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:
- 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?
- 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.
- If the answer is yes, then I look at the pricing.
- 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:
- Server hosting: $100 / mo.
- SendGrid: $79.95 / mo.
- Basecamp: $12 / mo
- Ink FilePicker: $99 / mo.
- Freckle: $12 / mo.
- Beanstalk: $15 / mo.
- FollowUp.cc: $99/yr.
- Amazon Web Services: $100 / mo.
- Pusher: $49 / mo.
- CampaignMonitor: $49 / mo.
- Dropbox: $99 / yr.
- Olark: $17 / mo.
- DigMyData: $39 / mo.
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).
