5 key pricing mistakes that cost my startup money

Melissa Kwan is the CEO and a co-founder of eWebinar. She is a three-time bootstrapped founder.

Pricing your product properly can be the difference between success and failure as a startup. Here are five pricing decisions that turned out to be costly mistakes for my co-founder and me at eWebinar.

My company is an early-stage, product-led startup with a low average revenue per user, so these strategies won’t apply to every business, but there are still lessons to be drawn from our experience.

Image credit: Timmy Loen

The decisions you’ll read about are hard (though not impossible) to reverse because they require significant development work and/or delicate customer communications. Hopefully, these lessons will help you come up with the best pricing strategy for your business and perhaps prevent you from making the same blunders we did.

1. We didn’t put usage limits on our 14-day free trial

Having no usage limits encouraged people to take advantage of our trial by signing up multiple times and using it as much as they wanted.

We even lost US$8,000 in 10 days once because we weren’t aware of our streaming costs and a user pumped 160,000 attendees into their webinars.

2. We didn’t offer annual plans from the beginning

We decided to avoid extra work for our developers at the beginning, which turned out to be a big mistake.

Not having annual plans meant we couldn’t collect cash upfront even when customers wanted to pay annually. It also meant that we couldn’t offer bigger commissions with partners and affiliates.

We only recently found time to revisit this subscription type, two and a half years after its launch.

3. We offered prorated credits when users moved to lower-tier plans

We copied Slack’s fair use policy because we loved how customer-friendly it was. But offering monthly credits made annual plans more complicated, so we kept putting it off.

We also created a situation that encouraged customers to downgrade so they could get credits back instead of staying at a higher tier. Looking back, we should have structured our subscriptions like everyone else – you pick a plan and can downgrade at the end of the month.

4. We grandfathered in existing customers when we doubled pricing

Before raising our prices, multiple founders advised me to increase pricing for existing users as well if our product was offering more value. There would be some churn, but the revenue growth would be a net positive, and it would get us to profitability faster, which is crucial for a bootstrapped company.

I thought grandfathering people in was the honorable thing to do. But because we did that, we’re missing out on about US$30,000 worth of revenue per month, which we could be investing in growing platform costs and hiring the people we need.

5. We didn’t limit the one thing that cost us the most on all plans