Why we all suck at pricing?

The current hot topics in the WordPress community are pricing models and sustainability. It seems like every site or blog related to WordPress, plugin and theme developers, and everyone in-between are discussing the feasibility of various pricing models. The general consensus seems to be that if support and updates aren’t paid for by subscription, it won’t be long before you can’t keep up and your business crumbles around you. The war cry appears to be something akin to, “offering unlimited anything isn’t sustainable.” If only it were that simple.

There are far too many factors to consider when pricing a product to assume that any model is absolutely right or wrong. Here are a number of things to consider:

  1. How much support will your product actually require?
  2. Are you relatively known or absolutely new to a market?
  3. How saturated is your market? How much competition is there?
  4. Are you the best, or at least could you be?
  5. How frequently will you be updating your product?
  6. What are the short term and long term goals for your business and/or product?

All of these are things that Kevin and I had to think through, and continue to wrestle with, as we manage Ninja Forms. Soon, we’ll be doing a series of videos where we talk through these issues.

Businesses require different things at different times

No business stays the same forever; just like any living creature, it must change and adapt as it grows. All of the preceding questions must be asked at each stage, and the answers, and strategies that go along with them, may change many times. The Ninja Forms of two years ago is dramatically different from the Ninja Forms of today. I’m not just talking about the plugin, although that is definitely true, but also about it’s methodology. If we hadn’t adapted our processes and model from two years ago, there is no way Ninja Forms would be what it is today. It probably wouldn’t exist at all. Heck, it’s still growing and changing. The things we did at the beginning allow us to be doing what we are now.

Yesterday we changed our pricing model slightly. It wasn’t a drastic change, but it was necessary to continue growing and adapting our business. I can promise you this, it is not the last time we will change. It would be naive of us to think that we won’t need to continue to adjust as we grow.

There is more than one way to price a product

You don’t have to be married to your pricing structure for the life of your product – it isn’t to death do you part, although many business have died because they refused to part with their pricing structure. Sometimes the best thing you can do is divorce your current pricing model and take up with a newer, sexier one.

At this point, I’m going to say something that’s probably not going to win me any points with other WordPress business: I hate the idea that charging for an annual or monthly update and support subscription is the best way to sell your product. There, I said it, and I feel better. Notice I said the best way; it is certainly one way, but I’m definitely not convinced it’s the best way.

Arguments for Subscriptions

There are plenty of reasons that a subscription model makes sense. In order to continue losing points with WordPress businesses, here are a few of these reasons along with some rebuttals:

I have to maintain the code and keep it up-to-date with API’s. etc.

Let’s be honest, this would have to be done anyway if you wanted to keep selling to new customers. If something changes that requires you to update the code, you either have to update it or stop selling altogether. I personally don’t want to charge customers for something  I would have to do regardless. I don’t have to update this plugin because the user has it; they haven’t caused me any more work. It’s not a new feature; it’s due diligence. If an API changes, or a new WordPress version is released, and it breaks my plugin, fixing it is not “working for free.” I’m working so that I can continue to sell it. The choice between customer and business isn’t binary – it has to be about the customer and the business, not one or the other. It’s about how to do do well for myself while also doing good for my customers.

I can’t justify continued development of a product I only get paid once for. 

If you aren’t attracting new buyers, then perhaps your product isn’t sustainable. I don’t want to develop a product that isn’t attracting new users, regardless of the model. If your sales volume is so low that you can’t afford to support what you’re selling based upon new sales, perhaps it’s a hobby and not a business. I don’t remember the latest numbers of new WordPress websites being created every day, but I do know that if you get a small fraction of them, you will have no problem making enough sales to justify further development.

It’s not sustainable to support a product unless you have an annual subscription.

Chris Lema made this point in his post about pricing by the same name. In it, he gives an example of raising a product’s price by $1…

Now, let’s change the price to $11. And sell only 9,000. Our total revenue is $99,000. For a second it looks like this is worse. But wait. Our cost to support it goes down, doesn’t it. Because we have had less customers.

I’m pretty sure this isn’t what he means, but it almost sounds like his answer to climbing support costs is to make more money from less customers. This feels wrong to me on so many levels. Increasing customers doesn’t have to mean overwhelming support requests. We don’t have all the answers, this is something that we’re working on right now, but my experience tells me that there are better ways of handling support.

Ultimately, I’m not interested in finding out how much my customers will pay for my products, but actually lowering expenses. Providing better documentation and developing better user interfaces and  more stable products can help dramatically lower support costs. I’m not saying supporting a product isn’t expensive and tricky; I’m just saying I’m not sure fewer customers is a great solution.

What are some other options

  • Create a system in which customers pay for what they use. Charge for support to cover your time. Charge for different volumes of automatic updates to cover bandwidth costs.
  • Release your plugins like Microsoft does their operating system: charge for the current version and support it with patches when needed. When you release a new version, charge a discounted upgrade. I know this sounds similar to a subscription, but it’s too much to unpack in this list. We’ll revisit this one in another post.
  • Don’t treat all products the same: some simply don’t get updated frequently. Charge accordingly.

I’m sure there are a lot more, but for me it’s about doing what’s best for me and all my customers. The problem is, I think, too many people are worried to make mistakes they don’t try anything new.

So why do we really suck at pricing?

Because we think of it as a fixed decision, without room for experimentation.

We’re so afraid that if we don’t get it right the first time, we’re just doomed to go out of business. After all, everyone is telling you it’s not sustainable. Why does it have to be sustainable in the beginning? There are phases in a business’ life where doing things that don’t scale and aren’t sustainable is not the only option, it’s the best option. You can change as your business grows; you can learn to adapt with the market.

Yesterday, WooThemes announced that they are changing their pricing structure. It’s caused a lot of conversations, both positive and negative. Is it the right model for them? I can’t answer that – I’m not in their shoes or facing their numbers. Do I agree with their choice not to honor previous unlimited licenses? Not especially, but again, it’s not my business. What I think I can safely say is that if they had started with this model, they would not be where they are today. If these were their prices when their products were fewer and less mature, I don’t think they would be nearly as big as they are now. I absolutely support them making the change. They work hard and create great products that are worth every penny. They didn’t start where they are now though; they grew and developed over time. They are adapting.

Do you want to have a sustainable business. Don’t worry about getting everything right. Just adapt.

Agree or disagree? I would love to hear your comments.