The Price of Basecamp's Water

Jason Fried talking about Basecamp’s pricing changes in some leftover bits that didn’t make it into the last episode.

Transcript

Shaun: (00:00:00) Welcome to a special bonus episode of REWORK. On the last episode, I sat down with Jason Fried to talk about selling. We focused on this water selling challenge he had seen a few year back, and that led to a question I had about Basecamp’s semi-recent price change. It didn’t really fit into the full episode, but I thought his answer was interesting enough to share anyway.

(00:00:19) So, I started by asking Jason if he noticed any trends in the four companies who actually turned a profit, selling water.

Jason: (00:00:24) Well, I did notice that they typically, I think if I remember correctly, they had low inventory levels, so they bought limited amounts of water. And, I think most of them sold out of their full inventory.

Shaun: (00:00:35) Yeah, I believe three out of four of them ended up with zero inventory at the end.

Jason: (00:00:40) Right. So, that means they may have priced too low. They may be able to make more money. Whatever. But, all that being said, I think it’s cool because, while we can look at that and go, well, maybe they sold it too cheap, and maybe they, whatever. They still came out with a profit, so they did fine. Like, this idea, like, they didn’t—maybe they left money on the table, or whatever. But, who cares, they came out with a profit and that was a good lesson for them.

Shaun: (00:01:04) So, Basecamp recently decided to change our pricing model. Is that based on the same concept?

Jason: (00:01:10) Selling water.

Shaun: (00:01:10) Were we selling our water too low?

Jason: (00:01:12) Too cheap? I think so. Yeah, I think so. There’s a variety of things that we looked at, there. So, we actually did some competitive price analysis on, I think it was 25 different products that are roughly in the same space. Some compete directly, some don’t, but they’re kind of in the same area. And it turns out that Basecamp’s—for Basecamp’s average user, Basecamp was the cheapest product, or the lowest cost out of all 25, or whatever it was. And that actually bugged me. I was annoyed by that. I’m like, you know, if the only reason we’ve been successful is because we’re cheapest, that—I don’t know if that was true. But, it was like, that entered my mind and I did not like the sound of that. So, that was where it started and then we also felt like, you know, Basecamp’s more valuable than $29/month, which is what we were charging at the time.

(00:02:04) I talked to a variety of business owners recently, who, I was telling them about Basecamp, and they were like, how much is it? I’m like $29/month, they’re like that’s it? Per person, right? And I’m like, no-no, that’s it. $29/month, period. And they’re like. I don’t think I would trust something that’s that cheap to run my business on.

(00:02:22) So, there were a variety of things that were adding up and ultimately, you know, we just decided to take a swing at something. Which is, let’s get rid of all the tiers. We had $29, $79, I think there was like $129, or $159. We had played with a variety of tiers over the past five years. We had had like five or six tiers. We said, let’s get rid of all of them, let’s raise the price to $99/month, flat, still. And, let’s signal some seriousness in the product. Let’s also say it’s absolutely worth this. It’s still, I believe, a great bargain. I think it’s a steal, actually. And, let’s see what happens.

(00:03:01) We didn’t change our prices on our existing customers, which was the key. Anyone who’s paying us—120,000 customers, or whatever, in total. They’re still paying us the old, their original rates. So, this is just for new customers. It was a test, basically. And, turns out that sign ups fell, as we expected but only by a little bit. But average ticket price per sale went up significantly, and conversion rates went up as well. And so, it was a huge success. And so, it’s kind of a cool thing to say, we can raise our prices three times and actually have a better business after the fact.

Shaun: (00:03:36) And doing that while—I mean, we were already profitable, right?

Jason: (00:03:37) Yes.

Shaun: (00:03:39) So, it’s not like we were doing that to try to fix a problem.

Jason: (00:03:42) Right.

Shaun: (00:03:42) We weren’t in the red. We weren’t. We didn’t have a lot of water bottles left over.

Jason: (00:03:45) No. We were in good shape.

Shaun: (00:03:46) Yeah.

Jason: (00:03:46) But, it was sort of a combination of an annoyance, a feeling that we’re signaling—the signal that was sent with a low price, is like, eh, it’s not that good. How can I run my whole business on this whole thing. We’re also changing the offering a little bit where, in the past, Basecamp had been mostly about project management, but then we decided, like, we actually looked at ourselves, at our own usage, and said, yeah, we run products on Basecamp. We also run our company on Basecamp. All of our decisions go through Basecamp. Company-wide communication happens in Basecamp. That’s how we know what everyone’s working on, what they’re doing, what’s going on. What products are going to get done. Which ones aren’t getting done. Who’s doing what.

(00:04:26) If we have an announcement to make, we make it in Basecamp. So, we’re running our whole business on this thing, so let’s encourage other people to do the same thing. So, we changed the product around a little bit. We added some features around that. We called out some things that we were doing. We reorganized a few things. And along with that, we did this price increase.

(00:04:44) So, it was like, it was looking back at ourselves. It was taking a shot. It was saying that what we’re offering is too cheap, sends the wrong message. We didn’t want to be successful because we were cheap. Or affordable. Whatever word you want to use.

Shaun: (00:04:59) I mean, it’s inexpensive.

Jason: (00:05:00) Actually it felt cheap, though. That was the thing. It wasn’t just like affordable or inexpensive. It felt cheap at $29/month, and I didn’t want it to feel cheap or chintzy in any way. So, we went, and now I feel like—and by the way, we’re just in the middle of the pack at $99/month. There are some products that are significantly more. But the fact that we don’t charge per user makes us incredibly affordable, especially for folks whose companies are growing. And a lot of our customers, they come to us when they’re smaller and they grow with us. And, with most products, they charge by the seat. They get more and more expensive as you grow. Basecamp stays fixed. It’s always $99/month, no matter how many people you have. So, we felt really good about that and so far the results have been fantastic.