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Web Application Pricing Review – KISSmetrics

On September 30, 2010, in Start ups, Web/Tech, by Caelen King

It seems to me that web application pricing has started to come of age.  I was getting sick to the back teeth of start-ups pricing on the 37signals model minus a few dollars. Just as the US lead the free model, now young eager start-ups in the states are driving realistic pricing that genuinely has the potential to create a successful company.

Over the next few weeks I’m going to have a look at a few of them and attempt to dissect their pricing with a view to seeing if their pricing passes the following tests:

  1. Simplicity
  2. Market Size
  3. Comparable Pricing
  4. Adoption
  5. Price Discrimination

A Quick Introduction To KISSmetrics

KISSmetrics is an analytics service that attempts to model a website’s most commercially important interaction with its users – the conversion funnel. Their market is anyone who runs a website commercially and who cares about the performance of their conversion funnel. Value is delivered by providing business intelligence that enables the website owner to intelligently change their interactions with their users, maximizing their revenue as a result.

KISSmetrics Pricing

KISSmetrics Pricing

Test 1 – Simplicity

KISSmetrics has beautifully simple pricing that poses no barrier to comprehension. I can immediately see what pricing plan suits me best.  It almost seems a shame for them to include standard features on this list (Unlimited Reports, A/B Testing, GA Integration) which interfere somewhat with the simplicity.

I have one minor problem with the simplicity of the pricing – what happens if I opt for the 1 million event plan and in one particular month I run 1.1 million events?  Are the last 100K events trashed? Are they stored and subsequently computed if I upgrade. Is a random 100K chunk lost?  In my opinion this needs to be clarified and simplified in the customers’ eyes on the pricing page. For example, change the Events per month values to “First 1 million events”, “First 5 million events” and “First 10 million events”.

Test 2 – Market Size

Pricing affects market size in a variety of different ways. Trivially, market size equals the number of customers multiplied by the average price, so the higher your price the bigger the market. However, higher prices can reduce customer numbers and you can end up excluding part of the market. However, conversely, you can increase your sales/marketing resources allowing you to capture more of the market.

In my view there is no question that KISSmetrics have set pricing high enough so that even if only a small percentage of the market adopts their service the company will be a success. The pricing should also provide KISSmetrics with sufficient resources to be able to go after more market share.

I only offer one proviso here: if KISSmetrics is not as well funded as it seems, then it would pay to offer a heavy discount for annual subscriptions, rather taking slightly more money in the long term delivered as smaller monthly amounts now. That way the money invested in sales can be immediately recycled.

Test 3 – Comparable Pricing

No one wants to pay too much for a product. If a potential customer feels a service may be priced too high many will delay or avoid the purchase. Unfortunately for KISSmetrics the product that is immediately comparable to the first time visitor’s eye is Google analytics, which is free. To make matters worse, KISSmetrics itself ensures that I make this comparison by including ‘Google Analytics integration’ on its pricing page.

In my view, if you cannot provide a favourable external comparison then your own pricing needs to be comparable. I should be able to compare one of your prices against another and get a level of comfort that the package I’m buying is priced competitively. For this to happen two price points need to be close together. KISSmetrics’ pricing fails here.

Test 4 – Adoption

I don’t care what planet you live on but $1,800 a year is a lot of money.  Having entry level pricing at this rate automatically excludes a huge portion of the market that would otherwise derive value from the product. Unless KISSmetrics has high costs associated with a sale (maybe support costs) I would be tempted to look at a lower entry price that was limited in such a way that it wouldn’t cannibalize my higher priced offerings.

KISSmetrics Potential Market Size

KISSmetrics Potential Market Size

This way it would be easier for KISSmetrics to get much wider adoption, and if the pricing was designed correctly they could push customers up their price plans as they prove the value of their product.

Even if a small user with 100K events per month was willing to pay $1,800, the pricing is going to make them feel like an idiot. “Here am I paying for a million events when all I’m going to use is 100,000”. Pricing should make the customer feel like the smartest guy in the world.

Test 5 – Price Discrimination

The goal of price discrimination is to segment the market according to willingness to pay, with a goal of maximising revenue.  KISSmetrics discriminates on one axis only: volume. It’s even debatable if they use price discrimination at all – one bar of chocolate costs X, two bars cost 2X, etc.

Since the distribution of websites by their traffic is a classic power curve (as in the events graph above) the KISSmetrics pricing model will always result in the most customers being on the lowest price plan.

This means that the bulk of the market can only give KISSmetrics $149 a month. Customers with less than 1 million events still get access to all of the features so there is no reason why they would ever adopt a higher price plan. This doesn’t make much sense; it’s kind of like offering a student price for a haircut and then not allowing them to purchase an expensive and more profitable colouring.

What defines willingness to pay for KISSmetrics? This is always difficult to model and generally we have to accept an inaccurate model that works for the bulk of customers but fails for a minority (for example cheap OAP pints fail to account for the millionaire OAPs). For a KISSmetrics’ customer it would seem that the factors that matter are:

  • Volume of events
  • Dollar value of  the margin on the average event
  • Perceived potential improvement that can be expected

The second two factors are difficult to model which is probably why KISSmetric’s have stayed away from pricing off of them. However, I would contend that there are several ideas that would we could look at to help define these factors, albeit inaccurately.

  • Logins. The number of people who want access to the data. A company selling X units at a high price is typically going to have more people who want access to business intelligence than a second company selling the same volume at a lower price.
  • Accounts reconciliation. Refunds and charge backs are likely to be a factor in higher ticket items.  Adding a feature that would allow for the service to be reconciled with month end accounts ensures that refund sales and charge backs are taken out of the analytics and that data is true and accurate. In addition, top-end products may result in the creation of a sales lead rather than an online purchase and being able to reconcile sales with the lead conversion funnel will be valuable.
  • Traffic Spike Overruns. This feature would securely store events that overrun a plan and can subsequently be recovered by paying the transaction fee. The longer a site has been in existence the more iterations it will have been through and given that KISSmetrics is targeting metric driven companies the less perceived improvements there are likely to be. It seems likely that older sites have more predicable traffic with smaller spikes,  so pricing off of this may be able to segment the market (needs more research).

Suggested New Pricing

I’m not going to suggest that this is right; however it should show the rough direction that I would like to move the pricing towards.  Also please accept that I haven’t put in the kind of effort required to make the verbiage easily consumable – clearly a lot of work would be required to get this into any kind of finished form.

Proposed New KISSmetrics Pricing

Proposed New KISSmetrics Pricing

* All accounts get free A/B testing and commoditized website analytics integration (including Google Analytics).

This gives me

  1. A much more attractive market entry price that is sufficiently limited so that it shouldn’t cannibalize my higher priced plans
  2. Pricing is comparable. Silver is obviously much better than Bronze for just 20% more
  3. There is an attempt to segment the top end of the market and to price discriminate accordingly

What do you think of KISSmetrics pricing model? How would you change it to move the company forward? Share your thoughts in the comments.

Also feel free to suggest other web application pricing that I should look at

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Google Instant Adds 90Kb To Your Search

On September 13, 2010, in Stuff we've learned, Web/Tech, by David Roe

Google Instant is an amazing piece of technology. However, I imagine, like most techies, the question that first springs to mind is “Oh my god, how much data is this sucking down?!?”

The answer of course is: “it depends”. It depends to a large degree on the kind of results you’re going to see, how many results there are on the page, whether they have maps in them or images, and lots of other factors. It also depends on how accurate the query suggestions are at guessing what you are going to type, since the more accurate it is the fewer times it will have to re-fetch results from the server.

For instance, let’s say I’m going to look up train timetables from Victoria Station, London. I start typing, and when I put in the first letter ‘v’ Google makes a wild guess that I’ll be looking for Verizon and grabs down results for it. So far 13.5Kb of search result data has been sucked down, an increase of just under 13Kb over the non-instant option, which just sucks down the suggested search queries, not the results themselves.

Victoria's Secret

Victoria's Secret not Victoria Station

When I type the letter ‘i’, Google realises I’m not looking for Verizon and decides I must be looking for Victoria’s Secret. That adds another 29Kb to be sucked down, which includes a couple of images. (Which are pretty tame by the way, I have safe search on at work).

Now, 29Kb is pretty small. Google have compressed the data, and since search result data is very compressible it averages about a 70% bandwidth saving, good for what is essentially pure text with some images thrown into the data.

From that point until I get all the way to ‘Victoria St’, my results stay static, since it looks increasingly likely that I’m looking for lingerie. However, there is another 10K pulled down, or about 1.4Kb per keystroke. This isn’t results, just different suggestions being cycled through the list as I type, (vicodin, victoza, victor) but Google is still showing results for what it thinks is the most likely option – Victoria’s Secret.

This behaviour is the same as it is for the existing search suggestions so we’ll discount the data for that. When I’ve got to ‘Victoria St’ Google realises its embarrassing mistake and decides that I must be searching for Victoria Stilwell the famous dog trainer. That adds another 25Kb, again with images encoded into the results.

Victoria Station

Victoria Station

When I get to ‘Victoria Sta’ the penny drops and Google gets Victoria station results, which weigh in at just 11Kb, with no images, and from then on to the end, the results don’t change, except for the cycling dance of other possible auto complete suggestions (victoria stafford, victoria station salem etc.)

In total then Google Instant added 89Kb in downloaded data over and above what a previously standard experience would have required. A tiny test of 20 other random queries from my own search history shows this to be pretty average. Obviously maps and image data which are not in the final result set add to this, but calling it 90Kb extra per search (with 6 queries in the search) seems to be in the ballpark.

This maps pretty well to Google’s own expected figures. They reckon they’ll see 5 to 7 extra search results fetched as a result of an Instant search, and presumably they know what they’re talking about. How much it is used and how accurate it will be is anyone’s guess.

Taking Google’s current round estimate of 1 billion searches per day and 6 as the midpoint of their reckoning of accuracy, and my finger-in-the-air of 15Kb for the data for each extra set of results, we get a pretty measly 85 Terabytes extra of data leaving Google’s server farms and the average UK user, who averages around 4 searches per day, getting an extra 360Kb per day down their internet connection. This is hardly a noticeable amount of data for a corporation that deals in Petabytes for its indexing of the web. Similarly, 360Kb is hardly noticeable for a user with even the slowest of broadband connections.

But is there any point? In all my use of instant so far, it’s felt like no more than a bothersome distraction. I do use Google suggest pretty often for long tail searches, and it’s easy to see if what’s being suggested describes what you want to type.

However, looking down at the search results is a further glance away, and the information takes longer to interpret. It feels unnatural to me. If I’m typing a query string, I’m typing text, so a suggestion of what I am going to type may be helpful.

On the other hand a suggestion of search results for that query isn’t what I have in my mind. It’s another step away from the thought in my brain that millisecond.

Time will tell I suppose, but if Google Instant isn’t an instant hit I’d expect to see it become opt-in rather than opt out for Google users by default pretty quickly.

How have you found using Google Instant so far – do you like it, hate it, or haven’t really noticed it at all? Share your thoughts in the comments.

About the author

David Roe

David Roe is the VP of Product at WhatClinic.com.

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Slides for Bizcamp Galway – Getting Your Pricing Right

On September 10, 2010, in Uncategorized, by Caelen King

I am speaking at Bizcamp Galway about our experiences in pricing. There’s loads of things that we have learnt over the last 3 years and I’ll be sharing them with everyone that turns up. All of my experience is in Software and the Internet so its most appropriate for people setting up businesses in those sectors but I’m sure there are take aways for all industries.

There are tons of other talks going on and I’m particularly looking forward to seeing Elaine Divilly and Carmel Dooley’s PR master class as well as Rory’s O’Connor’s workshop on using Lego to enhance innovation. If I get the time I’ll probably also pop into Alistar McDermott’s talk on ‘Launching your business online’

My talk is on in St. Anthony’s Lecture Hall at 12 noon.>

Getting Your Pricing Right for Web and Software Businessess
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Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Your Prices are Too Low

On September 9, 2010, in Start ups, Stuff we've learned, by Caelen King

In terms of return for time spent, pricing has the best Return on Investment of any activity. In general when it comes to pricing, startups tend to put their finger in the air and set their initial price depending on the direction of the wind. Once they get any sort of market traction, they shy away from price revision from fear of negatively affecting their hard earned business.  However by focusing on price you can increase net profit by 100% or more.

Why is Price So Significant?

In some ways the importance of price is obvious –after all your revenues equal your price multiplied by volume. But it defines your market size as well and therefore the potential of your company/product – this affects your ability to raise funds. It also sets hard limits on how much you can expend to acquire a customer – so by increasing your price by €100 you can afford to spend an additional €100 in acquiring a customer therefore increase volume.

But the real significance of price is that it can have a dramatic and immediate impact on your business with disproportionally little effort. Beware though; this can be positive and negative and it is the fear of the negative that cripples so many businesses.

Know your Price and know the cost to your customer.

Price does not equal cost to your customer.  Your price is typically only a small constituent of the total cost your customer has to bear.  Frequently with web and software solutions your price is only going to be 10% or less of the total cost to the customers. The lower this proportion the more you can change the price without significantly altering the cost to your customer.

For example say you are migrating an existing 10 person sales team from one CRM system to another, your costs would include:

  • Price of new CRM solution: €5,000 (Salesforce year one fees)
  • Training – €10,000 (1/2 day opportunity cost per employee and cost of delivery)
  • Data Migration – €5,000 (SalesForce consultancy)
  • Evaluation costs – €5,000 (Senior Management purchase decision)
  • Integration costs – €5,000 (integration with email, website, partners, suppliers, etc.)
  • Change Control – €10,000 (product management costs to manage the transition)
  • Risk – €10,000 (normally the largest cost but difficult to quantify)

In the above example the price charged by SalesForce only reflects 10% of the overall costs that have to be borne by the customer. So if SalesForce increased it’s pricing by 50% it would only be increasing the customer’s costs by 5%.

Best of all, because SalesForce’s net profit margin is about 10%, they were only making €500 off of the original deal. By increasing the customers cost by only 5% they can increase their Net Profit by €2,500 – a 500% improvement.

It should become obvious here that they ideal solution would be to make the product easier to use and easier to integrate, so that you can start absorbing training and integration costs into your price. This is never as easy in practice as it is on paper because a lot of buyers don’t recognize the importance of all of their costs.

Your Price is too Low

Unless it’s too high. However, one thing for certain is that it is not 100% optimized. How can I say this with such certainty? Because the world is constantly changing and endlessly diverse.  Your prices may have been right for your US X generation male consumers yesterday, but how about today or what about the South East Asia market?

Most start-ups set their initial pricing too low because they lack confidence, or they are setting a market penetration price. This is fine as long as you revise frequently as you get to know your customer base better.

You should always be looking at how you can increase your prices?

Your Must Price Discriminate

If you are not price discriminating then not only are you leaving money on the table but you are also being unfair to your customers. Some of your customers get much more value from your product than others, its only fair that they should contribute more to the cost of developing the product than others. Also a lack of price discriminiation typically means that you are excluding a whole category of customers that would get some value from your product but aren’t prepared to pay your one size fits all price.

Price discrimination is where you charge two different customers different prices for substantially the same thing (or for different things that largely do not affect your costs). Good examples of price discrimination include:

  • Student haircuts – it take the hairdresser the same amount of time to cut a students hair as anyone else’s
  • Old age pensioner pints – after all they get the same pint
  • Airline tickets – How did that guy get a ticket at 50% the price of mine??
  • Flavoured sugar syrup instead of the free sugar in Starbucks
  • Microsoft Windows (student, home, enterprise, etc.) – Although the product here is different for the enterprise version the price differential is disproportionate to the additional R&D effort
  • Lower cost AIDs medication for 3rd world country.
  • Charging per minute of mobile phone time – the operators costs are largely the capital costs of the network which largely are unaffected by your usage. In other word the additional cost to the operator of you talking for an extra minute on the phone is minimal yet the cost to you is high.

What to Discriminate on

There are an endless number of factors that you can discriminate on – everything from customer demographics to product features. Fundamentally you should try and link your price discrimination through to the customer’s willingness to pay.

When Microsoft charge more for Enterprise edition than home edition they aren’t charging more for the feature set. They are trying to segment their customer base into companies and consumers and charge them different prices. The creation of home and enterprise edition is just a crude way of doing this.

In Summary

Pricing is an incredibly important part of a company’s strategy and doesn’t get anywhere near the attention that it deserves. Not only can pricing dramatically affect the dynamics of your business but it also defines the size of your market size.  Take some time today and look at your pricing – can you increase it? Can you segment your market and create a new price point that will either get you more volume or more revenue per customer.

Do you know of any pricing wins, where a new price point dramatically improved a business?

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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Don’t Fool Yourself with A/B Testing

On September 3, 2010, in Start ups, Stuff we've learned, Web/Tech, by Caelen King

There are three things that really irritate me about A/B testing. The first is where people fool themselves by drawing conclusions from too little data. The second is the myth that small changes frequently result in large improvements and the final one is when A/B tests are used to predict an actual percentage improvement when the data just isn’t there.

You Need a Lot of Data

Instructions for WhatClinic.com

The proposed improvement

We do a lot of A/B testing at WhatClinic.com and we like to think we know a little bit about the topic. We recently ran A/B test where we put a section of instructional text at the top right hand side of the page. After 11,000 tests and 400 conversions it clearly showed that the instructions made a 30% difference. It would have been so easy for us to stop there and pop open the champagne and boast about how changing one little thing improved our bottom line by 30%.

Things look Great - 30% Improvement

But we didn’t, we kept the test running, because experience has told us not to draw conclusions too quickly.  We let the test run on for another 90,000 people and 3,000 conversion and you know what. In the end it turns out that there was no substantial difference between the two. That’s right no difference.

The whole point of A/B testing is to learn. Learn what works and what doesn’t work. If you don’t run your tests over a large enough sample size then there is a good chance you are going to learn a fallacy. Not only won’t you be moving forward but you will actually be moving backwards and decreasing the value of your company.

Where did my 30% improvement go?

So what if you don’t have the traffic to do A/B tests? Well don’t do them. Do user testing. Get people in and ask them to use your product. You’re going to get a lot more information a lot faster and have a higher degree of confidence in the results.

Small Tweaks rarely makes Substantial Differences

I read about these all the time. You know the type of story – “I changed the colour of a button and increased conversion by 25%”. They read great and play into a pleasant dream that riches and fortunes are just a colour change away. However, in my experience small tweaks have never made a substantial difference to conversion.

It should come as no surprise to you that in order to substantially change user behaviour you need a substantial change to the site. This doesn’t mean that it never happens. However, I suspect that it happens rarely and the bulk of the time it is reported on blog and forums that it is the result of drawing conclusions from too little data or just plain old link baiting. Unfortunately the truth is normally all too boring.

A/B test don’t tell you how much better one page will be over another page

A really common misconception is to think that A/B testing can show you how much better one version of a page will perform over a different version of the page. IT CANNOT. A/B testing can only give you a confidence rate of whether one page is better than another and the observed historic improvement.

Highly advanced A/B testing can tell you a confidence rating of whether there will be a 5% improvement or a 10% improvement, etc, but it cannot tell you what the actual improvement will be. Too often people are fooled into thinking that just because they have observed a 30% improvement during the test that there will be a 30% improvement in the future. Whereas the actual results of the test is that version A has a 93% chance of being better than version B – note no prediction of how much better

Let me know of any examples you have where A/B test have first shown one thing then the other.  I know James Kennedy from voiceover Ireland has one on his blog here

Correction

It has been pointed out to me that the above example only shows a 20% improvement, not a 30% improvement.  Sorry for the mistake

About the author

Caelen King

Caelen King is CEO and founder of WhatClinic.com, the medical search engine that helps people find clinics anywhere.

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