Pricing Strategy

"The second big thing that marked my journey at The New York Times was the shift to a direct to consumer subscription model... it helped make a market for paid journalism, that has really helped a lot of news organizations find new ways to support quality coverage."

"What if we actually sampled a number of different paid suggestions and interspersed them to free users across their writing? All of a sudden, people were seeing Grammarly as a much more powerful tool than they were before and our upgrade rates nearly doubled just through this change."

"Try to have your free product be a reflection of everything that your product can offer you... It's basically a reverse free trial but in real time while you're writing as opposed to a time-based one."

"When you can lower the barriers to monetary friction in some form... you can actually causally change your ability to become successful, because I've given you a little bit more time to try that idea a little bit longer. I've given you that opportunity to move your business over to Shopify. And so often in those types of experiments you see that you've basically unlocked a class of people who might've given up without reducing that monetary friction"

"What discounting has a really powerful effect on is it can signal value with a high list price, but then bring something down to an affordable price. ... You could signal very high, signal quality through price, which was very murky at that point in online learning. Signal value through price. Discount it to 10 bucks."

"Your plans from free to the top, they should have well defined understanding of the target customer, the use cases they should map out or you should map out the motivations for motion between each... For Snyk, the real drivers to move from free to a paid plan, for example, is when you want to secure business critical code and you start having needs around governance and compliance."

"To some degree, there has to be a value exchange that happens in order for a creative person to live from their art. And I've found that that's much more pronounced with musicians, this starving artist ethos which makes what I'm trying to do actually quite difficult because a lot of the feedback we get is, 'Oh, that's awesome. I want to have a listening party and have everything be free and just have everyone show up and don't sell anything.' And we're really looking at it as a way to fans want to support the artists they love, they want to open up their wallets."

"Freemium for us wasn't so much a growth strategy or a monetization strategy as much as it spoke to our core mission of empowering the world to design... providing that equality was really important to us. But also you need to build a viable business because you can't help the world design if you can't afford to keep the lights on."

"The whole market is going to go towards outcomes-based pricing. It's just so obviously the correct way to build and sell software."

"I think there's a huge difference between outcomes-based pricing and usage based pricing because especially in AI, they're not necessarily even correlated... I am a huge believer in this."

"We were trying to just figure out how to simplify, simplify, simplify. And at the time I was an IC, individual contributing PM, so who am I to have a point of view on pricing and packaging? But the person I was working with, my designer... we both had a similar school of thought in terms of what the pricing packaging could be."

"Initially the way that it worked was our starter team was that you could have unlimited files but only collaborate with two or three people... We realized that wait a minute, that's hurting us. And so we switched it and now it's like you can have something like three files, but unlimited collaborators."

"If you take a marketplace, typically you're charging commission on the supply side and their sensitivity to that commission is much harder to understand... The more you charge, the more you can fund benefits for your customers... So what's the right balance between charging more and maybe kind of discouraging supply from signing up to giving more benefits to demand and encouraging them to sign up?"

"Broadly the evolution looks like kind of Marketplace 1.0, which is all they're doing is aggregating demand... Then you have a managed marketplace like Airbnb or Etsy, which did something really fundamental on top of that, which is generated trust... There's then one click beyond that which... typically they're doing some work in the value chain... As a result, they could charge more"

"We, for instance, didn't want to have a free trial. And part of it is that we really wanted to hear feedback about our product only from people that the product means something to them. The best proxy for that is that they are paying."

"Self-serve monetization has a cap of about $10,000. That's just how much we're able to process on the credit cards before they start getting flagged and declined by the banks and how much we as a consumers and prosumers are even willing to put on our credit card."

"In free to pay conversion, there's three pillars that you constantly need to work on... monetization awareness... conversion rate optimization... [and] what you're selling, do people want to buy?"

"Another one is giving your product away a lot, this is part of our growth secret sauce. You have to remove the barrier of entry. If somebody, one of our users stands up and say, hey, I'm going to have a hackathon at my work on Lovable, can you give us some free credits to play with? Why would we prevent a person who wants to do all of the marketing and activating for us from using us? We're like, take it, how much do you need?"

"AI being so new and the capabilities being so new, you have to remove the barrier of entry. You have to give a lot of your product away for free. But by the way, I don't just mean freemium. Freemium to me is just a baseline. If you're in the new category, you need to let people explore what it is free and get that initial wow moment."

"We charge 99 cents to resolve tickets, customer problems... we wanted our revenue to be 100% aligned with the value that they attained because we had all this scar tissue from pricing prior that felt unfair to customers."

"I always believe that that pricing should come from value and not from costs. The cost is our problem. We just had this sense and intuition early on that this thing will get cheaper and it got a lot cheaper."

"Within the week we rolled out just completely new pricing plans, where you could upgrade... people are willing to pay more. People want to pay for more inference, because we've crossed this threshold where you can get a very tangible ROI."

"The discounting model makes sense when something's commoditized... But chasms are based on risk bearing decisions. Basically that's the problem that creates the chasm. I have to make a risk bearing buying decision. So discounting does not reduce risk."

"So this is a paid newsletter as well. So there's a free version and a paid version, and there's thousands of people paying for the newsletter... I make most of my revenue from subscriptions, and I don't do sponsorships or ads in the newsletter."

"In this case, customer choice may be more important than the complexity of advertising, or maybe the stinky experience."

"We did run a form of Van Westendorp, which is just understanding what is the overall willingness to pay. And so we did use that. We did kind of integrate some forms of conjoint analysis, which is just trying to understand what are the features or things that people actually value in your product. And so we'd survey a lot of our early users and ended up coming to a price point that was... roughly like 20 bucks a month."

"We're actively working on an experiment, right now that's having a small hit to revenue, but it's a really nice win for retention, and I think it's actually worth thinking about from day one, as you're building a streak, do you see this more as a monetization feature, or do you see this more as a retention feature?"

"I take gross margin is just a very coarse instrument, not a perfect instrument to think about, am I adding enough value? Am I differentiated?... If the response is gross margin is super low right now, but here's the dynamic I'm going after. And then you're like, 'Oh, okay.'"

"We're out there looking for commodities that are still charging luxury prices that we can create really beautifully tight, simple, essential generics of very high quality that don't do everything that the other products do, but get the core of it right, the 80-20... pay for once and then install on your own server."

"Going to annual contracts, on a spreadsheet, looks great... You know what's better? Letting customers pay what they want to pay. If it's you or me buying for ourselves, Lenny, we're still going to put it on a credit card, aren't we?"

"In the very early days, people will discount till the cows come home because they think that's the way to get a deal done. The best clients are not going to do that to you. If they're sitting there nickel-and-diming you, they're not fully bought in on what you're selling them."

"Enterprise companies are very used to a land, when I say the first initial contract, somewhat between 75K and 150K, very used to that. In fact, that's probably where you want to start because you also want to understand where can you grow from this."

"We are more concerned with value creation than value capture. And we really mean this. When we talk about what is the value of dbt Labs to our customers, they often talk about how it's either 20 to 35% as valuable as what they spend on their cloud data warehouse. But what we charge our customers is a very small fraction of that 20 to 35% and that's by design."

"At some point we started building the payments function, so we just added a page in the settings that you can optionally pay. Then we just give you a slider that's, how much do you want to pay per seat? Then we just see if... I know some people paid $28 per seat and some people pay $1, but it doesn't matter, we just wanted to test the functionality and see what people think."

"Personally I'm in the camp of offering a reverse trial. Funky name, but what that means is offer a trial but also offer freemium. Do both. The reason why I like this is you get an opportunity when somebody shows up and says, 'Hey, I'm going to give your product a try today,' to show them everything that's possible."

"When we think about price, we think about it as a measure. Like liter is a measure of volume, price is a measure of value. And when you think of it this way, it really stands for, do people actually want your product and would they actually buy it? And that is their whole willingness to pay conversation."

"If we truly believe that we need to build products that are simply products that customers need, they love, they value, they're willing to pay for, it is a product function, because you need to be able to design the product around this information."

"The folks that first round summarized this in four words... price before product, period. Because frankly, Lenny, as an entrepreneur, a company, you actually don't have a choice whether you'll have a pricing conversation with your customer. The only thing in your control is when you will have it."

"Segmentation needs to be based on what customers need, what they value, and what are they willing to pay for... You need to be able to productize to segments. If you're trying to build a product and try to position it to different segments, you already lost the battle."

"There's literally only three types of pricing strategies... skimming strategy... penetration... and the third one is just maximization."

"The quick framework to think about packaging, bundling, we call it the leaders, fillers and killers, exercise of framework."

"How you charge is way more important than how much you charge."

"Behavioral pricing basically is tapping into the irrational modes of our decision making and not just rational."

"Before you price discount, think about what value can you exchange to actually justify that price discount. So you are taking value away in a de-featured product and hence you can discount."

"The winners in AI will need to master monetization from day one. If you're bringing a lot of value to the table and you start at training your customers to expect $20 a month and you anchored yourself on a low price point, you're in trouble. 20% of what you build drives 80% of the willingness to pay."

"If you want to build an enduring business, you need to be able to architect towards profitable growth. What that means is you need to be able to master two engines: market share and wallet share."

"In your early days it is by far more important to have pricing that is really simple and it's not creating too much friction in the sales conversation. I mean, the asset test that you probably should go back on Monday morning and do is take some of your early prospects or customers and ask them to articulate the pricing strategy back to you."

"The quadrant that you really want to be in is the golden quadrant, which is the top-right one. That's the outcome-based pricing model where you have great autonomy and great attribution. And here is where I think AI can be really magical. So this means you're not only charging for work delivered, but you're charging for work delivered that was delivered by AI without no humans in the loop."

"The true definition of a company is a pricing power. And if you have a prayer session for doing a 10% price increase, you have a terrible business. So you have to be able to increase prices over a bit of time."

"If you're a PM you need to come up with ways to actually be able to monetize and ChatGPT is now free for everyone. But I don't know if you saw, there was a signup forum that was coming around saying, "Hey, would you pay for this? What would be the minimum you pay? What would the maximum you pay? What would you like to see if you paid?""

"Thinking about your pricing from the start is important... what is the value metric? And then they've already have massive scale and then they're rethinking their pricing. That's actually quite a big headache to actually think about, okay, how do we grandfather users?"

"For every week that you continue to let people use it, you get incrementally more people who do convert because their timing on buying your product has nothing to do with your schedule or how quickly you want revenue and everything to do with, where in the quarter is it for them?"

"Rather than just test whether people would rent a $100 dollar textbook for $35, they tested an arbitrary set of prices, all the way up to $75... the surprise was that they would rent them for more than we thought."

"Do not set it and forget it. I see companies do this, where they labor over designs and features. And they build this perfect product that's delightful to use. And then pricing's sort of plucked out of thin air, and then they don't revisit it. This was Evernote. It was many, many years before we went back and overhauled the pricing. So, think about your pricing just like you do your roadmap."

"One is waiting too long to monetize. Another one is underpricing. And this isn't just setting the base price too low, but it's also leaving money on the table by not offering different plans to cater to different segments. And the third one is all too often with pricing, people set it and forget it."

"If it gets you to the aha moment, that path to habit formation, that has to be free. That's the core utility of your product. And so the idea is that in that first session or first day, someone's getting to see the delight and saying, 'Oh, my God. I'm never going back to the old way. This is how X gets done.'"

"What is a day one premium feature? What is a premium feature that you can get value from the very first time you engage with the product? That's different than your day 100 features. Those are the ones that represent more advanced functionality. Maybe they're ones where the value is derived from having a certain scale of data in the platform."

"Matching price to value... This entails picking the right value metric. So, this is the unit of value that they derive from using your product, and it creates this natural escalator, because as people use it more, you get paid more over time."

"I'd say the easiest on-ramps here for companies to start digging into that is to use Van Westendorp's method here... If you take the packages that users designated as nice to have and must have, you make that collection of features in the survey, then ask them, 'What's such a cheap price that you start to question the quality of the product?' Ask them, 'What's a good deal or sounds like the right price for this package?' Ask them, 'What's expensive, but they would still pay?'"

"In that moment, the exec said, 'Okay, sure. Sounds good.' Not a minute of hesitation, not a second of hesitation. And what he learned in that moment was that, one, he was wildly underpriced... what I encourage users to do, especially in these enterprise conversations, is to continue to ask for more, to understand where the upper bound might be."

"The vast majority have a hybrid approach. And so what I mean by that is they're typically some good, better, best subscription model where there's some consumption component across each tier, like some quota limit for your given value metric."

"What I did do is ship a Google Form to Discord with, I think the four questions you're supposed to ask on how to price something... the Van Westendorp survey. ... I remember distinctly A, you [got] a price back and that's kind of how we got to $20."

"every single bill we got, we allocated the cost back to the customer, or the transaction that generated it. And then we add our margin on top, and that's our price. And when you look at this and you analyze it, you'll find obviously there are 20% of customers generating 80% of the costs. And what you do is you get those 20%, you give them a raise, because they should cover their costs, and you drop the price to everyone else."

"The main thing we did is to rebuild that whole loop, change the monetization model, build a system where essentially pros could provide instant quotes. ... finding the right friction point for monetization and when and what to charge people for and all of that change, that is what really, at its core, turned the growth engine around at Thumbtack."

"The number one thing to figure out when you're thinking about the different pricing pieces, pound for pound, it's the pricing metric or the value metric. That's how you charge per user, per thousand visits, per thousand what's its, whatever it is."

"We had a principle called align price to value... Value is subjective... The biggest mistake was a lot of mistakes compounded... we've ended up with too many pricing models... My advice is keep it simple. Fight so hard to resist the temptation to add extra ways in which you price."

"Early commitments in this case to a particular pricing scheme, particular monetization, can really tie your hands as you then realize later you actually are a platform. A great example of this is when oDesk started... they had to think a little bit about, 'Okay, what's the monetization strategy we want to use? How do we address this issue that longer term relationships may disintermediate?'"

"We used one of the easiest methods, which is the Van Westendorp Price Sensitivity... The price point that supports our best in class, best in category position, is actually the third one. It starts to feel expensive, but then you sit down and you think about the time that you spend in email, the ROI, and you still buy it anyway."

"Another regret, another thing I would've changed is I would've- I would've actually tried to monetize and generated revenue sooner... what I really should've done is dedicated maybe 10% of our focus on revenue generation because, you know, it was- once we started generating revenue, we- we did so very quickly, and we go to cashflow, break even... it would've just given us a lot of flexibility in kind of owning your own destiny and proving out some of the business model itself."

"Change your pricing strategy... Try charging a thousand dollars a month and going month to month. Try charging 20 bucks a day and going day by day... You got to completely change the rules of the game."

"We decided that we're only going to charge for people when they make a document... I wanted no friction on the share edge. I mean the share edge for us is like that's the moment of, 'Hey look, I'm doing this thing, it's so cool.' And that's the moment where the line I gave to the team is I want no dollar signs in the share dial"

"Most consumer subscription companies that are $5 to $7 a month. Their LTVs typically cap out at 50 to 60 bucks... if you have really healthy LTVs... we're talking in the hundreds of dollars."

"The key properties also of PLG products, think about it should have a very low barrier to entry. Usually it has a free version, free trial. You don't need get approval from your boss to use it. You can use it today and then it has some sort of a self-service checkout flow."

"Your pricing need to be relatively simple. If your pricing is super complicated, they need to... Whenever they pick, for example, they try the product, they love it, they have a self-service checkout flow, but in order to decide how much they need to pay, they need to send your sales some information, you need to do a quote, then that's broken."

"At Vercel... we did a pretty substantial pricing change in August where we have an enterprise at a pro-skew... about half of the folks on the enterprise skew were startups... So we kicked a lot of that stuff out of the enterprise skew and made it so you could buy it self-serve online and what do you know, people are."

"Bundling is not a great land strategy for PLG companies."