Pricing model question
We are most likely going to pursue a freemium approach just like most Internet based subscription businesses. I'm concerned that this approach won't play well with your pricing model. We're talking to some partners that can bring us tens of thousands of customers of which only a small % will end up paying. With your current pricing model, we'd have to pay for all of these free customers even though we'd only make money on a fraction of them. Also, many of these customers will become dormant over time but because they will still exist in your database, we'll have to continue paying you for them. It would be nice if your pricing aligned better with our financial success. Are you considering changing your model. This seems like a big problem.
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Support Staff 1 Posted by Marc Guyer on 11 Aug, 2010 01:06 PM
Hi Sunil --
This is a common question. Say, for example, you have 100,000 customers. You have the traditional rate of paying customers of around 2%. Your average income per paying customer is around $40/mo. In this scenario, your income is $80k/mo. Your CG cost is approximately 1.9% of revenue.
Further, CG is perfect for the model you describe. In order for true freemium businesses to be successful, every effort must be placed on converting free accounts to paid accounts. CG helps with that. You can already use CG email notifications to send monthly emails to free account holders with an up-sell message. Over the next 60-90 days, we will be rolling out systems to track marketing effectiveness. The first phase will include PPC tracking from signup to conversion. From this, you will be able to learn which PPC sources are the most valuable to your business. The second phase will be a promotion code system that you may utilize to promote conversions and track which promotions are the most effective. Over the next 90-180 days, we will be rolling out an affiliate/referral tracking system which will enable you to expand and track your distribution channels.
CG is not just a recurring billing engine. We make more money if you make more money so we are motivated to provide you with the tools to make that happen.
Marc Guyer closed this discussion on 11 Aug, 2010 01:06 PM.
sunil re-opened this discussion on 11 Aug, 2010 04:59 PM
2 Posted by sunil on 11 Aug, 2010 04:59 PM
I respectfully disagree with your answer. You said: 'We make more money if you make more money so we are motivated to provide you with the tools to make that happen."
This isn't true. You make more money the more accounts we sign up. If we sign up a bunch of free accounts you make more money even if we don't. Why not price based on the number of paying accounts? Then our incentives would truly be aligned.
3 Posted by Daniel Richter on 11 Aug, 2010 05:03 PM
Just to chime in:
Sunil, why don't you just keep the non-paying accounts in your system and only create CG accounts for the ones that pay? Similarly, when accounts become dormant, remove them from CG again. That's how I handle things for our company.
Daniel
4 Posted by sunil on 11 Aug, 2010 05:15 PM
We might consider that if the CheddarGetter charge becomes too high but it seems like bad practice from a data / architecture perspective. What's ironic is that the CG pricing model incents this behavior which results in you not being able to use the free to paying conversion features that CheddarGetter is building.
Marc Guyer closed this discussion on 18 Aug, 2010 09:00 PM.