November 27, 2013

Pricing is Hard

Over at Dev7studios we sell WordPress plugins and Web Apps so I’ve had to make decisions on single product pricing as well as SaaS pricing over the years, and none of it has been simple.

I think part of the problem with pricing is there is simply so many parametes to consider. What type of product you have, what market you are aiming for, where you want to position yourself in the market, all of these things play a part in deciding what price you are going to sell at. Not to mention things like trying to decide if you should sell one-off’s, memberships, pay-as-you-go usages, traditional monthly payments etc. Things like development and design are fairly well defined in comparison. The only clear thing about pricing is the goal: as high a (monthly) recurring revenue as possible.

The first thing I learned about pricing is that you should expect it to change. Don’t expect to launch with the “right” price and be on your way. Almost always you’ll have to tweak your pricing model, and thats ok. A better approach is to launch with a pricing model you think will work, then expect to test different price points and even totally different pricing models to see what works. The more you learn about your customers the easier this will become.

The second thing I learned about pricing is that, when you are starting out at least, seeing what your competitors are doing is usually a good starting point. Remeber that they’ve probably gone through the exact same process as you are just now, but they are a bit further down the line. They have already obtained some of the knowledge that you will need in terms of learning the market and what works and what doesn’t. It may feel great to do something totally different (and it’s even better if it works) but if a few of your competitors are doing the same thing, there is usually a good reason why.

The third thing I learned about pricing is that freemium can work, but usually only at high volumes. Don’t sell yourself short. If you have an amazing product and a small market don’t be afraid to charge for it. Freemium can work but a 2% conversion rate is good, so remember that you’ll need a decent chunk of a big market to make it work. Freemium can seem like a magic pill but more often than not you’ll never get off the ground.

So pricing is hard. I’m still learning as I go. One of the keys things to remember though is that the sooner you get your product out the door the sooner you’ll be able to work out what pricing works and what doesn’t. So don’t let pricing paralyse you from launching.

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