought $49 was too pricey for him and $19 was too limited. He compared the offering with Google Analytics, which is free. To quote him from the thread:

As to Adam’s comments [the user who argued $99/month was fine] about pricing, I think he and I are not operating in the same world.. I use Analytics for free, and am paying $19/month for crazyegg. I don’t use enterprise-price-level solutions and I think probably a lot of your customers don’t either.. If you are going to be in the enterprise world, just hire a ton of people for sales & support and quadruple your prices..

This contrast is super-interesting to us because, like them, we are in exact same dilemma – which market to cater? Do we cater to small/medium and enterprise sized businesses who can pay for the service? Or do we cater to long tail of freelancers or tiny businesses who want the service for free or at an extremely low cost? As a startup, the decision of identifying target market pretty much determines our survival. A no brainer: price it too high and we don’t get enough customers. Price it too low and we don’t get enough revenue to cover costs.

The Evolution

Clicktale finally launched to public in August, 2007. Their pricing at the launch time is interesting:

The pricing is same as they had proposed in the forum, however interestingly they increased the page recordings per month (the limiting factor for different accounts) by 5x. In the forum post, they proposed 80 recordings/month for free account, while on launch they increased it to 400/month. This tells they listened to feedback from their users carefully and incorporated it into their final pricing. Take note of that, startups.

In December 2007 (about 1.5 years after they launched alpha), they secured venture capital and the pricing of their product remained the same for next 7 months. In August 2008, they bifurcated pricing plans into personal and business editions. In personal plans, they offered a super-cheap plan of $9/month (10 times cheaper than the existing $99 plan):

And for business edition, they introduced a super-expensive plan of $999/month (10 times costlier than existing $99 plan):

Unfortunately, Archive.org does not have any entry of their website after August 2008. I searched on Google to get a hint of what happened to their pricing after they launched personal and business plans. The latest change in pricing that I was able to track down is in Feb 2009. A blog post reviewing them reproduced their pricing chart:

You can see they dropped bifurcation of plans and decreased the number of choices significantly. They also dropped cheaper plans ($9, $49) and some expensive ones too ($490, $990). They have exact same pricing even today (as of April 2010).

Lessons

The reason I invested time doing all this research is to help startups such as mine take an informed decision on how to price their products. It is not very obvious that a successful company such as Clicktale, within 2 years, transforms the highest priced plan at the time of launch into their lowest priced plan today. They tried all sorts of pricing plans and apparently found that businesses which use their service value it enough to pay at least $99/month.

As a startup about to get out of beta, what I read from this is that if you provide a product that your users value, don’t fall into trap of selling it at rock-bottom prices (in hopes of compensating it from large volume of users). Another lesson that I take from this evolution is that it is OK to change pricing if your current plans don’t turn out to be ideal.

If you have any feedback, comments or thoughts, please share them with me. I hope you enjoyed my investigative journalism :)

Paras Chopra

CEO and Founder of Wingify by the day, startups, marketing and analytics enthusiast by the afternoon, and a nihilist philosopher/writer by the evening!

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12 Comments
Luke Stevens
April 26, 2010

Ha! Excellent write up Paras. I actually did a similar thing when I discovered ClickTale had changed their minimum plan to $99/mo, and thought “I’m sure I remember it being cheaper than that!” and dug through their pricing history in archive.org too. Good to see it collected all in one place, as it’s a fascinating example of how they’ve experimented and matured over time.

I imagine their higher end offerings came about through the data aggregating tools they’ve developed (as opposed to just session recording — no one’s going to watch tens of thousands of sessions, obviously :), and it’d be interesting to know what the support burden v profit is for higher end customers too; perhaps they lose some sales but with less support burden they come out ahead, who knows.
It’s interesting that a web app can *start* at $99/mo these days (though they did develop considerable traction w/cheaper plans initially), good sign for the maturity of the market.

Pricing still seems like voodoo though, and while ordinarily I’d guess the adage ‘It’s always easier to go down than up’ is true, in ClickTale’s case that doesn’t seem to be the case!

Paras Chopra
April 26, 2010

@Luke: Interesting comment. I think it is more of a positioning rather than having features. For example, I can bet that if Google Analytics started asking even $50 per month, not many would be willing because they have come to expect it for free.

My guess is that Clicktale realized that the amount of support product required simply did not justify <$100 plans. These days the ongoing rate for a technical consultant is $75-$150/hour and if your $9/month customers are nagging the most, it is simply not worth it.

That is one more reason why support for GA from Google isn't the best. Interaction with users costs time, which is money!

Altus
April 27, 2010

Thanks for the great writeup. The black magic of “how much do I sell a new idea” for can always use some new light shined on it.

sam
April 28, 2010

I use clicktail, it helps me know what is happening on my site and its heatmaps and videos show me i can increase my conversions

Melvin Ram
May 2, 2010

Beyond positioning, you should also consider the attrition rate that comes with a higher price point.

I’m a customer of ClickTale and it’s a great service to have if you’re actively improving your website but at $99/month, it’s a waste of money for a small company if you’re not going to be using the data. For the period I wasn’t using their service, I canceled. I restarted my account this month because we’re doing lots of testing again.

At a $29 or $39/month price, attrition would be lower. I would just let the account site and collect data but at $99/month…

John Boxall
May 15, 2010

Would you rather have 10 customers paying 100$ a month or one customer paying 1000$?

Only a small number of services can successfully monetize the freemium model – I think the best way for you to go is up!

John

Paras Chopra
May 15, 2010

Hi John,

Completely agree with your sentiment. Freemium is incredibly hard to monetize successfully. And for business/productivity startups, it can be a kiss of death. I think freemium is better suited for consumer facing or entertainment industry where the market is big enough to provide you with millions of potential customers.

-Paras

Jonathan Briggs
May 15, 2010

This was a very interesting post – the transparency of your thinking is excellent.

I wonder if you need a non-recuring price as well – as many people may want to do some testing for a month and then not do any more for a few months. I find that very much the case with crazyegg – I simply don’t have time to use it continuously.

Paras Chopra
May 15, 2010

Hi Jonathan,

Actually there are no minimum commitments when you sign up for the service. So, after using you can simply pause or cancel your account and then start reusing it whenever you need to use it again!

-Paras

[...] with how to price your SaaS app? The article below explains a good thought-out process on how you could come up with your pricing plans. A must [...]

honey
December 3, 2010

for better success of your product you just first understand the mentality of your customers, what they want.. on the basis of that you can charge or give them functionality…

Stuart
July 14, 2011

We’re just about to start doing our pricing and this was hugely helpful in guiding me in the decisions we’re making. Thanks for taking the time to do this writeup. Awesome.

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