What pricing model do companies prefer?

[chantry]

Hi,

Just a quick question. I am creating a website where users can post items on my site and then monitor them from an admin control panel.

Startups will most likely use this service once every couple of months whereas large companies or even agencies will use this lots of times a month. I am stuck on how best to charge for this service to promote good value for money and simplicity.

Option 1:
Pay per use with invoice billing (aka ebay)
Every time they decide to post, it is added up on the invoice and billed to them at the end of the month. This is the fairest way of billing since they are only charged for what they use, but at the same time it isn't predictable at the end of the month and might cause problems for accounting.

Option 2:
Pay per use with automatically billing (aka autotrader)
Pretty much same as above except payments are done at the time of sale rather than being consolidated at the end of the month. Less risk for me since they will pay straight away but even more of a pain come accounting time.

Option 3:
Tiered pricing (godaddy webhosting)
They sign up to a bracket which allows a set number of posts (1-5 per month for example). This is straight forward for their accounting department since it will be the same amount each month, but also is slightly unfair because they may only use 1 and are technically paying for 5.

Option 4:
Credit (istockphoto)
They bulk buy how many credits they want and use them when needed. Better because they only pay for what they use and may not need to factor it into accounting every month but at the same time it is slightly complicated and may put some users off.

My favorite for the site is option 1 but how likely is it that this pricing scheme would put companies off?

James

 

[J4m3s@Finanscapes]

Hi James

We chose to do both actually. Smaller users pay as they go, and we sell blocks of licenses to bigger users.

The logic is:
* Smaller users will want to just get on with it, and will be used to paying for things there and then. The last thing we want is to create barriers for them by having lots of different options or hoops to go through.
* Bigger users (tend to be corporates or universities for us) don't normally allow their staff to buy things for the company without going through a tendering process etc. So instead we sell blocks of licenses and when they need more they just send us a purchase order. We invoice against that. It gives us the flexibility to meet specific client customisation needs too, which we couldn't do if we applied the same model to them as we do to smaller customers.

Having two different charging mechanisms makes a lot of sense when we considered just how different the two types of buyers are.

Good luck with it!

James.

 

[chantry]

Thank you for the reply. In that regard, it sounds like a kind of credit system might work then? A use can buy one credit for one post, or their can bulk buy them and use them when needed perhaps?

Then it comes back to the conundrum, is this really more simple and straight forward than simply having a tier pricing system.

 

[J4m3s@Finanscapes]

I think we're confusing payment models with pricing models. Tiered pricing isn't a payment model, it's pricing. And immediate vs month-end invoicing is a payment model (and as you've identified, month-end invoicing carries risk).

In our case credits (option 4) was the best choice. Low risk, and it works for both small and large clients - and you can tier the prices based on the volume purchased if you wish.

But I'm suggesting many of your big customers may not be set-up to purchase credits online. Many companies work off purchase orders and invoices. Are you confident that big clients will simply sign up online without wanting to speak to you first? (or you needing to put a sales call in to them in the first place).

Just my thoughts obviously. What are you selling, and have you experienced the purchasing process in some of your bigger target clients? Maybe your market is different to ours.

 

[MyBusinessStory.co.uk]

With startups you would want them to pay as they go encase they can not afford it at the end of the month, they will prefer end of month billing so its a hard balance