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Ask DN: How to build a plans/pricing scheme

over 7 years ago from , UI Developer / Full-Stack Designer

Hey everyone! I'm building an app that will require different plans that come with different features, and cost a different monthly/annual price. I don't have a business-person with me, so these decisions need to be made by me and one other developer.

How do I decide what features should be available to free users versus paid users? I want to limit free users so that they want to upgrade, but not so much that people won't want to use the app at all without paying.

I know this isn't most of your specialties, but if you have any thoughts I'd really appreciate it!

23 comments

  • Alson KawAlson Kaw, over 7 years ago

    I would suggest pricing it in such a way that the free version makes it very usable, but causes a small hassle, which will bug users to pay for premium.

    e.g. Slack, perfectly usable in the free version. But if I want more than 5 integration with other apps, I got to upgrade. And my message history is capped at 10,000. Perfectly usable at the free tier. But the small things may annoy me to the point I want to upgrade if my company has funds to spare.

    Marzan made a very good point with Dropbox and Invision. Both are perfectly usable products without paying, especially for individuals. But once you start to use them at a company / agency level, paying for it makes perfect sense.

    2 points
    • Jason EtcovitchJason Etcovitch, over 7 years ago

      "the free version makes it very usable, but causes a small hassle, which will bug users to pay for premium."

      Absolutely; I don't want 100% of users to be on the free plan, that just wouldn't work. However, it'll be difficult to separate the "bonus features" from the things that make the app itself usable.

      I didn't mention this, but the app is itself team-based, so using it at a company/agency level is expected. However, it probably doesn't generate enough revenue for every single team to want to buy it, especially not smaller startups. Something to think about I guess.

      Thanks for the advice!

      0 points
      • Alson KawAlson Kaw, over 7 years ago

        If it is a team-based app, you can start thinking about things that your app can offer, but at a slower performance rate. Slack has it's 10,000 message cap. Dropbox has it's 5GB cap.

        Depending on what you offer, I'm sure you can limit it somehow. Maybe free accounts can only have up to 5 users in a team? This is small enough that very very small agencies like startups can use your app while it's starting-up (hur hur), but once it's gained traction — and hopefully, grew a reliance on your app — they will subscribe to the premium version to raise it's user cap.

        Or if you want to, you could also limit the amount of interaction. For e.g. if you're offering an invoicing app, limit the amount of invoice generated to 3 per month.

        Without leaking your app's offerings, these are what I could think of.

        0 points
        • Jason EtcovitchJason Etcovitch, over 7 years ago

          a) I appreciate your pun, A+. b) I know it's hard to give specific advice without knowing a lot about what the app offers, so I really appreciate your help.

          We were discussing only having 5 users per team on the free plan, it's probably something we'll do. However, we also talked about charging per user once that threshold is passed. Ideally, they would also get additional features so that they don't go from paying $0 to $X/user with no other changes.

          You also mention "the premium version," which implies a free version and one payed tier. Not that that's a bad thing at all, but I'm curious what you'd think about having multiple tiers with different features to each one? Or are we just overthinking it? I know it will really depend on how we can distribute the features among the tiers.

          0 points
          • Alson KawAlson Kaw, over 7 years ago

            You could do an interesting pricing in such a way that first 5 is free, above that, you pay $X for each ADDITIONAL seat instead of for 6, which makes no sense if there's no extra premium features.

            0 points
            • Jason EtcovitchJason Etcovitch, over 7 years ago

              That's... why didn't I think of that. Certainly going in the notes. However, if we did want to add premium features, how would that work in addition to paying per user (past 5)? Past 5, pay $X per user and an additional base $Y for the premium features? What if teams only want the users but not the premium features?

              (feel free to not answer all of those, I'm more thinking aloud than anything)

              0 points
              • Alson KawAlson Kaw, over 7 years ago

                Then you can have 2 packages. Top up $X per user to upgrade from the Free Tier to Basic Tier, or $X per user (No more free 5 users) to upgrade from Free Tier to Premium Tier.

                If you do this then you have to be clear on your copy how this works.

                Something like Free 5 users FOREVER*!

                *Only valid for teams on the Basic Tier.

                0 points
                • Jason EtcovitchJason Etcovitch, over 7 years ago

                  Hm that's interesting. Would it make sense to have:

                  1. Free
                  2. Pay $X per user past 5
                  3. Pay $Y per month (not per user) for Z users and all the features

                  I think this would work for now, and then if a team on plan 3 ever had more than say 15 users (which for our app's feature set would be a good amount) we would have to reevaluate it. I'd love your thoughts!

                  0 points
                  • Alson KawAlson Kaw, over 7 years ago

                    You can either do the above pricing, or if your premium feature is large enough. Price it like an add-on.

                    $X/user past 5.

                    Buy Add-On A for $Y/user.

                    This way, your users won't be confused about your pricing plan, and they can choose which premium feature they want, rather than subscribe and have all the premium features. Which also helps them save cost, and allow you as a developer to know which extensions are the more popular ones.

                    0 points
  • Julian LloydJulian Lloyd, over 7 years ago

    "How do I decide what features should be available to free users versus paid users?"

    During your beta testing, you will hopefully learn which features people love versus the ones they couldn’t care less about. You’ll also hear what they’re asking for.

    I think as you see how people actually use what you’re making, you’ll become much clearer on what they’d be willing to pay for.

    1 point
    • Jason EtcovitchJason Etcovitch, over 7 years ago

      I don't think we were planning on running a beta (we just hadn't thought of it), but now that you mention it I think bringing it to DesignerNews would be a great idea! You guys/girls are pretty much our target audience anyways, and I'm sure that the DN community would give excellent feedback.

      Thanks for your suggestions!

      0 points
  • Kieran RheaumeKieran Rheaume, over 7 years ago

    Some food for thought about pricing strategies: Here and here

    0 points
  • Account deleted over 7 years ago

    What Alson said. Give just enough in the lowest price tier to hook them. You want them to use it regularly and make them pay extra $$ for stuff like:

    1. Efficiency (new features allow stuff to get done slightly quicker or makes the overall usability of the product easier).

    2. Scale (allow more users than a base plan to collaborate or offer additional archiving/archiving features that allow the product to be easier to use in scale).

    3. Value (offer so much extra functionality, the user is compelled to upgrade simply to have the larger feature-set... whether they need it or not).

    I think the larger (and tougher) problem to solve will be how to price the lowest tier and how you do trials. There are a lot of pros and cons each way - and a lot of it will depend on the industry you are in.

    Overall, I would also gauge the market/competition and price accordingly - based on your value prop. For example, are you the "just as good as them, but cheaper" option... or are your the "best game and town and pay a premium" option?

    Whatever you do, make sure you do some kind of pro forma where you look at sales/revenue/operating costs over years 1-5 and make sure you price yourself in a way that is truly viable.

    0 points
    • Jason EtcovitchJason Etcovitch, over 7 years ago

      An excellent point to price myself in a way that's viable; I'm not sure that we have the knowledge to do so well, but it's certainly a good place to start.

      I know we're planning on doing a free version that will suffice for many users, but the problem is the cut off. We actually hadn't considered a trial at all, its definitely something we should be thinking about.

      Thanks!

      0 points
      • Account deleted over 7 years ago

        Yeah, it's tough. For me personally I believe in placing a value on your product - meaning that it's worth something. I don't like freemium. It establishes that your product isn't worth much. I prefer to see a $XX/month product that gives you a 30 or 60 day free trial with slightly less functionality, but i's always very clear that it's a pay-to-play product.

        Pro formas are huge. They are kinda silly on one level because you are making some really gross assumptions on sales numbers, staffing costs, etc... but it does show you real quick how much money you can really make on something in scale.

        0 points
        • Jason EtcovitchJason Etcovitch, over 7 years ago

          The thing is, although our app will be fun to use and a great addition to its app space, it probably doesn't offer a monetary value; people won't gain thousands of dollars by using it.

          That means that having a free version is really a must, especially to hook the people that love the app but wouldn't normally rationalize paying for it. I think realistically at least 70% of our users will be on the free plan, unless we think of a way to attract more paid users.

          In terms of a trial, I think I'd rather say "Here's the free plan, and here is what you can get from a full paid plan." The features of the paid plan need to be very clear so that a trial would be unnecessary, otherwise it will feel like a freemium model which no one likes. By that I mean, Dropbox says "Upgrade and get more space." Everyone knows what that means, and you probably don't need a trial to know if you need more space, you'd wait until you need more space to even think about upgrading.

          Pro formas... I need to talk to someone with that kind of experience, because I absolutely see the value in it but I have no idea where to start.

          0 points
  • Meydad MarzanMeydad Marzan, over 7 years ago

    Hi Jason,

    Since you didn't provide details (and that's perfectly fine), what I would do is a field research on different apps and see how their plans matrix look like (what is offered for free and when the charge kicks in). I would also try and see if I can segment or categorize the payment strategy

    I'd start from: 1. Dropbox - You pay for more storage - You pay for collaboration 2. Invision app - You pay for more mockups - You pay for extra collaboration - You pay for more capabilities 3. Youtube red - You pay to be able to download and keep files for offline

    So in those instances for example you can see that scale and ownership play a role in the pricing model. This can go deeper and deeper the more you search and pricing is really an art because of so many variables.

    If you can, try to have an open dialogue with a group of alpha testers and see what is the value you create and how big is the pain you solve. This might help you draw the line.

    0 points
    • Jason EtcovitchJason Etcovitch, over 7 years ago

      You're right that I didn't provide many details (and I don't want to share too much) but I should have mentioned that it's a team-based app. With that in mind, paying for more users in a team makes sense, which is what Dropbox is doing in a way (paying for collaboration).

      In terms of field research, some basic Googling has returned pricepoints that are higher than the value of our app; competitors that offer more features charge more, and while writing this I realize that that just means we should charge less.

      I'm not sure how we're going to go about getting alpha testers involved, but I guess bringing the alpha to DesignerNews will be a great idea!

      Thanks for your help!

      0 points