How your pricing model affects the development of your product?

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Pricing affects development

Platform and app pricing plays an important part in the success of your product, but did you know that it has an impact on how developers build it? Today’s article will look at how your pricing model can affect what you want your product to do.

The approach for monetising your platform or app will vary on a case-by-case basis. Some will charge from the beginning, some will be free forever (e.g. make money through advertising or selling data), while others will be free with paid upgrades (e.g freemium) or have tiered pricing based on usage. Then you have marketplaces and directories that charge one or both parties in a transaction.

Pricing itself is a whole other article, but what I’m looking at today is how that decision can affect how your product is developed. You’ll want to consider these things as you define your product. I’ll highlight some of the things that you might want to think about with the following pricing options:

  • One-off upgrades
  • Access to additional features on an ongoing basis
  • User and usage limits
  • Marketplaces and directories
  • Non-standard pricing, discounts and introductory pricing

One-off upgrades

If your pricing model offers to remove advertising for a fee or to add features for a one-off fee, then you’ll fall into this category.

When defining your product and writing your requirements, you need to think about what will be free and what won’t. It’s usually a basic upsell and isn’t too complex (you either have it or you don’t). This will be important to your developers as they’ll have to restrict access to functions for users that haven’t paid for it. They’ll have to get the system to recognise who has paid for it and who hasn’t. You’ll also need to how the customer will choose to upgrade and how to collect the payment.

Access to features on an ongoing basis

Unlike the above, this model involves charging people an ongoing subscription to access features and additional functionality. This time though, things can get complicated. Some things might be charged a one-off fee, while others require users to subscribe to a different plan.

As you define your product, you’ll have to decide what people should have access to. It could be an option within a function (e.g. buy a paid picture for a project in Canva). Alternatively, the upgrade could be for a completely separate function (e.g. a “premium” plan to remove branding in a video-making platform). Spend some time thinking about what types of plans you want to have and what features and functions can be accessed in each.

This model has payment considerations too that affect both technical development and business processes. Do you need to process one-off payments? Will users be able to downgrade a subscription? What happens if a recurring payment is declined?

User and usage limits

Another pricing model may charge based on the number of users. A lot of B2B platforms work this way. Pricing changes based on the number of people that access the platform or app. Alternatively, you may apply limits to what a user has access to. This might be the number of projects that can be created, the size of individual projects, or the amount of storage available.

All of these models will require your platform to track the number of users and usage to see when the conditions are met. You also have to think about what happens when a user or business meets these thresholds.

These models also have a frequency piece – how often do these limits apply? Will it monthly? yearly? etc.  Also, what will be the process for increasing the limits?

Marketplaces and directories

Unlike the above models, marketplaces and directories have two sets of users. There is someone to buy or search, and another to sell goods or provide a service.

In this case, the main question is about who will pay. Then there are a set of functions around when people will pay, and how much you will charge them. Unlike the previous models, there are lot of different pricing options available – fixed fee, percentage fee, fixed plus percentage, minimums, maximums, bundles, etc.

When you start charging in percentages, your platform will have to calculate these values, so you need to think about all of the rules that go along with this. If you decide to sell a bundle of 10, then the system will have to track as each one is used.

Non-standard pricing, discounts and introductory pricing.

When thinking about your pricing model, you also want to consider different pricing promotions that you might offer. While most payment providers will support one-off pricing, discount codes and recurring payments, you want to check out their ability to support introductory pricing (e.g. first year at a discount, etc) and instalment payments (e.g. pay the entire amount up front vs monthly repayments).  Your platform or app itself will have to recognise these different payment options and ensure your users are accessing the right features and functions.

Wrapping up…

As you can see, your pricing model is not just important to making money. Pricing can actually affect the definition of your product – which means it can cost more to build some models than others.  So, when you’re writing the requirements for your platform or app, take some time to consider how you will charge your customers. This will make sure that your pricing model can be incorporated in the development of your platform or app right for the beginning.

If you want to turn your good idea into a great product, then my Idea to Launch Checklist is your plain-English guide to getting there. It’s available now for only $24.

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