As a Web Developer the costs of paying for the basic plans on Basecamp and other online services, like freshbooks, catch up in the long run - $144/year is a lot in relation to buying software. It's only a matter of time before these companies realize it's a diminishing return to charge so much for the "basic plans: Basecamp ($144/year) and freshbooks ($168/year).
Can't they realize without "science" that they could charge less and get large returns? Please don't mention scale, it's online software, there's such a low cost to them to support more users. Look at what Amazon did today, lowering the storage costs.
UPDATE
I had to comment on the post:
Jason,
I highly recommend you do some “science” for pricing your products. All the basic plans, especially Basecamp is extremely high IMO , when I calculate the yearly costs it makes me look for another service or software that could provide the same function.
I would image the $12 base plan for Basecamp is lowering your upgrade conversions. I’m sure if you calculate the lifetime value of a subscriber at the base plan then factor the increased conversion plus extended subscription of subscribers – 37S would benefit in lowering the base costs across all of your products.
I would also assume the extra people upgrading from the free plan wouldn’t increase your overhead.
It seems like you’re placing a high value on your products by simply charging a lot. IMO , you can’t do that anymore with your new competition.
I’m actually surprised you haven’t lowered your fees just because of the larger user-base. Scale should provide cost benefits for you, why not lower the rates in order to draw more base users, it’s very cyclical. Example, Amazon dropping their storage fees today.
Note: I’m not a marketing guy and I’m just voicing opinion. If you haven’t consulted a marketing consultant, I’d recommend for and against it ;).
(via
Ask 37signals: How did you come up with pricing for your products?)
Mattijs asks:
I am developing an internet product and I am rapidly approaching the point at which I will need to set a pricing scheme for this product. Problem: I have no idea what to shoot for! I have done some research which shows a wide range of similar products with varying pricing schemes. When 37signals was developing Basecamp, how did you come up with pricing?
When we first priced Basecamp in Feburary 2004 the plans were $9, $19, $39, and $59. There wasn’t much science behind it. We asked ourselves a couple questions:
1. What would we pay?
2. What numbers feel right?
What would you pay?
I think this is the most important question. If you are designing a product that you are going to use then it’s fair to ask yourself what you would pay if you were buying it from someone else. The numbers we came up with seemed fair and reasonable. $9 seemed like a good toe-dip, and $59 seemed like a good top price. We have since changed our prices, but those numbers worked great for an unknown product for an unknown market.
This line of questioning resulted in a course correction when we were designing and pricing Campfire. Originally we were going to price Campfire at $5/chat. The idea was that people would create a temporary Campfire chat room to coincide with a meeting or conference call. We felt $5/meeting/call was about right.
But then we thought about it some more. We asked ourselves would we actually pull out of credit card and pay $5 for something we might only use for a few minutes? We decided no. That changed the entire product focus. Gone was the idea of temporary event chats and in was the idea of a persistent chat room that never closes. Then we adopted the Basecamp-like monthly recurring fee schedule. I’m confident that was the right choice.
What numbers feel right
There’s a big psychological and emotional side to pricing. A friend who worked at Wal-Mart once told me that Wal-Mart never prices anything ending in a 9. They always end in 8 (or 6 or 4) or something other than 9. They want the customer to know that Wal-Mart is always working hard to shave an extra penny off the price — hence the uncommon 8 not the familiar 9.
We’re not that scientific about our prices. Maybe we should be, but we’re not. Our current pricing lineup for Basecamp is $12, $24, $49, $99, and $149. We’ve had these prices in place for a few years now and we like the mix. It feels right. Each tier is roughly double the previous tier, but we deliver more than double the benefits.
For example, at Basecamp Basic ($24/month) you get 15 projects and 3GB of file storage. At Basecamp Plus ($49/month) you get 35 projects (more than double the Basic tier) and 10GB of file storage (more than three times the Basic tier). So the price is double but the benefits are more than double. This pattern continues throughout our pricing plans.
You can change prices if you have to
Remember, if you get your pricing wrong you can make corrections occasionally. We’ve made one major price change for Basecamp and one minor-ish price change for Backpack. The Backpack price change was when we launched the multi-user version. That price change actually reduced prices for the old higher tiers and offered a shorter step up from the first to second tier (it used to be $5 -> $9, but we changed it to $5 -> $7).
Changing your pricing can be a little painful in the short term, but if you make your case, increase the benefits with the price, give people ample warning about the coming increase (90 days, let’s say), consider grandfathering longer-term customers in at the old prices, and keep your prices fair, it should work out just fine.
Thanks for the question!
We love answering people’s questions about business, design, programming, marketing, pricing, etc. If you’d like us to answer yours, please email svn @ 37signals (...you know the rest).
