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Senior Lecturer Frank Cespedes and Robb Fitzsimmons (MBA 2016) prepared this case. It was reviewed and approved before publication by a
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F R A N K C E S P E D E S
R O B B F I T Z S I M M O N S
Basecamp: Pricing
In May 2016, Noah Lorang, a data scientist at Basecamp, was evaluating the results of pricing
research and its implications. In November 2015, Basecamp had launched the latest version of its
project management software, Basecamp 3 (BC3). BC3 was reviewed positively, and average invoice
value was in line with prior releases. However, Lorang considered whether BC3 was priced optimally:
We launched Basecamp 3 with our best guess at appropriate pricing based on our past
experience, instincts, and precedents. But we aren’t content to assume that we’ve reached
our full potential here, and are eager to do better. Optimal prices would be those that
result in maximum lifetime value (LTV). We’d generally accept a lower purchase rate if a
higher average value offset that, and vice versa. We’d also accept a lower average invoice
amount if it led to higher retention and thus greater LTV.
BC3 launched with a free tier and three paid plans. A free tier allowed one free project on the
platform for as long as necessary. Adding a second project moved an account into one of three plans
(see Exhibit 1). Basecamp For Us ($29/month) was the basic tier with unlimited projects. Basecamp
With Clients ($79/month) had features that allowed teams to interact with external clients. Basecamp
Big provided a dedicated support manager, onboarding training, and 2 terabytes of document storage
for $3,000/year.
Lorang believed that it was important to be explicit about what could be learned from tests. Good
tests would illustrate customer reactions to different prices, and suggest a roadmap for future price
testing that might include more substantial changes to the product offer. Lorang noted:
Unlike many ventures, we did not want to take random stabs in the dark and call that
a test. Good pricing tests take 3-4 weeks to achieve a meaningful sample size, so we were
constrained in the number of tests we could run. But Basecamp also has pricing data
available from two earlier versions of the product over 10 years of buying history, as well
as buyer behavior from the first four months of BC3.
Lorang’s team had, over the past two months, conducted A/B tests on the web as well as surveys
of Basecamp’s customer base and in-person qualitative interviews with customers. Now, Lorang was
considering what the data suggested about Basecamp’s pricing policy and any changes to that policy.
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Basecamp: Company History
In 1999, Jason Fried founded 37signals, a web design agency in Chicago. In 2004, 37Signals launched
Basecamp, a project management tool that became a runaway success. Within a year, the team
transitioned from services to focus full-time on software products delivered through the web,
eventually launching seven additional products. In 2014, 37signals rebranded itself as Basecamp LLC.
Its other products were spun off as separate entities or closed to new sign-ups. BC3 was the first major
product release following this rebranding and reorganization.
Basecamp had been profitable since its inception, and its growth out of an existing business meant
the founders retained most of the equity. They sold a minority stake to Amazon.com founder Jeff Bezos
in 2006, making him the only outside investor. Profitability also meant the founders could focus on
long-term product and company health, and they vocally encouraged other companies to do the same.
Fried was a prolific and provocative blogger. In 2007, he posted an article (“Why Enterprise Software
Sucks”) on his site, “Signal v. Noise: a publication about the web by Basecamp”:
The people who buy enterprise software aren’t the people who use it. That’s where the
disconnect begins. The experience takes a back seat to the feature list, future promises,
and buzz words. This is one of the reasons we think enterprise is a dirty word. It’s also
why it’s an absolute pleasure to design products for what we call the Fortune 5,000,000—
the small businesses, the side-businesses, the freelancers. The people who buy our products
are the people who use our products. If they don’t get value on both the financial side and the
productivity side, they don’t stick around.
We have to make the money happy and the people happy. In our market they’re the
same person. In the enterprise market they are often different people in different
departments in different buildings who sit at different lunch tables. In small business
software the product, not the salesperson, does the talking. There’s no camouflaging value
when the buyer is the user.1
In 2009, Fried posted a tongue-in-cheek “press release” satirizing a “freeconomics” business model
(see Exhibit 2). More recently, he had posted an article outlining his philosophy of pricing and “the
kind of business we wanted to run” (see Exhibit 3). According to Fried, Basecamp was different from
many venture-backed startups. Management was not seeking “growth for growth’s sake” or a nearterm liquidity event. The goal was to iterate toward a pricing structure that captured more value in a
well-defined customer acquisition and retention funnel.
As a private firm, Basecamp did not release financial results. But Fried noted in a 2010 TED talk and
interviews that Basecamp generated “tens of millions” in revenue, a substantial figure for a firm with
headcount under 50. He stated that the firm was “able to grow profits and revenue each year without
many new hires because its product is largely self-service and easy-to-use.”2 The company displayed
a live weekly total of new customer acquisitions on its home page. After launching in 2004, Basecamp
had over 100,000 accounts (free and paid) by early 2006, over 1 million by late 2006, over 3 million by
2009, over 15 million in 2014, and by 2016 was adding more than 7,000 accounts weekly.
Product
Basecamp’s software was a collection of tools to help teams communicate when collaborating on
projects. Basecamp identified “six core things every group needs to do their best work together.” Its
tools could be mixed and matched for a given project. Components included a message board, realFor the exclusive use of t. bukhamseen, 2022.
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time chat, automatic check-ins, to-do list, file storage, and a calendar (see Exhibit 4 for product
features). The product was initially built for the needs of design agencies like 37signals. As Fried noted,
“We were scratching our own itch with Basecamp before releasing it to the public.” However, the tools
could be used in a variety of contexts. In the launch in 2004, the team laid out its product vision:
Basecamp strives to provide the tools for a more human form of project management.
With Basecamp it’s not about tons of stats, charts, numbers, and graphs; it’s about twoway communication, conversation, simple scheduling, and to-do lists so you don’t forget
the little things (and projects are comprised of thousands of these little things).
“Projects” just aren’t web development projects. They are group projects (for school,
for example), home improvement projects, family projects, “looking for a new job”
projects, “keeping track of what the competition is doing” projects, and more. Basecamp
can be used by all sorts of people for all sorts of projects.3
Basecamp web and mobile applications could replace email for a team’s internal communications
and project management, and an open API4 meant that additional functionality from other software
programs was easily integrated, making Basecamp the “record” for a client engagement or project.
Basecamp was an early entrant in the project management (PM) software market—an estimated $15
billion market in 2015, growing at more than 12% annually5—and soon became one of the most popular
project management tools. In the decade since Basecamp launched, Atlassian’s JIRA, Fog Creek
Software’s Trello, Citrix’s Podio, Asana, and others offered PM tools. Business-oriented group chat
applications like Slack had also made significant inroads in recent years. But the most important
“competition,” Lorang noted, was teams that simply used email or a spreadsheet and no project
management software: “Because teams are accustomed to email and use it for external communication,
inertia is substantial. Therefore, Basecamp focuses on being easy for a team (including non-technical
users) to adopt and succeed with.” Fried added:
A lot of companies feel they need to make products more robust and add features. But
one secret to our success is fighting that impulse. Most software gets harder-to-use, slower
and more complicated over time. We’re trying to go the opposite direction.6
Basecamp had focused on common-use cases rather than trying to optimize for a particular “power”
user or industry. Since inception, the product was a self-service software tool that eschewed common
enterprise features like single sign-on, audit trails, and on-premise hosting. Fried believed that if the
product was, as advertised on its website, “world-famously easy to use,” it had a competitive
advantage in the marketplace.
Place
Basecamp was purchased and used through a web interface in a purely inbound model without any
sales outreach or personal contact to place an order. Management believed this no-touch model
allowed for a large number of customers to be covered by the leanest team possible.
Because of its early momentum, Basecamp benefited from its position in the small-business
productivity application market. Software companies targeting a similar customer base with timetracking, invoicing, or accounting tools often chose to integrate Basecamp’s API as a means of mutual
customer acquisition. The company had experimented with an affiliate-marketing program, where
users could earn cash or account credit for referring friends, but did not maintain the channel.
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By 2016, Basecamp was used at groups of freelance web designers, ad agencies, Petco, NASA, Etsy,
and the World Wildlife Foundation, among others. At most organizations, the groups using the tool
were typically teams of 5–20 individuals, frequently coming from a disorganized email-based
workflow. Basecamp tailored its product and messaging for groups of that size and, while it welcomed
users from larger organizations, it avoided changes in product, pricing, or support for that segment.
Unlike many other SaaS (software-as-a-service) firms, there was no “call us” negotiated pricing tier for
enterprise clients. Basecamp’s $3,000 “Big” tier provided access to an account manager, an uptime
service agreement, and more storage, but no customization of features or product roadmap.
Promotion
Basecamp was an early adopter of content marketing and Google’s AdWords, but did much less
paid-user acquisition than other SaaS ventures. The company’s outspoken management team was also
a boost to awareness. Fried and David Hansson (a partner at Basecamp) were high-profile boosters of
startups and critics of practices at many venture-capital-backed firms. Their activities included the blog
Signal v. Noise, multiple best-selling books, and contributions to the software community through
Hansson’s invention of the popular Ruby on Rails programming framework.
Basecamp had thousands of readers on its web properties and access to third-party media such as
Inc. magazine, where Fried was a regular contributor. The firm’s visibility in the web community
helped it to win customers among other software companies. But surveys indicated that users’ positive
word of mouth about the product’s ease-of-use carried Basecamp between project managers in areas
as diverse as advertising, construction, education, retail, and religious organizations.
Price
Each product release of Basecamp featured a different pricing scheme when it was launched.
Basecamp Classic (“BCC”) was the original version, launched in 2004. Users were allowed one free
project with no time limitations, but received no file storage or time-tracking features. (These features
were frequently used by users doing billable client work, so placing them behind a paywall helped to
segment business customers willing to pay for productivity gains.) Plans ranged from $24 to $149 per
month, based on number of projects and size of file storage. Average invoice values for BCC continued
to show steady monthly growth in 2016, more than 10 years after BCC launched.
Basecamp 2 (“BCX,” for “Basecamp Next”), released in 2012, did not offer a free tier; instead, it
offered a 60-day free trial. BCX also removed the time-tracking feature and charged based on the
number of projects and storage. Plans ranged from $20 to $150 per month, with the top end including
unlimited projects and storage. BCX’s pricing structure proved effective at attracting a large number
of lower-end customers, who might have otherwise stayed freemium. But account upgrades and
invoice value growth were slower than for BCC: without “feature gates” like time tracking to drive
upgrades, many BCX users had all the projects and storage they needed at lower price points.
Basecamp 3 marked a return to feature-based pricing tiers. All plans began with one permanentlyfree project. Teams wanting two or more projects on the platform could elect the $29/month “For Us”
plan with internal collaboration features only, or a $79 “With Clients” plan that included external
collaboration tools, e.g., for design reviews and sign-offs. Each plan had 100 GB of storage space.
In all three product iterations, Basecamp was among the most affordable small-business SaaS
software. (See Exhibit 5 for a median price analysis based on the average Basecamp user-team’s size.)
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Basecamp: Pricing 817-067
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Basecamp did not charge “per-user” or “per-seat” fees, bucking a near-universal software industry
practice; the founders believed this incentivized broader usage among customer team members,
making the product “stickier.” But not pricing per seat also meant Basecamp had to find novel ways to
increase invoice value as storage capacity became commoditized with the rise of services like Dropbox
and Google Drive. Further, unlike most software firms, Basecamp releases were distinct products and
customers could continue to use and pay for older versions of the software, which were supported by
Basecamp and available to new sign-ups even after new versions were released.
Price Tests
Previous attempts at price testing, with the BCX product, had not identified price points that
increased customer Life Time Value (LTV). Lorang noted that “testing price is never easy”:
It’s hard to test LTV directly; that’s a long-term outcome sensitive to elements beyond
price, especially cancellation rates (churn). Instead, impact on LTV is estimated by
evaluating conversion rates (free registered accounts upgrading to a paid plan) and initial
monthly revenue (average price a user pays after converting). Our LTV has exceeded our
CAC [Customer Acquisition Cost] since Basecamp Classic launched in 2004; we have a
cash-flow formula that works. Can it work better? And can tests provide some solid
learnings and a roadmap for future price testing to get closer to optimal?
Fried believed testing prices was important beyond financial impact, because it reinforced the
company’s commitment to quality. In a memo he sent to the team about price testing in early March,
he noted: “Prices absolutely signal quality. I think Basecamp should be seen as a high-quality product
(because it absolutely is one). That’s all I’ll say about that” (see Exhibit 6).
Lorang and Fried placed three constraints on the tests. Because Basecamp’s software team daily
supported products with millions of users, no developer resources were made available to alter the
product offering for pricing tests. The team also decided to focus on price changes within the existing
three-tier plan, rather than test changes to the tier structure. Finally, because of the signaling effect of
price on product quality, the team decided to test only price increases, rather than testing a decrease in
the price to attempt higher conversion rates. Over a dozen potential test ideas were generated and
ranked based on their fit with those constraints and long-term goals, including charging for API access,
selling features à la carte, charging for industry-specific templates, and a usage-based ROI calculator
for upgrades. Five tests were then chosen as “finalists” for the first round of testing:
Doubling or tripling the price of the tiers. This was intended to test the impact of higher prices
on conversion rates. Other relevant questions (e.g., impact on longer-term churn rates or
competitive positioning versus comparable tools) would not be directly observable.
Making the $29 tier limited to five users, and the $79 tier unlimited. While this test would not
change the “sticker” prices, it would have the effect of increasing price for most Basecamp
teams. This pricing scheme would resemble competitors’ per-user pricing.
Make both “For Us” and “With Clients” $79. The current “feature gate” for BC3 segmented
customer teams into pricing tiers based on features that enabled client-facing work. However,
internal-only teams could be as large, and derive as much value from Basecamp, as client-facing
teams. This test was intended to see if internal teams would adopt at the higher price.
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817-067 Basecamp: Pricing
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Increase the price difference between “For Us” and “With Clients.” Essentially the opposite
of the previous test, this would price the client-facing features at a higher premium. The current
$50 difference had been established based on data from prior Basecamp versions, and the team
wanted to eventually find a quantitative basis for BC3 users’ conversion and upgrade behavior.
Reduce the price for annual prepayment. Another common practice that Basecamp had not
adopted was to offer a discount (10%–20%) to customers who prepaid annually, as opposed to
monthly payments where some customers canceled before 12 months. Another benefit of this
structure for most SaaS firms, especially startups, was upfront cash for working capital. With
this test, the impact on LTV would not be directly measurable for months or until non-annualpayment users in the cohort began to churn.
A/B Test
The team began with an A/B test to see how customers reacted to a rise in price with no other
change to the marketing mix. Randomly chosen users were shown pages or messages that differed in
only one aspect the team wanted to test, the “stimulus.” The “treatment” group received a new offer
the team wished to evaluate; all others, the “control” group, received the current offer. Impact was
measured in differential rates of conversion, defined as an action like clicking a button, filling out a
form, or making a purchase. Prices shown to the treatment group were double the standard price: $59
(vs. $29) for “For Us,” $159 (vs. $79) for “With Clients,” and $6,000 (vs. $3,000) for “Basecamp Big.” The
test was simple to implement, with no changes needed to the copy or style of the page.
Although the long-term goal was an increase in lifetime value, which would incorporate churn, for
the first test, the team agreed to look at first-month invoice value as its key metric. This would let them
iterate quickly, while waiting for customers to churn over months would take too long to generate
actionable learning for a fast-growing venture. If doubling the current prices resulted in fewer signups
and less total revenue, the team could try smaller increases; if it improved revenue by enough to
compensate for fewer signups, the team could try even higher prices.
The test ran for three days, long enough for thousands of users to see and evaluate the double-price
offer. This sample size allowed for a “rough” analysis of differences in behavior for about 30% of the
deviation from the control group. A statistically significant test, as defined in academic and clinical
research, would take much longer. Lorang wanted a test that gave meaningful results, while creating
the fewest extra hours of work for the already-busy customer support team, which would have to
answer questions or complaints from shoppers.
By the end of the test, 5,011 users had signed up for a free Basecamp account; 1,573 in the treatment
group and 3,438 in control. The team then waited five days for the freemium accounts to convert to
paid. (Experience indicated that 50% of Basecamp paid accounts converted within the first week, giving
the team confidence in the result.) The results are shown below in Figure 1.
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Basecamp: Pricing 817-067
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Figure 1
Source: Casewriter analysis.
Conversion percentage was calculated by dividing the number of paying customers in each cohort
with the total number of registrations. The percentage indicated the willingness of users to pay when
presented with an offer. The test group had 28 of 1,573 registrants convert to a paid plan (1.8%). This
was a decrease from the control group, which had converted 120 of 3,438 (3.49%).
Plan value, calculated by averaging the monthly price paid by customers in a cohort, indicated
users’ willingness to choose a more or less expensive plan when presented with a given offer. Users
chose the least-expensive plan more often when prices were doubled than in the original pricing
scheme; as prices increased 100%, plan value increased 68% ($71.14 for the test group, $42.25 for the
control group).
When multiplied, the conversion percentage and plan value produced the value per signup, the
monthly “expected value” of any new account (free or paid) in the cohort. New accounts were worth
16% less in the test group ($1.27) than in the control group ($1.47).
Having tested twice the current price, the team considered testing all points between 1.1 and 1.9x
the current price. But the A/B test had already produced much incremental work for the support team
and, as one team member noted, “We need more information on the likely price multiple range before
we run our next test.” The team decided to ask current customers what they might be willing to pay
for the product through a survey.
Price Sensitivity Survey
The team used the Van Westendorp Price Sensitivity Meter (PSM), a survey method common in the
consumer packaged goods industry. In April 2015, about 26,000 randomly chosen Basecamp customers
received an email invitation to a survey. In addition to questions about metrics that Basecamp collected
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817-067 Basecamp: Pricing
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monthly (e.g., Net Promoter Score), the team included four about pricing. Sliding scales, with prices
ranging from $0 to $500, were presented below each of the following questions:
Figure 2
Source: Casewriter analysis.
The survey was open for seven days, collecting 895 responses (a 3.4% response rate). The team
created a series of cumulative percentage charts, like the “Price Sensitivity Meter” below. Each line
corresponded to the number of responses indicating that a given price point was, for example, “so low”
that it affected quality perceptions (question 1), or “a bargain” (question 2), and so on. The intuition
behind this chart, Lorang explained, “is that at some price points, all respondents agree that prices are
too high or too low. The chart tries to identify the points, as well as the percentages of respondents who
say that a given price is, for example, ‘too expensive’.”
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Basecamp: Pricing 817-067
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Figure 3
Source: Casewriter analysis.
Sensitivity ranges could be calculated for the entire sample, but Lorang noted that aggregate ranges
were not very helpful: “A variety of different users are represented: free and paid plans, BCX and BC3
products, and multiple price tiers within each.” Hence, results were re-segmented by the user’s current
product line, and BC3 responses produced the graphs below in Figures 4 and 5.
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817-067 Basecamp: Pricing
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Figure 4
Source: Casewriter analysis.
Figure 5
Source: Casewriter analysis.
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Basecamp: Pricing 817-067
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The price points suggested by these graphs were lower than the current prices users paid. Some on
the team saw this as evidence of an anchoring effect on the current price: “You should expect this
response from customers accustomed to getting a good value and reticent to tell a company to raise
prices.” Another cut of the data expressed respondents’ answers as a function of the price they were
paying for their current plan. (In other words, users saying that $5 was “too low” would be expressing
a 0.17x multiple if they paid $29/month on the “For Us” plan, or a 0.06x multiple if they paid $79 for
“With Clients.”) The team produced a graph of interquartile ranges around the median values:
Figure 6
Source: Casewriter analysis.
A large majority of respondents believed that two-thirds or more off the current price was “too
cheap”—i.e., free, or close to it, did not signal quality. Customers indicated that an average discount of
about one-third from their current price paid would be “a bargain,” and 25% indicated that the price
they were currently paying was already “low.” “Expensive” was a price that was “not out of the
question, but you’d have to give some thought to buying it.” This interquartile range was between 1.0x
and 2.0x, with median ranges around 1.4x a user’s current price. Further, many responses extended
beyond 2x towards 4, 5, and even 6 times the current price a user was paying. The median response to
the “Too expensive” range was double a user’s current price paid, similar to the A/B test results.
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817-067 Basecamp: Pricing
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Customers and Comparables
In addition to the tests, Lorang’s team also reviewed customer data, based on demographic
information Basecamp gathered as people created accounts. Lorang commented:
Our customers are very diverse, ranging from our initial core of web and software
developers to marketers, health professionals, accountants, folks in agriculture, and many
more. They also span group sizes, from individuals to more than 100 people in a user
group, and over 10,000 job titles. There are big differences in usage patterns, both
aggregate usage and feature usage. Accounts started by senior execs have the most
aggregate usage, but usage per project is highest with smaller accounts. LTV varies
significantly. Certain industries, use groups, and job categories have much higher trial
completion rates, average plan value, and retention.
One team member noted that “consumer surplus is very high for our product with most users. How
much more would some customers pay but can’t be charged under our current pricing model? In an
ideal world, we’d create segments that more closely mirror each group’s willingness to pay.”
Another team member pointed out that software firms could use (a) feature pricing (tiers with
specific features as the “gate” to higher prices), or (b) per-user pricing (the more people that use the
product, the more it costs, because the customer derives more value), and/or (c) depth-of-usage pricing
(e.g., amount of storage used or number of projects). But Basecamp currently only utilized feature
pricing. The team member cited a software firm (not in the PM space) called “Interconnect” (disguised
name) where, as with Basecamp, access to the basic platform was free but then Interconnect’s paid
plans were priced by feature mix, number of products used, and number of users per month. She noted
that “Interconnect bills based on the features and the total reach (number of users) that particular
customer desires, and their customers don’t complain.”
Another cited a software firm called “Present!” (disguised name), which offered free presentation
software for business, education, and personal uses, and then charged based on how different users
utilized their product. During freemium usage, Present! had users select templates they wanted in the
product, and then after sign-up sent personalized emails for 5 days based on the templates selected.
Conversion rates to paid plans, and average invoice values, were much higher for certain industry
groups after this campaign. “It’s a clever way to get customers to self-select for different tiers,” this
person said, “and they keep refining their segmentation and price points this way.”
Another person noted that “comparisons with other firms should be used carefully. We’re often
competing with email or face-to-face project management, not another tool. There’s often no priorprice-paid to compare with, and email and face-to-face don’t go away once you start using Basecamp.”
Options and Recommendations
Lorang’s team considered a number of pricing options, including but not limited to the following:
One-time user onboarding charges. BC3 could be priced so that, once the commitment to
purchase was made, customers paid a one-time fee for different “buckets” of users (5, 10, 15, 20, etc.).
Some argued that this would create a feeling of investment in the product, increase retention, and also
reveal the size of user-groups that customers derived the most value from.
Monthly fee per number of external contacts. The Clientside feature allowed BC3 users to
include external parties in the project management software, a feature especially valued by high-ROI
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Basecamp: Pricing 817-067
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users like ad agencies, professional services and design firms, and others. BC3 could charge an
additional monthly fee based on the number of external clients being used in Clientside (e.g., different
monthly fees for 10+, 25+, 50+ and so on). One person argued that this approach “avoids per-user-permonth charges that might inhibit adoption, but helps to better align prices with value received.”
Identify and target more “Big” customers, based on usage. There was evidence that a
number of BC3 customers chose the $79 Basecamp With Clients plan for user and project volume levels
more suited to the $3,000 Basecamp Big tier. Could Basecamp target customers with lots of users
and/or projects running on Basecamp With Clients and proactively reach out with online campaigns
or account managers to encourage upgrading to Basecamp Big? A team member noted that the price
difference would easily support the incremental costs of a campaign or dedicated account support.
Reduce annual payment. Unlike most other SaaS firms, Basecamp did not offer a “discount”
if a customer paid upfront for an annual contract. This improved cash flow, increased LTV by reducing
the number of accounts that churn early after adoption, and so helped forecasting as well. One person
added, based on his experience at another firm, “that sunk cost also motivates some customers to use
the product more intensively, see the value-in-use, and re-buy after the current contract expires.”
Any of these options could have a significant and positive financial impact. Lorang considered
which (if any) he might recommend to Fried, Hansson, and the leadership team of the venture.
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817-067 Basecamp: Pricing
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Exhibit 1 Basecamp 3 Pricing
Source: Company documents.
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Basecamp: Pricing 817-067
15
Exhibit 2 ”Press Release”: 37Signals Valuation Tops $100 Billion After Bold VC Investment”
Jason Fried / Sep 24 2009
CHICAGO—September 24, 2009—37signals is now a $100 billion dollar company, according to
investors who have agreed to purchase 0.000000001% of the company in exchange for $1.
Founder Jason Fried informed his employees about the new deal at a company-wide meeting. The
financing round was led by Yardstick Capital and Institutionalized Venture Partners.
In order to increase the value of the company, 37signals has decided to stop generating revenues.
“When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag
on our valuation,” said Mr. Fried. “Once you have profits, it’s impossible to just make stuff up. That’s
why we’re switching to a ‘freeconomics’ model. We’ll give away everything for free and let the
market speculate about how much money we could make if we wanted to make money. That way,
the sky’s the limit!”
A $100 billion value for 37signals is “not outlandish,” says A. Bhatnagar, a finance professor and
valuation guru at Grenada State’s Schnook School of Business. Bhatnagar points to a leaked,
confidential corporate strategy plan that projects 37signals will attract twelve billion users by the
end of 2013.
How will the company overcome the fact that there are only 6.8 billion people alive today? “Why
limit users to people?” said Bhatnagar.
In order to determine the valuation of companies, Bhatnagar typically applies the following formula:
[(Twitter followers x Facebook fans) + (# of employees x 1000)] x (RSS subscribers + daily page views)
+ (monthly burn rate x Google’s stock price)2 and then doubles if it they use Ruby on Rails or if the
CEO has run a business into the ground before. Bhatnagar admits the math is mostly a guess but
points out that “the press eats it up.”
To help handle the burdens of an increased valuation, 37signals hired former YouTube exec Craig
Mirage as Chief Operating Officer earlier this month. Mirage hopes to replicate YouTube’s valuation
success at 37signals. “Of course, the investment comes with great expectations. But you should see
the spreadsheet models we’re making up. Really breakthrough stuff,” said Mirage.
“37signals will lead the new global movement filled with imaginary assumptions on growth and
monetization potential,” he continued. “We’re excited to roll out a list of unconfirmed revenue
possibilities that involve crowdsourcing, a robust set of widget creation tools, 3G, augmented reality,
social stuff, and an app store. Also, everything we make will include a compass.”
Source: Signal v. Noise, https://signalvnoise.com/posts/1941-press-release-37signals-valuation-tops-100-billion, accessed
November 2016.
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This document is authorized for use only by talal bukhamseen in MKT530 Spring 2022 taught by Larry Vincent, University of Southern California from Jan 2022 to May 2022.
817-067 Basecamp: Pricing
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Exhibit 3 Jason Fried’s Blog about “Don’t let anyone overpay you” (June 21, 2016)
The moment one customer pays you a lot more than any other customer, you’re no longer a product company,
you’re a services/consulting company. When we launched the first version of Basecamp we decided to build
software for small companies just like us. We know how growing from 4 to 6 or 8 employees is a huge move.
We know that it’s during those growth moments you need a system to help you keep everyone on the same
page, and help your expanding teams be more self-sufficient. Being roughly the same size as our customers was
a product-focused, mission-oriented decision we made then and have stuck to ever since.
But limiting our customers to small companies was also a philosophical — some might say counterintuitive —
decision about the kind of business we wanted to run.
We based Basecamp’s original pricing model on charging customers what we’d be comfortable paying ourselves.
We offered three monthly price tiers: $19, $39, and $59. (Today the tiers are $29 or $79 monthly, or $3,000 for
a year with added personal support) But we also established very clearly from the start that we’d never allow a
customer to pay us more than that top-tier price. Not even for a customized version of Basecamp for a massive
enterprise company that’s offering to throw $100,000 our way. We would never waver from our mantra: If
you’re a big company with special demands, we don’t want your money.
That single decision has probably had the biggest positive impact on our company. And it all started with a
simple answer: No.
Why say no to such a windfall? There are two reasons. First, we wanted to build a self-service software company.
One that doesn’t rely on a large sales force to move products, that doesn’t need an army of key account
managers keeping the whales happy, and that doesn’t require us to offer extensive training for something that’s
been specially made for hundreds or thousands of people at the enterprise level. Saying yes to a company that
might increase our revenue by 100x would require us to suddenly create staff infrastructure to support that.
But more, we believe there’s strength in numbers. Not large numbers of dollars, but large numbers of
customers. We’d rather have thousands of companies paying us a small monthly payment than a few huge
accounts covering that same amount. A diverse customer base helps insulate you; a few large accounts can
leave you vulnerable to their whims.
Over the years, we have said no to companies, institutions and even world leaders we admire. We don’t want
to bank all our risk on a small collection of big companies that require customization or special treatment. We
don’t want to lose 20 percent of our business if one big account goes away. We don’t want to push the product
in the direction someone big prefers at the expense of the small companies we love so much.
Some might wonder, “Why not just do both — sell to small businesses and also have a group of people dedicated
to servicing big businesses?” First, we believe if you have a large pool of customers all paying you roughly the
same amount, and then a small handful of customers paying you 100x that much, you’re no longer a product
company — you’re actually a consulting company working for those big payers. You’ll do what they say because
they pay. We also don’t want to be a two-headed company with two cultures. Selling to small businesses and
selling to enterprises take two very different approaches with two very different kinds of people. We’d rather
focus on one — the massive number of companies around the world that have fewer than 100 employees (and
most fewer than 20). That’s plenty of sweet spot for us.
Source: Signal v. Noise, https://m.signalvnoise.com/bigger-prices-bigger-problems-72820249456f, accessed November 2016.
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Basecamp: Pricing 817-067
17
Exhibit 4 Basecamp3 Product Features
Here’s what you get
Everything in Basecamp is carefully considered. We even carefully considered what to leave out. When you
aim for the best mix of truly useful features without bloat, everything has to earn its spot. For those who like
lists (and who doesn’t?), here’s a complete run down of the things you can do with Basecamp 3.
To-dos: Outline and divvy up work to be done.
Organize to-dos into lists; Set due dates and date ranges; Assign to people.
Easily reorder for priority; Add details, notes, or file attachments.
Comment on to-dos and to-do lists; See what’s assigned to you and sort by date.
View in traditional stacked list view, or in summary card view.
The Message Board: Keep discussions focused and on topic.
Post announcements, proposals, ideas and be sure everyone sees them.
Every topic gets its own page so the entire conversation is easy to reference later.
Conversation threads for deeper discussions; Embed images and files in messages.
Give everyone a chance to weigh in on their own time.
Reach consensus and keep important decisions on the record.
Campfires: Chat and hash things out quickly.
Chat with a group in real time; Every Basecamp can have its own group chat.
Ask quick questions or share info; Toss in work for quick feedback.
@mention people to get their attention; Attach files, quotes, and code samples.
Have fun with sounds, video, and emoji!
Docs & Files: Organize key docs, files, and assets.
Upload key docs and deliverables.
Link up live Google Docs and discuss them right inside Basecamp.
Drag and drop documents or files into folders to keep things organized.
Color files so they stand out.
Drag and drop to reorder – things stay exactly where you put them so they’re easy for anyone to find
later.
Comment on docs and edit to add new versions; See the history of changes.
Schedules: Set deadlines and milestones.
Add events with dates, times, date ranges, or all-day events; See what’s due when.
Attach people to events and notify them when events are added.
Discuss events on self-contained page; Attach notes, files, or images to any event.
Subscribe to schedules or individual events with Google Calendar, iCal, or Outlook.
Cherry pick individual events to add to your own personal calendar.
Automatic Check-ins: Regularly scheduled questions and answers.
Ask questions on a daily, weekly, or recurring monthly basis.
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817-067 Basecamp: Pricing
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Ask the whole team or tell Basecamp specifically who to ask.
Schedule for the beginning of the day or end of the day.
Find out what your team’s been working on.
Surface ideas and insights that are usually locked away in people’s heads.
Kick off discussions based on people’s answers.
Pings: Instant, personal direct messages.
Have quick 1:1 personal discussions; Shoot someone a file.
Get someone’s attention; Have a backchannel discussion with one person or group.
Kick ideas around with a group before presenting them to the rest of the group.
Hey! and Notifications: Everything you need to know about.
Basecamp tells you about new comments, messages, and chats.
Your Heystack shows you everything you were notified about.
Get notifications by email, browser alerts, or on your mobile device.
@mention anyone and they’ll get a notification in their own Hey! menu.
Snooze notifications for 3 hours.
Set up a Work Can Wait schedule so Basecamp only sends you notifications during your work hours
(and not at night or on the weekends).
Reports: Be a know-it-all.
Reports help you get caught up on what your team is doing.
See what’s overdue and what’s coming up or due soon.
Find out what work was added and completed on any given day.
Check what’s on someone’s plate or what they’ve been up to recently.
Latest activity: The perfect bird’s eye view.
See all the activity happening in your Basecamp.
Live updates make sure you never miss a thing.
Stuff is grouped by day and organized, as it happens, by which Basecamp its in.
See who’s completing work, kicking off new discussions, commenting on existing conversations,
answering questions, etc.
Get yesterday’s activity delivered to your inbox every morning.
Finding stuff: The best search in the biz.
Instantly dig up anything you’re looking for.
Search by keyword; Search by person.
Search everything or scope searches to a specific Basecamp.
Build queries like “Just the messages that Karyn posted across any Basecamp” or “Only show me PDFs
that Bryan uploaded”.
Specially designed image search.
Search pings separately.
Source: Company documents.
.
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817
-067
-19
–
Exhibit
5 Comparative Prices
Source: Company documents.
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817-067 Basecamp: Pricing
20
Exhibit 6 Memo from Jason Fried: “My 2 cents on pricing experiments, ideas, and test”
Be aggressive. Don’t be timid. Let’s aim to move things in big ways, not just a couple bucks here
and there. I’d much rather explore big bold moves than take tiny steps. I’d start big and move smaller
if we have to in response to big not working. Otherwise it could be forever until we get to big. The
goal here is to have a big impact. Example: Minimum price $49. Or maybe even $79. What if we
doubled our prices?
Be creative and original. Try not to get stuck in our old ways of thinking. Personally, I wouldn’t
look at any previous tests – I think they’ll just anchor us back towards what we’ve done in the past.
The past is the past. The times are different, the products are different, the market is different,
expectations are different. The easiest thing to do is do what we’ve done.
Example: Today we have For Us priced at one number and With Clients priced at another number.
What if we just had one number? Basecamp was $79/month. You pick the version that’s more
appropriate for you, but there’s no difference in cost. For Us can easily be just as valuable for an
internal team as With Clients is for a company that works with clients.
Think at scale. It’s tempting to mess around with the Big package (and I do think we can charge
more for it and it would be easy to test that), but ultimately that’s not an at-scale package. It’s bonus
money. I could absolutely be wrong about this, just sharing my gut on it. Example: The most popular
package (by volume) is With Us. Getting significantly more people to pay significantly more for that
will almost certainly be where we can see our biggest gains.
Try something crazy. I don’t know what this is, [but] there must be some ideas that seem like
they’d never work. Let’s try a few. This company was never supposed to work. Fight through backlash.
No question some people will yell “you just changed the price?! WTF? Now it’s double! Triple!” If
we’re afraid, we won’t make progress. Think long term here. Could be turbulent for a bit-and certainly
support will hear it from customers, and maybe we’ll hear it on Twitter too- but we should stand our
ground. We are experimenting, testing what we have to do to make progress.
Don’t forget the point of purchase. This is where people actually buy. We have a screen where
people make their package choice, and a screen where people enter their payment type. These are
hugely important moments. They should instill confidence all day long. Make people feel amazing
about pulling the trigger. Example: Right now these screens are very utilitarian. No social proof. No
real encouragement along the way. Seeing/knowing other people are buying goes a long way to help
people make their own buying decision. Also, our point of sale is not well advertised in the product
itself. What can we do to help people consider buying vs. just hoping they’re ready to make their
second Basecamp?
Signal quality. Prices absolutely signal quality. I think Basecamp should be seen as a high-quality
product (because it absolutely is one). That’s all I’ll say about that. I’ve got a ton more thoughts on
this, but I want to see what you all come up with. Hope sharing my thinking was helpful in some way.
Source: Company documents.
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Basecamp: Pricing 817-067
21
Endnotes
1
Jason Fried, “Why Enterprise Software Sucks,” Signal v. Noise (blog), October 24, 2007.
2 Amy Dusto, “How Basecamp grew from an internal project to generating millions in revenue,” Built in Chicago (blog), May
27, 2014, http://www.builtinchicago.org/blog/how-basecamp-grew-side-project-one-world-s-most-thriving-startups.
3
Jason Fried, “Basecamp Launches,” Signal v. Noise (blog), February 5, 2004, https://signalvnoise.com/archives/000542.php.
4 An API was an Application Programming Interface: a documented protocol published by a software company allowing
authorized third-party developers access to data within the host application. Using an API, a developer could extend
applications with additional functionality. Examples in Basecamp’s case included integrations into time tracking, invoicing,
and accounting software products.
5 Technavio.com, “Global Project Portfolio Management and Analytics Market: 2016–2020.”
6 Amy Dusto, “How Basecamp grew from an internal project to generating millions in revenue.”
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