How much should it cost?20 May 2020
Talk Hiring sells its mock interviewing tool primarily to nonprofit job training programs, and more recently, high schools. There are playbooks online on how to price online educational tools for schools, but not as much for nonprofits. I’ve spent many days squirming around, trying to figure out the optimal strategy for pricing the tool, and I thought that walking you through my pricing evolution may be helpful.
June 2019: No Longer Free Forever. We offered custom flat-rate discounted pricing based on the number of potential users. New programs were offered 6-week free trials.
August 2019. No free trials. Instead of free trials, we offered 60-day money back guarantees and continue to price based on the number of potential users. It was the early days of charging for Talk Hiring, and I wanted to work with only serious prospects with budget. For the programs that decided that they didn’t like the product, they could effectively run a free trial with us with our money-back guarantee.
Why we moved away from this pricing:
- Although we did bring on 2 paying customers with this pricing, it became obvious pretty quickly that this was not how nonprofits wanted to buy software. Finding money for anything in a nonprofit can be a battle, and asking for money before we had proven our value was a hard sell.
- Larger nonprofit job training programs were not willing to agree. Contracts in the $5,000-$15,000 per year range were too significant financially for these programs to be comfortable essentially loaning us a big chunk of change for 60 days while they test out this product. For larger programs, I could have offered a more nominal per month cost when starting out. That may have helped a little, but we still would have been facing the obstacle of bullet #1.
- Talk Hiring was (and still is) a new business and many nonprofits are risk-averse, rightfully so. A money-back guarantee is only good as long as Talk Hiring survives, and some potential customers were not 100% convinced that they would be able to get their money back.
Once Talk Hiring is more mature, I would like to revisit this pricing strategy. It works well when potential customers have a high-degree of confidence in your business and the price that they’re paying while testing it out is relatively low.
October 2019. Free Trials + Usage-Based Pricing with an Upper Ceiling.
We had a price calculator on our website where programs could enter the exact size of their enrollment, and get monthly and annual price quotes for their program. We changed our pricing to offer $10 per mock interview, with an upper ceiling of $20 per user per month. The upper ceiling was to give customers the assurance that the cost would never be above (# of users) * $20 in a given month.
Why we moved away from this pricing:
- Although this is a common way to price software, asking a job training program to know the exact number of people that would want to use a mock interviewing tool is next to impossible. Plus, many job training programs support low-income populations that are more transient in nature.
- For budgeting purposes, nonprofits really want to know how much something is going to cost. Of course, they also want the best price that they can get, but all else being equal, flat rates are preferable. The price could swing by hundreds or thousands of dollars from month-to-month with usage-based pricing.
- Usage based pricing works well when the price is very low (think AWS charging cents per hour of server time). We don’t want instructors thinking, “should I do another lesson with Talk Hiring this month or save the money for something else?”
November/December 2019. Pay What You Want Pricing and Tiered Pricing.
Pay What You Want: I read a book by Tom Morkes on Pay What You Want pricing one Saturday morning and was intrigued. Nonprofits (especially religious institutions and museums) use this pricing strategy all the time. Plus, I was getting tired of trying to figure out how to price this tool, and thought, why not dare my customers to tell me how much they would pay for it. Given that my customers know me well, I thought that it would be awkward for them to decide to pay $0 or something only a little bit above $0. I also thought it could help generate good will amongst my customers.
Tiered Pricing: I talked to as many financial professionals at nonprofits as I could (CFO, VP of Finance, etc) to learn how they like to purchase software. The overwhelming majority wanted a predictable, good price (with a nonprofit price discount).
How I tested these two pricing strategies:
- A/B tested an email campaign to different prospects. Option A was our flat-rate, tiered pricing and Option B was pay what you want.
- I reached out to a few recent prospects that I had talked to, and offered them pay what you want pricing. Pay what you want didn’t motivate any of them to move forward, which really surprised me. Of course, there are many reasons why they may not have moved forward, but given that these were prospects with real interest in the product, I was surprised.
- I reached out to Tom Morkes for his advice on using pay what you want in a b2b scenario. He said that pay what you want works best when a single seller is working with a single buyer because it requires the human element to work. Selling to committees or groups removes that human element.
We still run tiered, flat-rate pricing to this day.
April 2019. Simplified, tiered pricing. I came to a few realizations:
- We had too many pricing tiers. We had 7 different pricing bands based on the number of participants that a program worked with in a given year. Most of our customers were paying $100-$200 per month or $400-600 per month. We should simplify and charge the midpoints of our most popular pricing bands: $150 or $500 per month.
- The number of staff that want access to our staff dashboards scales with the number of users in the program, for the most part. As I mentioned before, estimating enrollment in a job training program is much harder than estimating the number of staff that will be involved in prepping job seekers for interviews.
- COVID-19 was directly impacting job training programs (skyrocketing unemployment paired with tenuous funding). By pricing based on staff dashboard access only, we are able to open our doors to as many job seekers as programs need to support during this time of crisis.
- My friend Soroush shared this article with me on pricing best practices. I’ve read many articles on the topic, but I found this one especially concise and easy to implement. It talks about price anchoring, the decoy effect, and the paradox of choice, and I used all of these tactics in my new pricing.
As of writing this post, here is a screenshot of the Talk Hiring pricing page.
I’m sure in a few months, I’ll have a new take on our pricing, but for now, I’m happy with it!
Final Thoughts: Flat-rate tiered pricing is the norm for selling SaaS products, but the real challenge is figuring out what the different price points and package features should be. I don’t regret the winding road that took me to this point. By experimenting with so many different pricing strategies, I was able to learn what works and what doesn’t work for Talk Hiring’s customers.