How much should startups charge?
microPledge is an escrow service, meaning we hold on to pledgers’ money till the developer claims it (and the pledgers are happy with his work). One obvious way to get our income is to charge a percentage cut of the developer’s funds.
For open source projects, our cut will be zero, and the only fees will be the credit card charges we pass on. (Though one of our alpha users commented that he didn’t think our open-source pledgers would mind us taking a small cut.)
For other projects, we’re thinking of 3–6%.
We believe these figures are reasonable and won’t turn off any users if we’re providing a good service. Other related sites vary from about 5% to 20% or more. We reckon anything over 10% is too much.
What about the how-much-to-charge question more generally, for non-escrow web services? For myself, I can’t stand sites that charge a monthly fee up front, whether you’re using them or not. Some of the freelance programming websites I’ve looked at do this, and it puts me off even trying them.
The more common approach is to give away your cut-down service free, and then charge for premium services (37signals does this). Another approach is to charge a simple flat fee, like jobs.joelonsoftware.com. But it seems to me this would only work if you’re already popular. And then of course there’s the Web 2.0 revenue model.
So, what do you think: how much should startups charge?
2 July 2007 by Ben 2 comments
2 comments (oldest first)
Cheers, Greg. “Freemium” is a neat name for it — I see it was popularised by Fred Wilson:
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.
I agree about monthly payments being (seeming?) annoying, and I like your idea of one fee for the lifetime of a service. It’s simple, and it could work well for many services where you’re always getting new users.
I believe the term for 37 Signal’s pricing model is called Freemium. It does seem like a good way to go.
As far as a monthly fee, perhaps a yearly fee would be better. I’m always turned off by monthly fees, not so much by the money, but rather the thought of having to deal with another monthly bill. Or even better, perhaps one fee for a lifetime of service?
I’m sure there are lots of ways you can get creative with monetizing a service.