Is being a low cost provider worth it?

"Charging a lot for it" is not how most businesses operate.

Of course there's always room for several players with different levels of service and price.

It's true that you "should not compete on price," but that just means that price alone should not be your only differentiator, because then all your competition has to do is drop the price.

Instead you can provide different trade-offs. Fewer features (that some people don't need) means a cheaper service. Or being a small, approachable company instead of a big faceless, uncaring company.

see this for a detailed answer - http://www.codinghorror.com/blog/archives/001293.html

In short, you charge people what they are willing to pay.

I think you should choose your market then let them decide. Do you want to stay as a free utility or go upscale or perhaps somewhere between? Each market has its own "rules".

If you're unsure, for each option, I'd calculate how many customers/purchases you would need to break even, what costs would be incurred to hit that mark, etc. Then, once you have a guideline, go to your sounding board to make sure its somewhat realistic, test it, and revise.

Almost all low cost providers are loss-leaders who offer something to make up for their at-cost or neg-cost products. This would probably add complexity to your life, so depends if you're up to the challenge or not!

I agree with Jason. In addition, I do think you already know the answer yourself. You had 2 choices: 1. you can spend a lot of time building a comprehensive system and charge "a lot" (this means, you build something that your potential customers dont need and you ask them to pay that they dont want to pay) 2. you quickly build a scaled-down version and charge less. Now, think of what you want to do: you have a real-set of customers here - so you are already ahead in the game. would you rather spend more time building something that others have built and charge the same, and turn away your customers, or would you rather build a scaled down version that you can get out sooner, charge what they can afford, and keep them happy. Dont think of these as just 3 customers. Just imagine, what these 3 real customers can do for you. I say, even introduce a referal program for these customers - let them get something off their subscription if they get you a customer.

Don't disregard customer input out of hand but also don't just blindly lower the price. I don't think your situation is a Low Cost Leader play at all. You need to provide an entry level service that can get them using your service first. Better yet, give them 30 days for free and then have them revert to the entry level offering.

Some customers may just want to try your site out to see if it's useful. Having an entry level offering allows them to do just that, at a low cost of entry. Don't think of it as being the low cost provider. Think of it as taking customer from competitors with the plan to convert them to the premium service.

I'll tell you our experience with low-cost offerings. Take from it what you will since this is purely anecdotal. My partner and I did an experiment where we lowered the price drastically on a category of our product. We attracted more customers, but they were the wrong kind. These customers were very high-maintenance and took a lot of our time in phone calls and requests for more low-cost or even free products. Our time spent catering to these customers was time spent away from other more reliable clients that had given us a lot of business. In the end, we did away with the lower-cost products.

Being a low-cost provider is fine, but try not to set prices too low. Where is that threshold? It's hard to say, but you'll know it when you get there!