Pricing

When I first started at TheLadders, I had no idea about the effect of pricing on sales. We experimented with all sorts of prices for our Premium Job Search product -- $15 a month, $25 a month, $30 a month, $50 a month. We found that $15 increased upgrades but sacrificed long term revenues. $50 was nice in that we didn't have to keep subscribers as long to hit the same LTV (lifetime subscriber value), but we had trouble getting enough in the door to fuel rapid growth. $25 seemed to be a good number, but when we went up to $30 we didn't see a major drop-off in upgrades. So we've been at $30 for a while now.

Job postings, on the other hand, have always been free on TheLadders. We figured that this would bring more people to the table because there was really no decision to make. And it's certainly worked -- we're about to crack 30,000 recruiters on TheLadders and we're publishing about 9,000 jobs a week. But even with free postings, we have a sizable team that is devoted solely to Recruiter Relations and maximizing the number of jobs that recruiters post on TheLadders. That includes everything from customer service, to direct marketing, to phone-based outreach to our existing clients to get them to post as many jobs as possible. That's the team I manage, and this week we discovered that recruiters that have direct contact with a member of my team are 2 to 3 times more engaged than recruiters who don't work with a member of the team. That's a huge lift. But why is there a disparity? You would think that free would be the incentive for action.

Recruiters remind us constantly that time is money (especially on the contingency side of the business which is essentially a commission based sales job). If we deliver value, recruiters will use the product. If we don't, they won't -- at any cost.

Does free send the wrong message (this is true not only at TheLadders but with other companies that offer free products)? After all, the conventional wisdom goes, if it were good enough to charge for, we would. Joel Spolsky, Co-founder of Fog Creek Software, explains the pricing decisions his company made early on:

We had to raise the price a couple of times. We didn't have to, but raising the price actually increased the number of units that we sold. I guess because it looked more legitimate with the more realistic price...There was a five-user license that was like $199, and that just feels like shareware, practically. But today, when you say that a ten-user license is $999, it starts to feel like a more substantial product. In that market, it still is actually a good deal. But you really have to have a price point that conveys what you think the product positioning should be. Many people will judge where your product fits in the market based on its price.

So we increased the price a couple of times, and both times it increased the number of units we sold. We launched new versions, kept adding more and more features.

(Source)

I don't really have a conclusion for this post. What I've learned so far though is two-fold: 1) Pricing is an inexact science at best. Sometimes you just have to shoot first and aim later. And 2) Your first pricing decision won't be your last.