Experimenting with pricing as a marketplace, how to do it right
SaaS businesses have the luxury of changing a variable to experiment with pricing. With people involved, there's a few things you should look out for.
If you’ve ever read a book, built or taken a course about SaaS, you know that pricing is a core part of creating a viable business. Starting from an initial guess and iterating to an optimal point is key to getting the right kind customers and many of them.
That’s no different as a marketplace, but the vectors are different. Especially if you are taking transaction commissions, many changes can only applied to new users (i.e. taking a bigger cut) at a time or need to be agreed to.
This can be painful and difficult. Marketplaces are more static for that reason. Some commission schemes at leading marketplaces have stayed unchanged for years.
Let me show you an example that it’s still worth to experiment with your pricing, though. At MentorCruise, pricing is moving and changing all the time, but in 2020 there were two really big changes, can you spot them?
I’ve made it easy for you, but let me walk you through it :)
In March 2020, I decided to push for a monthly subscription model. Previously, mentees were able to pay weekly and one-off rates and churned quickly at the sight of those many transactions. Going with longer windows yielded longer mentorships.
That growth compounded to something along a 600% growth in just six month, but it was harder to pull off than just setting up a new pricing plan.
While great for creating longer lasting mentorships, mentors were now getting access to their funds a lot slower.
Previously, if they had set up weekly calls, they got funds sent to their accounts not more than 7 days after. Now, they would take up to a month to clear!
Documentation and customer support were crucial here to explain these new delayed payouts.
Then, in September 2020, I felt locked in by my fee structure. From any transaction I would take a 20% cut. Pricing was in the hand of mentors. That didn’t allow me to expand and experiment on that front a lot.
While transparent, it’s also a fee structure that hurts to see. Frequently I would get messages why after all fees a mentor would only receive $78 out of their $100 price tag.
So, I ran a wide migration that would give mentors 100% of what they wanted to charge and put my own fees on top. On one side, that made the prices go a little higher, but would give me a change to experiment with that cut, run promotions, try and round to $xx9 instead of $xx0, all without adjusting the partner agreement.
So, let’s stop with the anecdotes. Pricing changes in the right direction are worth it, but how are they done right?
1) If you are building something new, my advice would be to choose a structure that does not limit your freedom. Agree on a flat fee with your suppliers, then experiment with whatever fee or pricing you put on top.
If you work on something where pricing changes require you to change partner agreements, work on one last migration that will get you away from that.
2) If you do need to change partner agreements, provide an option to be grandfathered or opt out. For example, a few months into operations, we started to provide a 7-day trial at MentorCruise. Three mentors opted out, but were later convinced by the far more superior numbers.
3) Look into non-commission based pricing schemes. For example, sites like MicroAcquire charge a subscription for access and a lot of the revenue of ebay comes from advertising.
4) Communicate! Pricing changes that are visible to suppliers will always produce customer support load, be braced for it.
Going for a marketplace structure should not limit the decisions you can take around pricing.
Instead, they should be a tool you can utilize to get more high-quality leads to your suppliers and hopefully more money in everyone’s pockets.
As you can see, even for marketplace getting to the right pricing scheme is immensely valuable!