Pricing Strategy & Optimization

"Go trial if your self-service product doesn’t convert well and you have a high price point. Otherwise, go freemium combined with a trial of your pro plan."

"Don’t do freemium until you truly understand how to convert leads to customers, because you’ll end up increasing noise or false positives when you’re trying to figure out your segment beachheads."

"Encourage annual plans by offering a larger (limited-time) discount."

"One-time donations still decreased slightly, but the lifetime value of the increased monthly donations outweighed the one-time donation decrease in this iteration. Smart defaults FTW!"

"The share of donors who covered fees decreased from 85% to 60%, showing the power of defaults—but the conversion decrease disappeared, so we shipped it."

"As a rule of thumb, I believe direct is best, either offering the new AI feature/product as an add-on or bundling it in the existing plan with a price increase (or usage-based component). And this seems to be the path many of the largest tech companies took."

"In most companies I have worked with, the benchmark for whether or not to include a feature in a bundle or as an add-on is: If over 70% of users are likely to utilize the feature, it is advisable to bundle it in a standard package. If usage is expected to be below 70%, you need to think carefully if it will make more business sense to include it as an add-on instead."

"The add-on strategy is the “purest” form of direct monetization and will provide you with the cleanest data in terms of adoption and monetization. Also, the ability to track the direct impact of your AI feature will enable you to understand willingness to pay and can provide important feedback to the roadmap and product development."

"In reality, very few companies get to choose their monetization strategy in isolation. If a competing company is launching a similar AI feature but choosing an indirect monetization strategy, you will have to take that into account alongside all the other variables above."

"Restart a paid trial for your existing user base on a predetermined date, providing access to premium functionality at no cost for a limited time. And no, it’s not just about making users simply eligible; it means actually restarting the trial."

"Most B2C subscription products limit the free user experience heavily in order to grow subscribers. In my experience, this slows down organic growth, because only payers can use your product and tell their friends."

"We initially started without any paid plans. Our thinking was that it'll spread faster if we don't charge. Eventually though, not paying became the barrier for companies to adopt it, so we started charging."

"There are four options for charging B2B users: a flat monthly fee, a per-seat monthly fee, usage-based fee, or a transaction fee. Most of the companies I looked at charge a monthly per-seat fee, and sometimes include multiple changes (per-seat + flat monthly fee, or usage-based + flat monthly fee)."

"Nearly company offered a free plan from the outset — usually a freemium tier, and occasionally a trial period."

"We initially started without any paid plans. Our thinking was that it'll spread faster if we don't charge. Eventually though, not paying became the barrier for companies to adopt it, so we started charging."

"We sent our users the Van Westendorp survey to get a good feel for what they thought was a fair price for Segment. It essentially gives you these 4 pricing curves, and you can plot out what makes sense for most of your users."

"Nearly company offered a free plan from the outset — usually a freemium tier, and occasionally a trial period."

"“Freemium” and “friction” are tied at the hip. The success (or failure) of freemium can be directly impacted by friction in onboarding. If you change one, you probably need to rethink the other."

"In the beginning, the actual number you're charging isn't that important. There are some exceptions, but for the most part, you should first be figuring out the range you're in: a $10 product, $100 product, $1k product, etc. Don't waste time debating $500 vs. $505, because this doesn't matter as much until you have a stronger foundation beneath you."

"A “value metric” is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc. If you get everything else wrong in pricing, but you get your value metric right, you'll do ok. It's that important."

"When used properly, quantified personas and segments are beautiful tools. The information needs to go beyond just cute names like “Startup Steve," with a cute avatar, and cute meetings where people tell you they’re targeting "developers". To get quantified personas, you need to pull out a spreadsheet."

"The most successful companies optimize monetization in some manner every quarter. You may be thinking, “they change their price every 3 months!?” No, and that's the first lesson of monetization: pricing goes so much further than the actual price."

"In some instances, there’s good reason to push out monetization. In the case of Loom, co-founder Shahed Khan shared, “We didn’t monetize Loom for several years intentionally, as our focus was to become a ubiquitous tool within organizations.”"

"Should you use the Van Westendorp? We say proceed with caution, unless you’re including questions that reduce hypothetical bias (see this guide for examples) and you’re focusing on more established product categories (versus products that are brand-new to the world)."

"To overcome the hypothetical bias associated with Van Westendorp, economists have developed 'incentive-compatible' pricing methods. These methods give you an incentive to report what you would really pay (or rather, a disincentive for answering hastily or intentionally misreporting your willingness to pay)."

"While the optimal recipe is to do both qual and quant, anything is better than doing nothing. As pricing expert Madhavan Ramanujam says on Lenny’s Podcast, 'Talk to at least one person. Most companies are not even doing that.'"

"Assuming that price is a 'magic number' implies that people have predetermined their willingness to pay for your product; they have a number in their head. But in reality, most of your customers haven’t thought much about it. They are deciding in real time what they’re willing to pay based on the information they have about the product."

"Pricing is the most under-leveraged growth lever. It can drive enormous sustained growth (quickly) and often takes very little product work, yet is rarely prioritized or even discussed within product teams."

"If you’re currently selling a thing, could you add a subscription (e.g. Peleton, Robinhood Gold) or advertising (e.g. Kindle)?"

"My theory for why free trial products are so much higher is that these products are typically attracting a user that’s more ready to buy, which then makes them more innately ripe for sales involvement. Sign-up rates for free-trial products are materially lower than for freemium products (5% vs. 9%, respectively). There’s time pressure in a free trial—since users can access it for only a short period of time—and so people wait to sign up until they’re serious."