One of the biggest drawbacks of running a service based business is that you only get paid for billable hours. After spending hours looking for clients and doing preliminary work, you only get paid for what you do. Whether you bill at $20, $50 or $200 an hour, your income is limited to the amount of hours you work. If you are smart, you can find a way to turn your services into products and make more money without having to work 80 hours a week.

If you offer a set of services that you feel you aren’t getting paid enough for but can’t justify raising your hourly rate, productizing may be your best option. You can offer your services as a package, with clear objectives and promises attached. The package could include a combination of several services you provide to make it look more appealing.

This is a strategy that many web-designers use. They offer a package that may include a specified number of pages, logo design, domain name registration and SEO marketing. Customers read these packages and feel like they are getting a great deal. But from your perspective, you may be making $75 an hour instead of $25. Your hourly rate will increase even further as you become more efficient.

The key to productizing services is to learn to work efficiently. Here are some tips:

1. Create a template. Make sure that your service can be easily duplicated. If you can automate the process,you will be able to produce your services much more quickly.
2. Make sure that your staff is well-trained. The faster they work, the more orders they can fulfill.
3. Look for new tools to improve efficiency. Always be up to date on the tools of the trade. New technology can make a process a lot faster. This is especially true for     high-tech companies and web developers. New software and CMS packages can let you do work in a few hours that used to take days.

Pricing products either online or in a store can be difficult to determine because most items have a set manufacturing overhead cost. Retailers need to find a balance so they don’t have too few customers due to overpricing or too little profit if they price their margins too low. Much of pricing boils down to trial and error, but a systematic and informed approach to those trials can help you find the “sweet spot” with a minimum of mistakes.

At the “10,000 foot view,” there are two ways to approach pricing. You can price your products according to how much profit you want to make, or you can price them according to what the market looks like.

Profit-Based Pricing

If you have 2,000 shirts that cost you $10 each and you need to make $24,000, profit-based pricing says to charge $12 per shirt. This assumes the $10 accounts for all of your expenses, not just the price of the shirt. This sort of strategic planning helps keep track of the bottom line, but sometimes the plan doesn’t mesh well with realities.

As of today, all Chargify accounts affected by the pricing change have officially moved and any account previously in dunning, has been canceled.  For those merchants with a live site but no customers who chose to cancel, you can open your account again at any time and your balance will be set at $0.

We want to thank everyone for their understanding during this price change and if you have any questions, please feel free to reach out to us 24/7 at 800-401-2414 or on Twitter @chargify.

As we announced a few weeks ago, we’re currently in the process of changing our pricing here at Chargify (you can read the blog posts from our founders here and here).  We wanted to remind you that come midnight tonight, all price changes will become official.

How will this affect you?

Chargify will automatically transition merchants based on your site status and customer count. If you have already transitioned your account, you will not be affected.  Below, we have broken down the transition by merchant segments:

• No live site & No customers
  For merchants without a live site, you’ll automatically be moved onto the Developer Plan. The Developer Plan is a free plan with zero included customers that will allow you to test Chargify and make sure it fits your needs before you begin actually charging customers.

Chargebacks are a big problem with consumers and merchants where many accounts of fraudulent chargebacks lead to costly fees and fines.

Check out the infographic below to see just how chargebacks can affect merchants.

See the entire infographic

A few days ago, we changed our pricing so that we could provide better care and additional features to thousands of Chargify customers. Although the change in pricing was the result of careful analysis of the way people have used Chargify over the past year, we didn’t communicate this change properly. In fact, our communication was non-existent, which was a major mistake (you can read more about what I learned from this on my blog and hear from our CEO).

After listening to your passionate feedback on the price change, responding to hundreds of your emails and tickets, and speaking to many of you on the phone, it became clear that we had to make some adjustments while standing firm about not offering free plans.

Here’s what we’re doing to move forward:

Insight into why we changed our pricing (definitely not greed!), and an apology from our CEO for the missteps we made.
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Hi all,

We’re still hearing the feedback and we’ll write up a “postmortem” soon regarding how we (mis)handled this. A number of people have asked for something like that and I think we can learn from it and convey some lessons from which others may learn from our mistakes, too.

I just want everyone to know that it’s definitely not because of “greed” that we made this change. “Greed” to me would mean that we’re already making tons of profit and we just want more! That is not the case.

I updated an earlier blog post earlier today to add a tiny bit about this, but the reality is that our old pricing was going to bankrupt us - if not for the fantastic backing of Grasshopper Group.

To be clear, Chargify is NOT in financial danger - Grasshopper Group ensures that.

But Grasshopper Group has a reasonable expectation for Chargify to reach profitability sooner than later. With the old pricing, and the fact that the bulk of our merchants would be on it and the majority of them paying us $0 for quite some time, the future profitability was much too far in the future. It’s costing a lot of money each month to provide what Chargify is inside and out.

UPDATE

Over the last few hours we’ve received a ton of feedback from our merchants based on the Chargify pricing announcement.

We want you to know that it has not gone unheard.

As an existing Chargify merchant, we appreciate your support over the past year and we want to continue to see you grow with us.

To meet your needs when you’re starting out, we’re offering our existing merchants the Bootstrapper Plan for $39/month. It allows you to manage up to 100 customers.

To signup for the plan, login to your account, go to My Account >> Manage Your Plans, and choose Bootstrapper.

We know that this is still an increase, but we hope you see the added value in our :
* 24/7 U.S. based phone and technical support
* Level 1 PCI compliance in a few weeks
* fully coming out of beta in order to serve you better
* and listening to your Uservoice feedback to develop Spreadable

Please feel free to reach out to us at 800-401-2414 with any questions or concerns. Thanks

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ORIGINAL POST

Over the past year, Chargify has grown as merchants sign up and grow their businesses. We definitely appreciate everyone’s business and support.

But the needs of our merchants, as a whole, have shifted from where we thought they’d be when we set pricing in 2009, so we’re changing our business and pricing to meet those needs.

More and more, the answer to the question in the Title of this blog entry is “Yes!”

Here are 4 examples of interesting things that Chargify merchants are doing…

1. Simple, Flat-Rate Billing

Let’s say you have a business that charges for access to data in a database you’ve compiled from many sources. Your customers are professionals who save a lot of time by accessing the data you’ve compiled. You want to charge them $25/mo, $50/mo, or $100/mo, depending on what level of access they want.

To do this, you will set up 3 Products in Chargify:

• Plan A: $25 per billing period. Period = 1 month.
• Plan B: $50 per billing period. Period = 1 month.
• Plan C: $100 per billing period. Period = 1 month.

2. Flat-Rate Billing, Monthly & Yearly, 15-day Free Trial on Monthly Plans

Starting with example #1, let’s add a yearly plan that gives the buyer a better deal if they pay for the whole year, and let’s add a 15-day free trial to all the monthly plans.

We’ve just released a new feature that allows you to add “components” to your products which your customers can purchase and be charged according to the quantity chosen.  This is great for offering things like the following to your products:

• IP Addresses - say your basic service offers 1 custom IP address for free, and extras can be purchased for $1 each
• Extra Projects - say your project management service allows users to purchase extra “projects” a la carte.  The first 5 cost $5 each, the next 5 cost $3 each
• Charge flat fees based on a number of customers (like how Chargify works).  0-50 customers is $0, 51-500 is $49, etc.

What the heck are components?

We’ve built a new framework that is going to give you a lot of flexibility in defining your products, and we’re calling these “components”.  If you think of the traditional “product matrix” you used to see on most websites selling a service, you would usually see their plans (or products) in the columns and row after row of optional and included things.  Well, in Chargify these “things” are called “components” - they are the building blocks of your products that you use to add options, upgrades, and add-ons to enhance your offerings.

The following simplified graphic shows what I’m talking about.

A frequent complaint about web startups is that despite being cool or popular, they lack a clear business model. One textbook example was YouTube. The service had millions of adoring users, but financially speaking, YouTube ran at a loss until Google bought them out in 2006 for $1.65 billion. For a time, the default business model for high-traffic but unprofitable websites was displaying ads. But since effective advertising depends on more than just mass exposure (like targeting) it is not always an effective business model.

A better answer for many has been the “freemium” model, where a company offers its core product or service for free and charges for advanced or special features. Rumors have cropped up in recent years that web giants like Twitter and Facebook, for example, are considering freemium strategies. Below, we’ll profile seven companies that have already mastered the freemium model, and how they did it.

Skype

Web-based telephony company Skype provides an excellent example.

The team here at Chargify has been hard at work on a bunch of new features. We just flipped the switch on two of these: Prorated Upgrades/Downgrades and Metered Components.

Metered Components

Metered Components give Sellers the ability to charge for a product on a per-usage basis. For example, a cell phone provider could charge $1 for each text message that was sent, or a Web Hosting company could charge for storage by the number of gigabytes used. Creating metered components is quick and easy. Simply give the component a name, specify the unit used to measure it, and give it a per unit price. Usage of metered components is tallied throughout the billing cycle and the charge is seamlessly integrated as a line item on the Customer’s next invoice.

For more information on how to create Metered Components, and how to record usage via the API, see:

This is a guest-post from Sean Harper, co-founder of TransFS.  He is a zealot about making sure business owners get a fair shake from their financial services providers.

1. Know what your requirements are and find a processor that has lots of experience with those requirements.
The worst credit card processing outcomes occur when the business owner doesn’t screen the processors that don’t have experience fulfilling that requirement. Fortunately, there are lots of processors that are experienced dealing with SaaS and web services companies and providing the gateway (auth.net or otherwise) that they need.

Lincoln Murphy of Sixteen Ventures presents an in-depth look at the Freemium model in SaaS companies.

What is Freemium, you ask?

Well, Freemium is defined by wikipedia as “a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features.”

In his book he defines Freemium as “A marketing tactic where a Software-as-a-Service (SaaS) vendor has both a free and paid version of their product.”

Some of the areas Lincoln Murphy’s book addresses are:

• Freemium is Not a Business Model
• An Understanding of Free
• Freemium Success Requires Internal Reflection

Last week was a great week at Chargify. The team is normally spread out across the USA, but last week we all worked together in Sacramento, CA.

Two exciting and useful developments happened over the weekend:

1. iPhone App: our brand new Chargify to Go! app is available for free download from the iTunes App Store. Keep track of your signups, total customer count, monthly revenue, and annual revenue.
2. Freemium Model Support: our fees are based on the number of paying customers that you (our customers) manage through Chargify. That’s what’s on our pricing page right now. But we have also added a “Freemium add-on package”.