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

Related posts:

1. Launch of Paid Plans and Limited Time Offer
2. Using A/B Split testing to refine your startup’s positioning: 90% increase in conversion rate
3. Basekit’s conversions increased by 25% after redesigning pricing page

Quick, imagine that you own a small local business, say an automotive repair shop, and you are looking forward to using Internet for getting more business. While researching for your options for tools or services, which of the following pitches is going to appeal you most?

• Businesses grow faster online!
• Online advertising that works!
• Get found faster!
• Create a webpage for your business

Having difficulty making your mind? You are not alone. CityCliq provides low-cost, search engine-optimized webpages for small and large businesses. As they provide a suite of tools to businesses for creating and managing their online presence, getting the positioning right is critical. They recently used Visual Website Optimizer to A/B test which product positioning works best. The conversion goal for this test was a click on their pricing plan. Implementation wise, this simple test was quick to setup (took them just 15 minutes to do so); major effort was invested in coming up with good candidates for positioning. They ran the test for 2 weeks on their homepage and were really happy with the results.

(Click to Expand)

Here is how different positioning statements fare against each other:

About the results, here is what CityCliq had to say:

“Create a webpage for your business was our last test tagline and eventually showed a 98% chance of beating the original. In retrospect, its success makes sense, as it’s perhaps the purest, most direct representation of our product. It didn’t surprise me, as user behavior seems to vary wildly on the web. Plus, there hasn’t been much research done on the behavior of our target audience, so these results were more informative than surprising. “

What they mean is that this A/B test yielded more than just an increase in conversion rate. The test informed them about the psychology of their target customer. This is a perfect example of how A/B split testing can be used to peek into the minds of customers to see misalignment of what they want and what they think you offer. Create a webpage for your business as the winning variation tells that CityCliq’s prospective customers are already aware of benefits of being online and in fact are looking for a tool make that process simpler. All other variations tried to pitch the advantages of being online, which clearly isn’t that appealing to the customers.

Another point to note is that all but the winning variation had an exclamation mark. It would be interesting if they follow up the test with two versions of the winning variation – one with exclamation mark and one without. After A/B testing was completed, CityCliq implemented the winning variation permanently on homepage (as you can see on screenshot) and subsequently saw a rise in user actions. Inspired by their first successful test, they hope to setup a lot of A/B split tests in near future.

Related posts:

1. A/B test case study: how two magical words increased conversion rate by 28%
2. Video converts and here is the proof: 46% increase in conversion rate
3. Top 10 A/B Testing and Conversion Rate Optimization resources