We recently started charging companies to use Sqwiggle after only a month in private beta. We definitely don’t have all of the functionality that customers asked for, there are still bugs and the price is high enough to put-off some companies from using the service.
At first glance this might seem like a terrible idea, but being clear about our pricing and business model from day one has helped to both differentiate Sqwiggle from other perceived competitors and proved that companies are willing to pay to solve the problem we’ve identified - a crucial part of validating the business idea.
The best pricing strategy balances the needs of your startup and customer perfectly. I believe this is the reason that SaaS has become an increasingly popular pricing choice. Our current model is to charge monthly, per user with a two week free trial. Every factor that makes this a great choice for Sqwiggle also works as an advantage for the customer.
For example, we plan on running servers for hosting video calls with many participants through Sqwiggle. For an app that becomes part of a teams workflow being used all day, every day, the cost of this soon becomes significant. By charging per-user, as the amount of video bandwidth increases, so does our income.
On the flipside, charging per-user allows the cost of using Sqwiggle to grow with the size of your business. If you’re paying an employee thousands of dollars in wages per month then a couple of cents per day to make them more efficient and happy is a no-brainer.
There are also a ton of other advantages that have been covered many times; predictable recurring revenue is the lifeblood of a SaaS business allowing us to plan expansion, costs and hiring. A trial with zero upfront payment means that employees can champion Sqwiggle internally and see the benefits without needing to ask higher management for approval.
It’s very early days and we’re still experimenting with the optimum price to charge per user. At the moment we have a single price of $9 per user, per month. There were a couple of factors that came into our decision to choose this amount:
For a distributed team Sqwiggle offers a lot more value than the competition with persistent presence and instant video chat - we wanted to reflect this in the price, charging more than the typical $2-3 per user.
Three studies by MIT and the University of Chicago in 2003 showed "conclusive evidence that $9 price endings can increase demand", even amongst cheaper options. Whilst still charging a premium price and taking into account this rule we wanted to keep the figure as a single digit so that psychologically it still feels like it is relatively much lower than $10 or $9.99 than it is.
One of the key values we have at Sqwiggle is simplicity. We put great pain into ensuring that every part of the product is easy to use and understand. Having a single price keeps things inline with our values and avoids any decision paralysis. “A decision can be treated as over-complicated, with too many detailed options, so that a choice is never made”.
What do you think, is this strategy wise? Is there anything you would you do differently? I’d love to hear your comments.
This post was written as part of StartupEdition, a weekly collection of curated posts by startup-minded people. Read more thoughts on pricing strategies here.