You: 2500 customers @ $100/month, or 500 customers @ $500/mo?
We’re halfway through development of our upcoming SAAS, and I’m considering pricing.
I was talking with someone who makes over $250,000/month recurring from his web app, and that’s not counting all the referral agreements he has with partners he integrates into that service (which adds value to his service as well). He also charges a $3000 setup fee. Needless to say, he’s doing great. Guess how much he charges per month? $800… so that means he has…… drumroll…. just 300 customers.
He said he decided from the beginning that he wanted to filter out everyone except the most dedicated, most motivated, best customers. 20% of your customers will make you 80% of your money.
There are many examples of successful web services charging what seem to be ridiculous fees… Meanwhile their software/service might not be as good/feature rich as your typical super-slick SAAS web app that costs $49/month. So it’s not about features, it’s about providing a quality service and providing added value through updates and having enough TIME to really think about each customer and help them get the best results with your product and in your community.
With that said… Which would you choose?
2500 customers @ $100/month or 500 customers @ $500/mo?
I want a MAX of 500 customers so I can provide great value to them and be close with them as a community.
Can you be close to 500 people? I read a case study the other day which was based on a hi-tech clothing company (Goretex I think), and from the outset when building their company, they said they never wanted to get larger than 150 employees, because that was the maximum number for making everything still feel like a close-knit workplace. Of course, they’ve grown larger than that now, but to stay true to their original aspirations, they break everything up into small ‘companies’ of 150 people.
How about 250 customers at $1000/month?
It would be a challenge. I’d much prefer working with 250 people. I’ll test pricing out.
I would choose the smaller amount of people at the higher price big time. It’s a win win. Customers get better support and a better product, while you get less work.
How about 250 customers at $1000/month?
I read that today in the book of "Tipping Point" by Malcolm Gladwell, he talks about that we humans are superiors from other mammals because we can mantain a lot of relationships with many people, but we are only capable of mantaining relationships with 150 people, that it has been prove over and over again, if we try to mantian close relationship with more people we loose focus, and then he gives an example of a tech company who applies that principle and has great success.
150x$1000/month it will be.
Keep in mind price will affect retention rates, otherwise smaller customers at larger monthly price is better.
@Stackman: Good point – I’ll talk with him about his retention strategies. #1 you do have to call to cancel. There’s actually no interface to upgrade/downgrade/cancel your account at all which kinda keeps out that mindset maybe? Anyway i’ll let you guys know
If you’re going to take in 150, go for it but don’t
put yourself into a bind by saying "we’re taking in
only 150 EVER".
That way if you decide to change your mind down
the road and open it up to more people at a lower
price point you don’t lose your credibility.
Might be obvious, but just saying.
Yeah I’m probably not going to flaunt the 150/250 whatever it ends up being in my marketing much. If I find that 150 is somehow low maintenance then I’ll let my prospects list know that we are running so smoothly that we decided to open up 50 more spots for example.
If there’s going to be a lot of interaction with your customers – I would definitely choose the lower amount. As you grow – you’ll find it harder and harder to deal with your customers one on one – and if that’s something your market is looking for then they will pay the higher price. That’s one of the reasons my network moved to Cake – even though it cost a lot more. They have awesome support, 24 hours a day via phone. They fulfill feature requests very quick – and they are just more interested in helping their customers.
The Article Published IN 07-04-2011 03:59 PM