Last month while making a handful of improvements to nzflatmates I thought I’d play around with the prices we charge for GOLD Membership in an attempt to increase our revenues. I learned a valuable (literally) lesson which I thought I’d share.
nzflatmates makes over 90% of its revenue from our members upgrading to GOLD Membership, a highly effective upgrade that dramatically increases the usefulness of the site for flat hunters. Three subscription periods are available: one week, one month and one year.
For as long as I care to remember the prices to upgrade have been $9.95 for a week, $19.95 for a month and $49.95 for a year. There was no real science behind it and I just ran with what felt about right at the time.
Anyway, it occurred to me that our $9.95/week option was eating up our $19.95/month option because it was priced too cheap. If a member upgraded for a week at $9.95 and was unsuccessful finding a flat, he or she could simply upgrade for another week at $9.95 and be no worse off. Given that most people (I should really do some proper analysis) can find a flat within a week or two, at $9.95 it’s worth the risk.
The solution? Bump the price up from $9.95/week to $14.95/week…leave the $19.95/month option unchanged. All of a sudden the $14.95/week option makes the $19.95/month option appear like great value (which it is) and serves the primary purpose of pushing members up to a one month subscription period.
The result? Before we made this change 65% of members opted for the one week upgrade and 30% opted for the one month upgrade. Since we’ve made the change, members opting for the one week upgrade has dropped to just 25% and members opting for the one month upgrade has risen to 70%. Despite the small increase in price of our cheapest subscription period (one week) there hasn’t been significant drop in the total number of people upgrading (I’m not smart enough to work this out properly…taking into consideration natural growth, seasonal effects etc), but most importantly revenue has increased by ~45%. It’s also worth noting that this is another one of those changes where the effort/reward ratio is massive. It took seconds (OK, maybe minutes) to change the prices and it would take days/weeks/months to redesign the site, increase listings or make one of any other possible changes that stood a change of achieving a similar result.
Sadly, maths was never my strong point and I’ve learned this valuable lesson the hard way, leaving quite a lot of money on the table in the process – ouch. If you’re in a similar line of business to me, maybe it’s time to take a look at your own prices and avoid making the same mistake!
Great story, simply taking some time out to backtrack the message that goes on in your customers mind has certainly reaped the benefits.
Yes a great story. Price models are fascinating.
Have you seen this article / concept:
http://timharford.com/2006/01/starbucks-economics/
The Starbucks “short” size, smaller than the tall, and they keep it off the menu so that only true scroungers know about it. (A bit like you offering a $9.99 upgrade but only to people who have somehow demonstrated that they won’t pay $14.95…)
Thanks very much for posting this David – such an interesting article. I’ll have to put my thinking cap on and come up with some ways to get those unwilling to pay $14.95 to pay something a little less. Perhaps an email a couple of days after they hit the payment page (and left) offering them a 3 day membership for $9.95 or something. Thanks again