25th
Bootstrapping your subscription based consumer application.
I had a great discussion over dinner about subscription based consumer applications with my lovely wife. We don’t normally talk about deep interesting things like this, but hey, why not? ;) It gave me a chance to solidify some thoughts that have been floating around in my head for the last week or so. Maybe I’ll end up talking about this at BarcampKC.
First, let’s define what a consumer application is. Consumer in this context means your product is providing value to someone that is not a company or business. Got it?
Making money with subscription based consumer apps is tough. Here’s a few of the problems you’re up against:
- Consumers expect web apps to be free. (they’re cheap.)
- Consumers, if willing to pay, expect to pay a very small amount. (they’re cheap.)
- Inertia of “yet another recurring monthly fee”. (most don’t budget well.)
- Historically consumer apps have a high turnover rate.
Ok, now that we have those issues out in the open, let’s talk about how to overcome them.
Freetards
Your consumer app *must* have a free plan. Deal with it. Entice your customers to upgrade with value added features, but leave enough the core functionality to let them get done whatever it is they’re wanting to accomplish.
Cheaptards and Budgetlesstards
Ah, an age old problem. Cash flow. If your customer acquisition costs are say $15 per customer, but your most expensive plan is $14.95/mo, it’s going to take you a few months for each customer to pay itself off before you’re turning a profit from that one customer. By that time, chances are, the customer is gone. Turnover is high, remember? And you damn well better know how much it costs you to acquire a new customer.
Tell me, which would you rather have:
$4.95 * 100 customers /mo
or
$49.50 * 100 customers in 1 month
One puts $4950.00 towards your advertising campaign, the other puts $495.00.
Let me highlight the point I’m trying to make here: charge more up front, have more capital to work with, reinvest it into your advertising campaign. Grow. Grow. Grow.
But wait a second, people won’t pay that!
Great, let’s talk about the price point. $24.95 seems to be popular. Flickr has charged that for awhile now. Weebly (I think) charges $24.95/year for their domain registration (they have a fixed cost with that domain registration too, so that $24.95 is actually reduced to something like $14.95/year per customer that they can use.)
In my past experience, anything under $50 was a sweet spot. If I were launching something soon (hehe), I’d do an a la carte plan with a sweet spot (2 or 3 upgrades, but not the whole enchilada) that added up to somewhere around $45/year. You’ll always have a few people willing to max things out ($100/year), and a few that will only take the lower amount (say $20/year), but regardless most would end up hitting you for around $50. Make sure you price your features so that they add up to be close to those numbers so you maximize what your customers are actually willing to put out their wallet for.