If you’re anything like me, you’ve always had a nagging question swimming through your brain whenever you price a product. In a sentence,
“If I let my users name their own price, how would those fees compare to what I’m asking from them now?”
Early on in the PeakFeed journey I realized that if I was ever going to do it, now was the time.
Here’s how it’s gone so far.
NOTE: Before getting into the numbers, let me be clear about how PeakFeed is likely different from your venture. My goal is to make $1,500/mo from this. No more. Broken down even further, It’s built for 500-1,000 users each paying $1.50 – $3.00 a month. In other words, Even if all users paid the absolute minimum of $1/mo, I still wouldn’t be too far off my model.
1) Average Fees
Before, between promotions and organic signups, the average user was paying about $3.00/mo. After letting people name their own price, the average user was paying about $2.35/mo. A drop, yes, but that’s just one piece of the picture.
2) Long Tail
Let me be clear that the average does NOT come from lots of people choosing $2 or $3 for their monthly fee. Instead, nearly 3/4 of all users pay the absolute minimum of $1/mo. Most of the rest pay $2/mo. The average is as high as it is because a handful of generous people pay $5, $10, or even $20 a month.
An interesting tidbit on that point is that I’ve never had anyone choose to pay $3/mo or even $4/mo. If it’s not $1 or $2, it’s always been a nice, round number like $5, $10, or $20.
3) Conversion
Keep in mind that I only offer paid accounts. No free trials or free tiers. So, before, conversion from all traffic sources averaged out at about 0.4%. After implementing PWYW, however, conversion from all traffic sources sat at 1.6% – a 4x increase.
Care to do some simple math? Before, 1,000 visitors x 0.4% x $3 = $12/mo in recurring revenue. After, 1,000 visitors x 1.6% x $2.35 = $37.60 in recurring revenue – a 3x increase.
4) Churn
Losing paying members is just part of the game, but so far churn is down by half. Turns out that when people name their own price, there’s less buyer’s remorse over something they didn’t have to talk themselves into paying for in the first place.
5) Marketing
Perhaps the most intriguing lesson of all is the marketing value of doing something like this. When PeakFeed was featured on Product Hunt, many more people got excited about the pricing than they did the tool.
Smart pricing strategy.https://t.co/ezT5xwc1BN pic.twitter.com/YaD36cjNIr
— Allen Wang (@creativewang) November 9, 2015
#Amazing pricing system at #PeakFeed https://t.co/PpZUdxnkSa Pay what u feel their #SocialMedia Watch service is worth to u
— Stephan Jaeckel (@StephanJaeckel) November 9, 2015
I’d even go so far as to say that it was as successful as it was on Product Hunt because of the pricing model. In a sea of tools of very similar value, pricing helped it stand out.
A Few More Tidbits
It’s important to remember that whenever you do something folks aren’t used to, there’s are other bases that needed to be covered.
First, trust. I decided to use Gumroad for payment processing instead of a tightly integrated form using Stripe. I did this so that in my communications I could reassure potential buyers that I had no control over that form. What they chose to pay was what they would pay. No hidden fees or tricks.
Second, transparency.
Loving the transparency of @PeakFeed at https://t.co/OyiNxm8nGt!
— Damir Stuhec (@stuhecdamir) November 11, 2015
I recorded a walkthrough video where I admitted what they were thinking – that it was different, kinda weird, and a bit unnerving. Then I went step-by-step through the sign up process and showed them there were no strings hidden behind scenes and reinforced the trust element I mentioned earlier.
So Far So Good
It’s a system I’ll surely have to refine even further (like processing fees, for example, that take a pretty hefty chunk out of $1 transactions), but for this simple tool and my goals it’s been extremely successful.
People enjoy having control over their fees and conversions are high even without a free tier or even a free trial.
If you’ve got a simple product you’re struggling to monetize, might be worth a shot.
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