June 16, 2016

Five key “pay what you want” pricing lessons.

If you’re anything like me, you’ve always had a nagging question swimming through your brain whenever you price a product. In a sentence,

“If I let my users name their own price, how would those fees compare to what I’m asking from them now?”

Early on in the PeakFeed journey I realized that if I was ever going to do it, now was the time.

Here’s how it’s gone so far.

NOTE: Before getting into the numbers, let me be clear about how PeakFeed is likely different from your venture. My goal is to make $1,500/mo from this. No more. Broken down even further, It’s built for 500-1,000 users each paying $1.50 – $3.00 a month. In other words, Even if all users paid the absolute minimum of $1/mo, I still wouldn’t be too far off my model.

1) Average Fees

Before, between promotions and organic signups, the average user was paying about $3.00/mo. After letting people name their own price, the average user was paying about $2.35/mo. A drop, yes, but that’s just one piece of the picture.

2) Long Tail

Let me be clear that the average does NOT come from lots of people choosing $2 or $3 for their monthly fee. Instead, nearly 3/4 of all users pay the absolute minimum of $1/mo. Most of the rest pay $2/mo. The average is as high as it is because a handful of generous people pay $5, $10, or even $20 a month.

An interesting tidbit on that point is that I’ve never had anyone choose to pay $3/mo or even $4/mo. If it’s not $1 or $2, it’s always been a nice, round number like $5, $10, or $20.

3) Conversion

Keep in mind that I only offer paid accounts. No free trials or free tiers. So, before, conversion from all traffic sources averaged out at about 0.4%. After implementing PWYW, however, conversion from all traffic sources sat at 1.6% – a 4x increase.

Care to do some simple math? Before, 1,000 visitors x 0.4% x $3 = $12/mo in recurring revenue. After, 1,000 visitors x 1.6% x $2.35 = $37.60 in recurring revenue – a 3x increase.

4) Churn

Losing paying members is just part of the game, but so far churn is down by half. Turns out that when people name their own price, there’s less buyer’s remorse over something they didn’t have to talk themselves into paying for in the first place.

5) Marketing

Perhaps the most intriguing lesson of all is the marketing value of doing something like this. When PeakFeed was featured on Product Hunt, many more people got excited about the pricing than they did the tool.

I’d even go so far as to say that it was as successful as it was on Product Hunt because of the pricing model. In a sea of tools of very similar value, pricing helped it stand out.

A Few More Tidbits

It’s important to remember that whenever you do something folks aren’t used to, there’s are other bases that needed to be covered.

First, trust. I decided to use Gumroad for payment processing instead of a tightly integrated form using Stripe. I did this so that in my communications I could reassure potential buyers that I had no control over that form. What they chose to pay was what they would pay. No hidden fees or tricks.

Second, transparency.

I recorded a walkthrough video where I admitted what they were thinking – that it was different, kinda weird, and a bit unnerving. Then I went step-by-step through the sign up process and showed them there were no strings hidden behind scenes and reinforced the trust element I mentioned earlier.

So Far So Good

It’s a system I’ll surely have to refine even further (like processing fees, for example, that take a pretty hefty chunk out of $1 transactions), but for this simple tool and my goals it’s been extremely successful.

People enjoy having control over their fees and conversions are high even without a free tier or even a free trial.

If you’ve got a simple product you’re struggling to monetize, might be worth a shot.

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Hi, I'm Gregg.

I'm a SaaS marketer and maker.


Never heard of me? All good, these days I don't chase influence as much as I do balance. By day I run marketing for Inntopia and evenings see me building SendView, but my happy place is playing in the mountains with my family.