If charging per user encourages companies to have fewer user accounts, then certainly charging per project encourages companies to enter fewer projects, which is even worse (given that managing projects is the whole point).
However, I should rephrase my complaint. I'm not opposed to per-project pricing rather than per-user pricing, I'm opposed to tiered pricing in general. It's ridiculous that there's a 150% price increase for adding one project. Then, after adding 29 more projects for free, there's another 100% price increase for adding one additional project. I don't see how that can be considered "charging based on how much people are actually using your product."
Tiered pricing isn't simple (my customers tell me this all the time), it isn't predictable (my costs just increased by 150% because an employee started working on a new project!?), and it incentivizes all the wrong kind of behavior. The only good thing about it is that it's a great way to get some companies to pay for more than what they actually use (why do you think the cable companies don't have a la carte pricing?)
You're conflating two separate arguments I made about two separate topics. The first is about per-project vs per-user pricing. The second is about tiered pricing. They are independent.
First, per-project pricing:
Any pricing scheme creates incentives. You get customers' money when the benefits outweigh the price. Per-project pricing makes it easy to get your product in front of as many eyes as can benefit from it, which can create internal network effects that boost internal adoption, which in turn leads to more use. Per-user pricing does not have similar network effects, because you associate a cost directly with adding people to the network.
(Which doesn't mean that per-user pricing has no place ever--that's absolutely not my point--just that it's not something that always makes sense.)
Second, tiered pricing:
It absolutely makes sense that your customers like per-user pricing: they've already self-selected to use your product, which has per-user pricing. The people who don't want per-user pricing are probably just going to ignore your product in the first place, and you'll never know they exist. Tiered pricing is preferred by a certain class of customers. Some of the reasons for that are listed in my initial post. It's unsurprising that it's not preferred by other classes of customers.
Again, I am not arguing that tiered pricing is a universal good or anything similarly silly. What I'm doing is arguing against your suggestion that tiered pricing is always bad.
Tiered pricing isn't simple (my customers tell me this all the time)...
Can you talk more about this?
Overall, pricing is difficult and I'm currently struggling with it for an idea I have developed. So I would like to hear different opinions on pricing.
Sure. My company is called "Less Annoying CRM" and one of our main marketing techniques is to identify all the things that annoy people about existing CRMs, and then do something that's not as annoying. Pricing is one of the huge things customers find annoying with business software right now. This is all anecdotal, but here are some things my customers have told me they hate about the pricing practices of other CRM companies:
-Requiring a credit card up front (assuming there's a free trial). Everyone is worried that they won't be able to cancel once they've signed up.
-Listing prices by month, but charging annually, or requiring an annual contract. It's easy to think that an extra hundred dollars up-front isn't a big deal, but it really is for many small businesses. You'd be shocked at how many companies struggle to afford their monthly software licenses.
-Limited free trials. Many people I talk to are shocked when they find out that the free trial works just like the paid version. I didn't realize that some companies offered limited free trials, but apparently they do, and customers hate it.
-Forcing customers to choose how many seats they want in advance, rather than just billing based on how many users there are in a given month. This makes it look like you're hoping a customer will pay for seats they never use, and the customer instantly stops trusting you.
-Having tiered pricing plans, particularly if more than one thing can trigger the next tier. For example, if you look at the Highrise pricing page (http://highrisehq.com/signup) some companies might only have two users, but they might need 20 deals. Or they might have one user and one deal, but more than 5,000 contacts. Tiered plans can make it very difficult to figure out how much you'll actually pay, and it forces the users to constantly be paranoid that they might accidentally trigger the next level without knowing it.
This obviously depends a lot on your specific business, but here's the approach that I like best based on my experience: First, figure out what type of activity has the highest correlation with value added for the client. For example, we decided that each additional user on the system is the most important dimension on which to bill, but a project management product might pick # of projects. Then offer a la carte pricing based on only that one dimension, and make everything else unlimited.
For my company, this means we charge $10/month/user, and everything else is unlimited. You can put some caps in place under the terms of service to prevent people from abusing your unlimited policy, but make them high enough that they won't impact any of your non-abusive users.
You wouldn't believe how much it helps to have a simple pricing policy. How much does it cost? $10/user/month. What if I have a lot of contacts? $10/user/month. What if I need access to the API? $10/user/month. What if I need mobile access? $10/user/month. This approach removes a major stress point from the lives of the users because they no longer have to worry about trigger the next billing tier based on normal, everyday usage. It also makes your life easier because you when customers try to negotiate the price with you, you can make it clear that every single customer pays the exact same price no matter what.
I've had customers on the phone tell me that they love me because of this pricing model. Seriously. As I mentioned, this is all anecdotal, and I don't have any hard numbers to back up the efficacy, but it seems like common sense, and my customers validate the approach every day.
I've some reservations with regards to your pricing model. Say when I go from 3 user to 4 users I pay 33% extra. At basically no extra cost for you as a supplier ... (the operational cost difference between 3 or 4 users is in the case of a CRM system negligible). That simply doesn't feel right.
1) That is even more true for tiered pricing. Is there an alternative you know of that doesn't involve the price going up as your usage goes up?
2) If you expect software pricing to match the marginal cost to the supplier, then I think you're out of luck. All software is this way. There are huge up-front costs to build the software, and the cost of actually selling an individual license is close to zero.
Pricing in general shouldn't be about what a product costs to provide, but rather what it's worth to the customer.
I do not expect software pricing to match the marginal cost to the supplier per se. And you're right that pricing in general is done in relation to what's the customers perceived value.
However, I disagree with your first statement. Lets take Highrise pricing plan as an example. For the 6 user plan you pay $24/month - which comes down to $4 per user. For the 15 user plan you pay $49 - about $3.26 per user. So my total cost of course goes up with usage, but not in a linear fashion.
You could also make that happen with the $x/user/month scenario, but that gets probably rather complex without ending up with tiers again.
Thank you for your response because it was - for me - really informative. I really like your approach to pricing (as well as how you developed your pricing model).
However, I should rephrase my complaint. I'm not opposed to per-project pricing rather than per-user pricing, I'm opposed to tiered pricing in general. It's ridiculous that there's a 150% price increase for adding one project. Then, after adding 29 more projects for free, there's another 100% price increase for adding one additional project. I don't see how that can be considered "charging based on how much people are actually using your product."
Tiered pricing isn't simple (my customers tell me this all the time), it isn't predictable (my costs just increased by 150% because an employee started working on a new project!?), and it incentivizes all the wrong kind of behavior. The only good thing about it is that it's a great way to get some companies to pay for more than what they actually use (why do you think the cable companies don't have a la carte pricing?)