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”.