I'm seeing this behavior especially for addons. When customers are paying a recurring fee for the main app and the costs of addons add up, they seem to prefer a fixed one-time fee (not necessarily equal to the CLV).
That said, there was a recent blog post about how one HNer dramatically increased his revenue by changing his pricing model. Rather than charge for features, he adopted a few tiers of service, each one targeted at one type of customer's use case.[1] I don't know your exact situation, but that might be worth trying as opposed to configurable add-ons. In general, speaking in the language of use cases resonates with the buyer more, and is more likely to result in a purchase.
You're doing pricing wrong then. If product A creates $300/month in value and you charge $50/month for it, and the user needs addon a for $15 and creates $8 in value and addon b for $35 a month but creates $20 in a value a month you're better off charging $150 a month for the package that has those addon features.
Maybe I'm unusual, but I just shelled out $350 for a smartphone in order to save myself 50% off of my phone bill by using a prepaid service.
When I decide whether or not to purchase or subscribe to something, I do the math to figure out which is cheaper in the long run. That being said, if the price difference is negligible and all else is equal, I would probably opt for a recurring payment.
You're unusual (no offense, so are most/all HN readers). The vast majority of smartphone buyers with a choice choose the subsidized (more expensive LTV) phone.
In any case, my thinking goes like this: If I had to buy SEOmoz in one lump sum for rest of my life the value of the product to me is probably close to $5000. That's what I'd pay for a lifetime subscription just for MRFS.
I can either pay $5,000 (hypothetically) and have it forever, or slowly enter in at $99 a month. If I cancel within 4 years I win, if I cancel after 4 years SEOmoz wins.
Comments
1. Customers perceive the indefinite nature of recurring payments more expensive than a one-time fixed fee
This is, for better or worse, exactly the opposite of how customers actually think.
I'm seeing this behavior especially for addons. When customers are paying a recurring fee for the main app and the costs of addons add up, they seem to prefer a fixed one-time fee (not necessarily equal to the CLV).
Good data, thanks.
That said, there was a recent blog post about how one HNer dramatically increased his revenue by changing his pricing model. Rather than charge for features, he adopted a few tiers of service, each one targeted at one type of customer's use case.[1] I don't know your exact situation, but that might be worth trying as opposed to configurable add-ons. In general, speaking in the language of use cases resonates with the buyer more, and is more likely to result in a purchase.
[1]: http://www.extendslogic.com/business/what-i-learned-from-inc...
You're doing pricing wrong then. If product A creates $300/month in value and you charge $50/month for it, and the user needs addon a for $15 and creates $8 in value and addon b for $35 a month but creates $20 in a value a month you're better off charging $150 a month for the package that has those addon features.
Maybe I'm unusual, but I just shelled out $350 for a smartphone in order to save myself 50% off of my phone bill by using a prepaid service.
When I decide whether or not to purchase or subscribe to something, I do the math to figure out which is cheaper in the long run. That being said, if the price difference is negligible and all else is equal, I would probably opt for a recurring payment.
You're unusual (no offense, so are most/all HN readers). The vast majority of smartphone buyers with a choice choose the subsidized (more expensive LTV) phone.
Wow. That's interesting. I'm sure you probably have data validating this but how does anyone explain it?
Is it because a recurring payment implies they only have to pay as long as they are using the product?
Take SEOmoz for example. I subscribed to them for a while.
I used it for the website: http://http://metalranchandfarmsigns.com/, which on average before Google killed me made $200 - $300.
In any case, my thinking goes like this: If I had to buy SEOmoz in one lump sum for rest of my life the value of the product to me is probably close to $5000. That's what I'd pay for a lifetime subscription just for MRFS.
I can either pay $5,000 (hypothetically) and have it forever, or slowly enter in at $99 a month. If I cancel within 4 years I win, if I cancel after 4 years SEOmoz wins.
I cancelled in a few months.