SaaS Pricing and WordPress Businesses
I’m truly fascinated by the WordPress business ecosystem.
I’m frankly not sure why; when I look at it, it feels so young and at times exhausting, and yet so fascinating at the same time. I always want to fast forward 10 years, just so that I can look back and admire what it becomes and the trials and tribulations it went through. In my eyes the ecosystem is truly still in its infancy, and there is something beautiful as you watch it mature.
Yesterday I read an interesting article by the the SideKick team, titled Pricing Update: Feedback and Lessons. SideKick is a platform that allows you to create an interactive walkthrough for any website, plugin, theme or web-based platform. In reality, it’s a really cool feature set. I remember when it first came out, and I believe it was initially designed to target WordPress. They received advise from a number of folks and it looks as if they’ve morphed their model to be platform agnostic, I commend them greatly on this move.
I can’t stress the importance of being platform agnostic, it’s easy to be drawn the market share of 23% and growing, but never put your eggs in one basket.
By the way, looks like they’ll officially be launching November 14th or so, keep an eye out so you can try it.
Crowd Sourcing Your Pricing
I had no idea that they were crowdsourcing feedback for pricing; I am intrigued by the idea, yet frightened and empathetic for what they likely received.
There is perhaps no daunting task than trying to price something, let alone something that has never existed and competitors to really help set the tone for what is achievable in the space.
There are challenges I see with crowdsourcing this information, especially being a young startup:
- Your Audience – You have to account for the audience, especially within the WordPress ecosystem. Most have no idea what they’re talking about when it comes to pricing, honestly because it’s new to them as well. They based it off a model of FREE and to compete with that is almost a contradiction of the ethos of the platform and the larger community. There is almost this feeling of disappointment and being frowned upon when and if you build something that resembles a for-profit organization. It’s really hard to understand why this exists, and maybe I’m completely off base in this observation. Yet it’s something you have to account for.
- The Distraction – Being the leader of your organization requires your ability to seek input, synthesize and make decisions. This process is exceptionally hard when you are trying to do it with 2, 3, even 4 people. The insights are often different, the arguments can be lengthy. You struggle to find balance and come to terms with the thoughts in your own mind, let alone accounting for everyone else’s. Expanding that thought process to the world can be such a drain on your mind and energy.
I don’t knock their efforts at all, I commend again actually. I just get tired of thinking of the process they likely went through, analyzing and discussing the major talking points of each point. Then again, maybe it was easier than I could ever imagine, yet I doubt it.
They did make the ultimate observation and something you hear folks write about at length:
Cost is nothing. Value is everything.
Our biggest mistake when we started discussing price is we were trying to determine what it would cost us to support our platform and each customer not what the value of our platform was to our customers.
This reminded me of a great article I read by Patrick (Patio11) in which he states:
Technical founders often produce pro-sumer applications that they could see themselves using, then attempt to predict what a business would be willing to pay for it based on linear extrapolation from their own valuation of it. Unfortunately, technical founders perceive code as being worth its cost, and its cost to them is zero. Linear extrapolation from “slightly above zero” is not a happy result for the business.
How beautiful of a statement is that? This is further echo’d on a guest post Jarrod Drysdale on a smart bear. While the post was specific to ebook sales, it’s a great read on the value based approach:
If you begin a business by thinking about price, you have already lost. Customers do not buy because of price; they buy because of the value they receive. Without value, the equation is broken.
One very interesting way to think about this is how my Chilean friend writes about when he talks about “problem space” and “solution space”. The basis of this thought is the differentiation between your world and your clients world.
I myself find myself thinking deep about this concept on a daily basis, and in the coming months will be able quantify some of the results of my findings – I hope.
…humans are completely unable to understand inherent worth… – Jarrod Drysdale
I read the rest of the post however and I can feel the pain that they went through reading and trying to devise responses. Honestly, everything beyond that one observation was noise, but then if it took that process to come to that realization I suppose you can call it a win.
The Dilemma that is Pricing
I think back to the early days of Sucuri and I think back to what we did. I sometimes cringe at our naiveness in some many areas, it’s honestly a wonder to me how we managed to survive (but that’s another post for another day).
What I have learned on the journey however is that simple truth that there really is no right answer in almost any decision we make. There are points and counter points to every decision, and getting sucked into the never ending debates, especially when it comes to pricing is exhausting.
Sometimes, the best thing you can do is shut everything out, make a decision and run with it. Screw the world, we’re running with it. This is especially true when you’re starting a company, and it’s on this basis of a new start-up that I set my recommendations.
Here are some of the things I find myself thinking of today and would think are invaluable during the early days of your business:
- Value versus Cost is harder to accept than you might imagine. Because the reality of the market is unsure, you can’t help but have some level of resistance to this awesome holy grail that is Value.
- Know that you’re going to be wrong. No matter how many books you read, how many posts you collaborate with, or advisors you enlist, you’ll still be wrong.
- Changing prices later is harder than writing about it. It’s easy to write about the process of updating pricing, it’s something entirely different when you have to make the decision yourself. With that in mind, it’s definitely doable and you will likely survive it just fine.
- Everyone knows better. This will be a constant theme, everyone will have a better or proven approach, studies will prove their points and the data will support the logic. These are undeniable facts but you have to make a decision to accept one source and move forward, or ignore and make your own approach. What ever you do be careful of getting sucked into finding balanced counter points. It’s not to say they are bad, but with enough time and energy you can find counter points to every case and that just makes it very exhausting.
These thoughts would drive my unsolicited advise if you do intend to crowdsource your pricing strategy from day one:
- Price your Beta releases. I have no idea if they did this or not, but always put a price on Beta releases. It helps reduce the noise that Free creates. Incentivize the Beta testers with life-time accounts, etc…
- Segment your input to those that are buying. Get input only from that paying segment. Instead of focusing on pricing, focus on the value. Don’t even label it as a pricing engagement, label it as a usefulness exercise. How useful is this product to you / your organization?
- Weigh their input based on the audience. If you’re targeting beyond the WordPress community, get input outside of that community. This is a very fickle community when it comes to the business ecosystem and that’s because it’s in flux, not intentionally.
- Don’t be afraid to get it wrong. Overemphasis on getting it right is the curse of all start-ups. Back in 2010, Matt Mullenweg wrote a great paper: 1.0 is the Loneliest Number. While it focused specifically on software releases, it’s interpretation lends itself to business, especially startups, very well.
- Trust your Gut. If you have done your homework, like I know the SideKick guys have (homework = creating buzz, partnerships, etc..), then you have confidence that your product meets a need and there will be a demand. You also have intuition, and while intuition is soft, not scientific, and scary at times, it’s a much better friend than the amount of noise created from external parties.
I am not saying not to take advise, do some homework and educate yourself. On the contrary, I just caution against analysis paralysis or getting inundated by information in your early days. Yes, you will have time to correct your course and the idea that you want to get it right from the get go is futile at best.
Just look at WooThemes, chastised for their price increases in 2013 and not a single blip for their price reductions in 2014. Either way, they are still alive and kicking and so will you.
Between you and I though, I wouldn’t crowd-source squat when it comes to pricing.. :)
I’ve been thinking about pricing a lot lately as well, since our business is switching to a SaaS model. It’s really hard to come up with that first price, we have struggled with it.
I’m really skeptical of asking people what they would pay, the only way you can see the effects of your pricing is when someone actually gives you real money.
Something you didn’t mention is thinking about your ideal customer. I may be able to sell a ton of WordPress apps for $19, but those customers will suck the life out of me and drown my business. I’d rather charge more, have less support, and get lower maintenance customers.
Amen. We heard a few people tell us our point of entry was too high but it came down to the type of customers we wanted and making sure we could support them all.
Very good point. Agree.
Hey Tony, great post. Though my pricing wasn’t to do with SaaS, I still could really relate to this. When I did my membership site I talked to very few people for feedback. I know it’s a bit different, but still, I didn’t want to go down the rabbit hole. The few I did talk to, who were experienced in pricing. I took away some good thoughts but even then, in the end, I didn’t really follow their lead. With a little bit of research, and as you said, following my own intuition and gut feelings, I finally made the decision. Since then there has been a few tweaks to my pricing, but overall I’m feeling good about it. Cheers and thanks for sharing your thoughts on this.
Great post, thanks Tony.
I can tell you that while crowd sourcing our price feedback did seem scary, it was also the only obvious choice left after we’d evaluated the marketplace. WordPress customers are part of a community, NOT a market. Community members tend to be better educated and have an opinion. Since our first large-scale target is the WordPress community, it made sense to engage them.
Some of the feedback sucked (and hurt a bit) but it was incredibly helpful and eye opening. We didn’t agree with all of it (as you can see at the end of my post) and that’s ok. We didn’t do it to so we could bend to the will of a small % of potential customers. We did it to involve our beta testers and to get their feedback.
To answer your question, no, SIDEKICK didn’t charge for Beta, we just didn’t feel quite ready. Time will tell if that was a good call or not but we were always clear with our testers that there would be a charge come launch day. Our hope is that they won’t want to abandon the work they’ve already done.
I actually disagree with this statement:
What I’m coming to the realization of as of late is that the WordPress community is but a fraction of the actual WordPress market. And the market itself is actually completely disconnected from the community, but being part of the community you sort of lose focus on this as your narrative becomes skewed by your own experiences. But I digress.. just my observation.. :)
Either way, that point has nothing to do with the thoughts on pricing.. and I wasn’t implying good from bad, or right from wrong, but rather making some general observations on the process.
Glad it’s working out for you guys and it provided the perspective you required..
You’re correct however the part of the Market that’s going to respond first, in our case, is the community. It grows from there.