Same great service, new great price!

David Barrett —  May 22, 2013 — 14 Comments

If you’d rather skip the preamble, feel free to jump to the FAQ.

Expensify today is completely free for the overwhelming majority of users.  But it wasn’t always that way.  Initially, Expensify was completely free for all users.  And users were complaining about that. 

In the Beginning it was Free

Rewind 4 years to 2009.  Expensify was a newly launched product with basically zero users.  We had recently raised $1M, and it was just me and Witold, so we figured that $1M could last us, oh, 7 years or so.  So when you have plenty of money in the bank and basically no users, stressing out about how much to charge your nonexistent userbase for a product that only barely exists isn’t really a good use of time.  But contrary to our expectation and all common sense, our few users didn’t agree.  One of our most common help questions was: “How do you make money?”

We were surprised by this, because the internet is awash in totally free services that most people can’t even imagine how they’ll ever make money (and most don’t).  But most of those services are for consumers: photo sharing, social networks, etc.  Expensify is a business product, and our users care very deeply whether the product they build their business atop will be around for the long haul.

Furthermore, Expensify is unusual in that it deals with a person’s most sensitive data: the usernames and passwords of peoples’ bank accounts.  There literally isn’t any data more sensitive than that (outside of government and military).  And we’d get questions like “Is *that* how you make money — do you just steal it?”  It seems totally absurd.  But these were the actual user concerns facing us.

So as a company that prides itself on being responsive to user concerns, we did the only thing that made sense: we started charging.

But recall that we didn’t really want to spend any time on it.  More importantly, we didn’t want to accidentally choose the wrong price and have that turn away users to who we would eagerly give away Expensify for free.  So we came up with what I think was a pretty ingenious plan.

How we Started Charging

First, we decided to charge the recipient of the expense report.  After all, it’s enterprise pricing: the employee never really pays.  So it remained free to create and submit expense reports, but the recipient (who is typically the company’s finance department) had to pay to “approve” them.  This one decision kept Expensify free for 90% of users, right off the bat.

Next, we picked activity-based pricing, tied to the number of people who submit in the previous month.  This way there’s no reason not to share Expensify with your whole company: there is no cost for “inactive” seats.  This makes sense because everybody submits expense reports some of the time, but only some people submit them all of the time.  Combined with the first, we aimed to keep Expensify free for like 99% of users.

But this is where we got really tricky.  At the time, we were aiming for the 10 person company.  And we know that for a typical company, about 25% of the employees will submit a report in a given month.  So we knew that for most of our companies, about 2 people would submit per month.  So the brilliant plan?  Give away the first two users for free.  This neatly ensured that for 100% of the market we were going after, Expensify remained exactly as free as it was before, but now with the fiction that we had all these larger companies paying us.

But to our great surprise, larger companies suddenly started paying us.  We were aiming for the 10 person company, only to see 100 person companies sign up in droves. We were astonished.  But later we learned that this model, through sheer chance, is actually really awesome.

To start, we picked a price of $5/submitter/mo out of thin air on the assumption nobody would ever pay it.  But it turns out that price is actually pretty good.  Certainly less expensive than all the competition, but not *so* much less that it feels crazy.  You could argue that $5/submitter/mo is actually pretty good “penetration pricing”, which would have been very smart of us to do had that been our goal.

But even better, the “first two submitters/mo free” model is brilliant.  It lets us get a certain amount of traction in the company before anybody is even prompted to think about pricing.  And by the time they do, they’ve already adopted Expensify without realizing it.  It’s genius.

So we set out with our “$5/submitter/mo, first two free” plan to charge nobody, and failed — instead developing a healthy stream of customers paying us a tidy sum.  Pretty crazy right?

After this we started reorienting around the reality that we’re not just for the 10 person company, but also the 100 person company.  Until suddenly, a 1000 person company signed up.

The Advent of Corporate Customers

We hadn’t even dreamed we could talk to a company that size, but there it was.  And to our surprise, they didn’t need *that* much more than what we already had.  There were a variety of new stresses put onto the system that come from having a much larger group size (as opposed to large numbers of individual users, which is relatively easy).  But mostly, it was just the same thing, at a larger scale.

However, there was one glaring exception: GL codes.  This is a more advanced form of accounting that didn’t really affect any of our other users, but was critical for this 1000 person company.  So we wanted to add it, but didn’t want to complicate the product for everyone else.  My thought process went something like:

  • Hm, I don’t want to complicate things for everyone else.
  • But I do want to support this new giant (at the time) customer.
  • That said, I’m sure somebody will want this feature someday, so I don’t want to link it to their domain name.
  • What if we added some ability to “opt in” for more functionality, so people who want it can get it, and everyone else isn’t bothered?
  • That sounds an awful lot like “upgrading”.  Maybe we’ll create some plan called… “Team” and put everyone on that.  Then well create some new “Corporate” plan, and put the new customer on that.
  • But if they’re upgrading, we should probably charge more…
  • I have no idea how much to charge corporate users, and I’ve only got the one right now (and I’m going to give them a discount anyway) so who really cares… let’s just double the Team rate call Corporate $10/submitter/mo.

Once again, it’s a huge hit, quickly growing to a third of our total revenue.

Back to the Present

3 years pass.  Dozens of new employees are hired.  Hundreds of new features are built.  Our servers are updated thousands of times.

But the price doesn’t change… until we have our first 10,000 employee company seriously consider us.  Then a 100,000 employee company.  We get to a point where there simply aren’t companies larger than we can support.  And we realize: maybe we should start getting real about selling this thing.  So without further ado:

Q: What is changing?

The long and short of it is we’re making three changes:

  • The price is going up by $1/submitter/mo for both Team and Corporate plans (to $6/mo and $11/mo, respectively).
  • We still offer two free active users per month!
  • We’re adding an option to “prepay” a year in advance for 2 free months (12 months for the price of 10).
  • We’re adding an “Enterprise Plan” for companies with over 1000 employees that need a custom contract.

Q: When does this happen?

All of these go into effect in June, meaning they’ll affect the July 1st billing cycle.  (The bill on June 1st will be unaffected, because it’s for activity incurred in May.)

Q: Why these numbers?

Over the years we’ve talked with a lot of customers, the sum of who have collectively analyzed every competitor from every possible angle.  And though it’s a complex world, the general consensus is that we’re way underpricing, especially for the Team plan.

Q: Why a prepay option?

We’ve had this request over the years, from customers who prefer to pay a lump sum instead of a recurring fee.  To reward prepaying we’re offering 12 months of service for the price of 10. This is a nice round number, and because the prepaid discount of 10/12 = 17% is much larger than the 10% Corporate price increase, this allows our corporate customers to actually save a significant amount over what they are currently paying.

Q: How exactly does the prepay option work?

A challenge with prepaying is that nobody — not us, not you — knows how much Expensify you’ll need in the future.  Furthermore, there are actually a few different products that you can use at the same time: expense reports, SmartScan, and now Bills and Invoicing.  Accordingly, we’ve opted for a simple “credit” model: you can prepay for $X of Expensify credit, at a cost of $Y (where $Y = $X * 10/12).  We’ll draw down from that credit every month, and only charge your card if you run out of prepaid credit.

Q: How do I purchase prepaid credit?

Every month, at the bottom of your billing receipt, there will be a link you can click to buy 12x however much your most recent bill was for.

Example: You are billed $100 on 6/1.  At the bottom of that receipt is the offer “Click here to buy 12 months for the price of 10!  (A $200 savings!)”  You click the link, accept the terms, are billed $1000 to your credit card, and given $1200 in Expensify credit — enough to cover 12 more months of Expensify service assuming your usage stays exactly the same.

Q: Why can’t I just prepay for as much credit as I like, whenever I want?

This is a subtle issue, but if we allowed that, you could just sign in on the last day of every month and “prepay” for exactly as much as you estimate you’d need to cover the bill you’d receive the next day.  And it might seem like nobody would go through the hassle. But we have some customers who pay us an awful lot every month, and there would be plenty of incentive for someone to “game” the system if we allowed it.

One solution would be to only allow prepaying over a minimum amount, such as a $1000 prepay minimum. But then smaller customers (and we have tons of them) wouldn’t get the benefit of prepaying.  Furthermore, larger customers would always be over that minimum, even if gaming the system on a monthly basis.  The upshot is we feel this is the simplest and most fair approach that prevents abuse while allowing everybody to enjoy its benefits.

Q: Why is there a new “Enterprise Plan”?

The main reason is that we’re just talking with more and more “enterprises” — customers with over 1000 employees who need to procure software like Expensify in a particular way.  If this describes you, email sales@expensify.com and we’ll take care of you.

Q: Who can I talk to about this to learn more?

As always, please email help@expensify.com and we have a team standing by to answer your every question.

It’s been a long road, and there’s so much more to go.  But it’s been a ton of fun so far, and I hope the thousands of companies and millions of people who use Expensify have enjoyed it too.  Thanks for using Expensify, and I look forward to years more of serving your expense reporting (and invoicing, and bill processing) needs!

-david, Founder and CEO of Expensify

David Barrett

Posts

Founder of Expensify, destroyer of expense reports, and savior to frustrated employees worldwide.

14 responses to Same great service, new great price!

  1. 

    Hi Dave – we’ve been a customer of yours for quite a while now. I’ve always appreciated the candor in your blog posts, and in this case, I like your detailed explanation of your pricing strategy. However I’m surprised that you are raising the price for ALL customers and not just new customers going forward.

    Typically companies in businesses with recurring monthly charges (e.g. wireless carriers, Netflix, salesforce.com and others) tend to grand father their existing customers because it engenders loyalty. It is the message you are sending. Raising price on ALL customers says “you are locked into expensify, practically speaking, so we are raising the price – tough luck”. Grandfather-ing existing customers from price increases says “we need to raise our prices for various reasons but you are valuable so we will grandfather you in”. If customers switch to a different plan, then the then-current prices would apply.

    A single $1/month/submitter is definitely not going to cause us (or most likely other companies) to switch to alternative solutions. But repeated increases, that are not grandfathered, send a message that makes me think about the core intent of the management team. And that will eventually make me consider other solutions.

  2. 

    Thanks for letting us know. Your price is fair. Your product is the best I found online. I want you to be around in the future so I can use the product in the future. Businesses are in business, to make a profit. Your value exceeds your price in my opinion. Thank you for a great product!

  3. 

    No complaints on anything you wrote and it was a good read. Question, if the team is $6/m per user what about invoicing and bills makes it that much more expensive ?!? ( I understand the costs per transaction incurred but not sure if you cover that ) Not nitpicking but a bit confused as to why such a “big” difference in price… Specially since -if I understood right, it’s $15 unlimited- so a company who has more users would use ghat more and get it at a better price, correct? Even if I’m wrong on last point just wondering why the “big” price difference.

  4. 

    Hi Dax, thank for the question. Online services like Expensify aren’t typically priced in a “cost plus” manner (eg, cost of time/materials + markup) because digital products like this have “zero marginal cost”: the cost for us to add one more user is effectively zero. But the cost of all users in aggregate is certainly not zero. Accordingly, pricing is generally based on something other than pure internal cost.

    Additionally, invoicing and expense reporting have very different usage patterns, causing them to be billed in very different ways. For example, everybody in a company submits expense reports, but typically only one person sends invoices. And people who submit expense reports only do so some of the time, while people who send invoices do so every month. The recipient pays for expense reports, but the sender pays for invoices. Not only that, the billing feature includes access to the @bills.expensify.com feature — and you certainly don’t want to pay on a per-bill basis as then you could get hit with a bunch of email out of the blue and see your monthly cost skyrocket outside of your control. And so on.

    The upshot is pricing is a very, very complicated process, and we’ve gone back and forth on a million options. For better or worse, the current pricing is the simplest, most fair, and certainly most competitive combination that we could come up with. I can’t expect everyone to agree, but I appreciate your understanding. Thanks!

  5. 
    Inderjeet Singh May 28, 2013 at 10:48 am

    Hi David,

    Regarding the new features (invoicing and bill processing), how about having a free option for smaller companies? May be base it on number of uses? first 5 invoices free? That gives people a chance to try it out and get hooked on?

    Inder

  6. 

    Hi Nimish, I appreciate the thoughtful response — especially coming from one of our earliest customers. Had there only been a price increase, then I think we would have done as you suggested. However, in light of us also adding the prepaid payment option (something we expect will be very popular), there was a real risk of this pricing update significantly *reducing* revenue: 12 months for the price of 10 means at 17% discount. That 17% discount is much higher than the 10% increase on the Corporate plan, meaning we still risk losing revenue depending on how things shake out.

    All that said, in all honesty we should have been gradually raising prices all along while grandfathering in existing customers, as you suggest. But in practice we simply haven’t been paying attention to it, causing us to be a bit behind the curve. We view this as a sort of one-time “correction” — and one taken with an extreme level of hesitation — but we don’t intend to make a habit of it.

  7. 

    Hi Inderjeet, we considered something along these lines, but everything we looked at seemed very complicated. At the end of the day, you can try out nearly everything about Expensify for free: mobile apps, card import, SmartScan, report submission. You can even create the actual invoice PDFs themselves and download them for free. We decided to just opt for a simpler billing model instead. I hope you’ll consider it!

  8. 

    Hi David,

    I did not get an answer to my questions in an email to you, so I will try again here. I have three questions:

    1. Can you work in US dollars and Euro?
    2. What payment gateways are available for the customer?
    3. Since I use most of the functions/services of Freshbooks, I am wondering if you have these covered?

    If not, we can wait, but I do like Expensify. I only wish it were easier to understand the coding for expenses more easily. Since I am running two companies at once, I would like to code and sort expenses for each. But maybe I am asking too much.

  9. 

    Hi Dave! Thanks for the great transparency from you on your pricing plans going forward. Your prices are fair, your service exceptional, the value it brings our employees and company: priceless! You have enabled us to revolutionize and streamline a previously tedious and painful process.

    Many thanks!

    Todd Bida
    VP Corporate & Business Development
    Atlatl Software | Design. Quote. Close.™
    atlatlsoftware.com

  10. 

    That’s the great information about pricing, that helps to maintain transparency.

  11. 

    Hi Dave, Our company is just me and my husband. I do all of the expensify entries. It has always been free for me and I absolutely have loved your program. From what I think I understand is you are offering 2 FREE active users/month. Since I am the only one using it, why am I getting a notice saying I need to sign up for a subscription? Thank you for your help. I’m sure it’s something I am not seeing that is right in front of me!

  12. 
    Natalie O'Connor March 9, 2017 at 12:29 pm

    Hi Melody,
    You and your husband are able to use Expensify totally for free with up to 10 SmartScans per month. If you’d like to SmartScan more than 10 receipts per month, take advantage of ACH direct deposit reimbursement, and many other features, you’ll need to sign up for a Team or Corporate plan. Our active-user pricing means you’ll only be charged for the months you utilize these Expensify features. So, if you’re the only one using it, you’ll only pay $5 or $9/month.
    Please let us know if you have any additional questions by reaching out to help@expensify.com. Thanks!

Trackbacks and Pingbacks:

  1. Realtime Expenses Start with a Simpler, Smaller Price « Expensify Blog - June 1, 2014

    […] year ago, Expensify raised prices — the first time, ever — in order to get profitable.  That worked (thanks everyone!), […]

  2. Same great service, new great price! | Expensify Blog : Pricing News - April 28, 2015

    […] Same great service, new great price! […]

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