All posts in Money

Thoughts On Pricing For Developers

Like most developers, I have a problem when it comes to pricing my products and services. I feel like people will think I’m ripping them off or that the price isn’t justified given the value it provides. Basically, I always feel I’m overcharging. Even when it’s clear people would pay for my product (sometimes I even wonder wether I should charge at all!), I have a hard time coming up with a price tag.

The other day I had a powerful realization on this topic. I realized that I pay for a lot of products, yet how much I pay is rarely correlated to the value they provide to me. My train of thought usually is:

  1. Will this tool make my life easier, save me time, bring me happiness, save me money or generate revenue; in any significant way? In other words: is it worth my time and money?
  2. If the answer is no, I close the site. If the answer is maybe, I probably close the site as well (sometimes I bookmark it and never remember it again), unless the potential gain is big enough to warrant dropping the company an email in order to resolve my doubts.
  3. If the answer is yes, then I look at the pricing.
  4. Is it something reasonable given the potential gain I can get from this? This is where most developers tend to underestimate their product. Usually, if the person looking at your product has already decided they want it, has the money (in a B2B environment this is almost always the case) and you have a reasonable price, you’ll make the sale. And “reasonable” is probably more than you thought.

Let me list all the services I pay for, and their cost, before I reach my final conclusion. They’re listed from most critical to least, for me:

So that’s what I pay for every month (or year). Some have completely free or cheaper alternatives, but I just like these a little bit more (or they sold me better). Now, here’s the thing: except on very notable cases (SendGrid) I pay the absolute minimum allowed per service given my usage of them. But as you can see, price is not correlated with value. If all those services announced that they’re doubling their prices from now on (without grandfathering existing customers), I’d be annoyed but would gladly pay. I sincerely believe that if most of your users wouldn’t be happy paying double what they’re currently paying, that means you’re not providing enough value. That doesn’t mean you should raise prices to your existing customers. Unless totally necessary, that’s rude and some will cancel just on principle. As an example from the list, Ink/FilePicker just recently changed their pricing scheme and I went from paying zero to $99/mo. Damn. But still happy to pay for an awesome service that solves a big pain for me. I’m sure not everyone converted to $99/mo. after the change, but I’m sure a lot of them did, and that means a lot of recurring revenue added.

How much extra revenue would all those companies have made during their lifetime if all their prices have been $10 more since the beginning? I think a lot. How many people wouldn’t have decided to pay for it because of the extra $10? I think very few.

When you have a B2B product, all prices should be a no brainer for your customers. And almost any price that you could come up with, will be, assuming your product delivers value. When I saw NathanBerry’s ConvertKit‘s pricing I was surprised. I thought “Where’s the cheap plan?”. $50 is the cheapest plan, and it’s quite limited if you ask me. But the truth is, I wouldn’t get value from this tool right now. I wouldn’t even if it was priced at $25. So I’m not his target audience. If you know what you’re doing, have drip marketing campaigns, email courses and sell something of value, ConvertKit is a steal.

I’ve come to realize that most B2B products’ prices usually have two reactions: either you think it’s too expensive because you’re not the target audience, or you think it’s a bargain because you are. Sure there will be starving startups or freelancers who might want a $100 / mo. product and will think it’s too expensive. But your target audience doesn’t just need to have the pain you’re solving. It also needs to have money to pay for it. You better focus on those potential customers. Plus, if they really have the pain you’re solving, eventually their revenue will grow and they’ll be able to afford your product (or will close shop in which case they didn’t matter all along).

Creating a Passive Income Source

revenueMost people get paid based on the time they spend working. So for many of them, earning more money means working longer hours, and sometimes that situation gets to the point of not having enough time to enjoy the money they worked so hard to earn. It’s kind of ironic when you think of it. I’ve long known I want to have enough money to live the way I want -spoiler alert: above what most people make- but I also don’t want to end up spending most of my time working, specially for somebody else. The way I see it, that’s the key to happiness: having enough money and time to do whatever you want. I’m sure you agree with me.

Now, if it was that easy, everyone would be enjoying such a situation, and that’s not the case. And it’s not like that because a traditional job, the way 99% of the people in the planet make their money, is not compatible with such a lifestyle. You have a low, base salary, decided by somebody else and you spend half of your time being awake there. You need more money? Work a few extra hours. Want to be promoted so your base salary is higher? Work longer and harder so your boss notices you. Now you get promoted and have a higher responsability position in the company, so you need to work more hours, maybe even work at home, to keep that position. I guess you can see how the whole thing is fucked up. Why so many people do it, then? For starters, society as a whole is structured in such a way that is really easy for people to follow the same path: school -> high school -> college -> job market. There’s not a lot of information, unless you actively look for it, on alternative ways to make money. That changed a lot with the Internet. There’s already loads of information about this topic, but I’ll give my two cents.

A passive income source is a way to make money that doesn’t need you to be actively working in order to earn profits. Money just flows every day into your bank account. That doesn’t mean you don’t have to work to get that money, just that the money you get is not proportional to how much time you spend working. There’s always been some people enjoying the benefits of such a system, like book writers or musicians, but not many people have the skill set -or the talent- to do this kind of jobs. Then the Internet arrived. Now anyone with an understanding of how things work in the net can make some money off it just by following some easy steps. First off let me make things clear. I’m not talking about becoming a millionaire, but rather having a secondary, steady source of income, which can go from a few hundred to a few thousand dollars a month, depending on the market and the execution.

As an example I’m gonna talk about, a blog about indie and casual games I started a couple of years ago. Last month it made $1,500 in revenue, with me spending around 15 minutes every week. I could automatize it even more to the point that it runs itself, but I would need to invest some more time into it, and 15 minutes a week doesn’t really bother me.

How I ended up earning $1,500 a month with a blog?

  • Choose a topic with a big enough market (in this case, downloadable and online games). It doesn’t have to be huge (like mainstream console games), but it has to be big enough so that a lot of people look for related things using Internet search engines (Google, Yahoo, etc.).
  • Do not enter a market with a lot of competition. In my case, there’s a few huge game download portals out there, but when it comes to blogs there’s not that much, specially in Spanish. I would say mine is the one with the most traffic in that language.
  • Write original content often. I don’t do this lately (although I’m thinking about hiring someone (paying around 10 euros per post) to do it, but it’s key to a blog’s organic growth (visits from search engines). Most of the posts in my blog lately are content gathered from other sources (not written by me), and Google notices that and pretty much ignores those pages. On the other hand, original and relevant content can bring you traffic forever. Taking a look at the blog’s statistics, the top 10 visited posts last month are all from 2008.
  • Learn about SEO and use it. Search Engine Optimization is kind of a fuzzy science. Basically, it’s a set of practices you can use to make your website and content rank better in search engines. This is such a wide topic I won’t say anything else about it, but if you’re gonna build a business on the Internet, take the time to learn it, because it pays off. Over 90% of my traffic comes from Google.
  • Have several revenue sources when possible. Most blogs are based solely in advertising for their revenue, but in my case it’s more like 1/3 advertising and 2/3 sale comissions (whenever buys a game downloaded from my site, I get a comission). That allowed the blog to keep making decent money even after the global AdSense “crash” that happened some months ago.
  • Don’t get frustrated when you don’t get what you expect in the beginning. This isn’t a get rich quick method, but rather a pretty sustainable model. I reached $100 a month with JuegosIndie in the 6th month. Be constant and stay motivated despide the results. Working on something you love helps.

I’m not an expert on making money online but that’s what worked for me, and considering it’s pretty much common sense, I thought it might work for you too. If you happen to start (or have already) any kind of Internet business, I’d like to know more about it, wether by email or publicly through a comment in this post.