Just saw this by @andrey , can anyone tell me the context?
Look at @ian’s Twitter feed from the same time-frame. He’s got a long series of tweets detailing his latest SaaS musings.
Yeah, I didn’t thread them together but I tagged them with chargeless. If you scroll down a bit you’ll see the series here https://twitter.com/search?q=%23chargeless&src=typd
Someone (cough cough) should do a podcast about it.
Wow so happy to see people pushing for charging less!
The entire “charge more” mantra touted at bootstrapper conferences is what I totally disagreed with from the beginning. I am building my business on 15 USD / month customers (my competitors are charging 99-799 USD per month for their top tier plans) and am profitable.
Charging less just works.
“Charge more” is helpful advice for many developers running their own product or service for the first time, because it is common for such people to undervalue their product or service. Likewise with many people charging for their time by the hour for the first time - first-time freelancers tend to charge way less than the market will pay.
However, the big picture for many online services is that they get cheaper year by year. I think this is due to a combination of competitive pressure combined with the ever-reducing costs of running an online service. And of course, the marginal cost of a new user gets ever closer to zero. Compare the price per user on bug tracking software or help desk software between 2005 and now; I suspect we’re paying a fraction of 2005’s prices in real terms today. (eg, IIRC Jira in 2005 cost a minimum of $3,000; now I pay $10/month for up to 10 users.)
I am building my business on 15 USD / month customers … my competitors are charging 99-799 USD
What business is this? I’m curious because this sounds like a similar pricing strategy I’m using for Feature Upvote. Perhaps we could share notes on business strategy.
Our cheapest plan is $29/month, whereas the most well-known company doing what we do (UserVoice) charges a minimum of $500/month. We’re intentionally aiming at small software companies (1 to 5 people; revenue up to $50K/month) for whom UserVoice is prohibitively expensive.
It seems like the topic of the tweets is mostly B2B.
It doesn’t seem to me that charging less in B2B is a noticeable competitive advantage.
I recently was participating in choosing a product, and the price difference between $1500 and $3500 product wasn’t even mentioned. For $16000 product a question was raised - why so much? oh it has this and that enterprizey features that we do not need. OK.) And… it was $16000 product that was selected. (Not for enterprizey features, but seems for a better known name.).
Not sure it is a complete picture too. Some services that used to be free became charged for recently. OK, this is a different case really - charging less is one thing, but charging nothing is a whole different game altogether (which is why a tweet about “freemium” in #chargeless stream is a bit off topic)
Yeah, you’re pretty much making my point. It’s common for people to say oh the big name is charging $16,000 well you should charge at least that. But in reality you can’t command that in most cases.
Few bootstrappers at anywhere near early stage will be able to charge $16,000 for anything unless there’s services involved or perhaps you’re per-user. Though these days in per-user even that is going to be a very large account.
Charge less is entirely focused on relative pricing.
Freemium is related, but yes somewhat separate. Personally, I think most bootstrapped businesses these days probably need to be free to start (move to paid when you have free traction) or permanently freemium.
Not universally true, but with the costs to operate a saas so low now and costs to acquire customers so high, freemium is a great value. Something like @SteveMcLeod’s Feature Upvote would be perfect as freemium for example.
By its nature every user will be spreading the word about it to other users. Then move some % of them up to paid with better reporting, fancy features, etc.
That’s interesting to hear, @ian. Until now, I hadn’t considered freemium as an option. I’ll definitely give paid-accounts-only a good shot first though.
Sorry, I still cannot get your point. Let’s go with an example:
Suppose I’m a one-man co that is evaluated on a B2B market against a couple of established players that charge say $1500 for their product. Would it be best for me:
- To offer a lower price? (But since the choice is not price-based, how is that going to help?)
- Offer a higher price to message a higher quality/fit/whatnot? (Well, big balls don’t hurt anyone)
- Offer the same price as a message to the buyer “let’s compare the features alone!”
I feel (without much evidence for or against) that offering a matching price is a best general approach (providing you are a match in features or a better fit).
And I feel that #chargeless would not help and in fact would send a “this is a cheap crap” message.
Am I wrong in my thinking?
OK, the freemium is a loss-leader intended to bring the users to your platform and then keep them until they are ready to switch to paid.
But that is not the same as charging say 10% less than competitors. The decisions that the customers are making are at different times and of different nature:
- For fremium when it is time to switch to paid account, the decision is “is pain of moving to another provider justifies the price difference?”
- For paid-vs-paid comparison it is “what features/whatnot we get for our dollars here and at that other provider?”
So if you have a fremium, you can (and may have to - given all those freeloaders) actually charge more than the competitors - counting on the switch pain be a barrier for leave.
So I see #chargeless and #freemium as orthogonal things. They may work together, but may work against each other.
Your example is the absolute best case scenario, so yes there charge the same or more. Fine
- You say the choice is not based on price, why? Because it’s B2B? I’ve sold B2B for 12 years and maybe a handful of times would I say that the customer did not consider price a factor in any way. That is extremely rare, and a fallacy in bootstrapper circles.
First off, most B2B you will sell is small/mid size and price is 100% a factor there. 99.99% of your enterprise sales will be to departments inside a larger enterprise, not a full scale enterprise solution. For departments in enterprises, price is 100% a factor. (anecdote, have a $10 Billion dollar private co that uses HelpSpot for a pretty important product that doesn’t renew support bc of cost).
So you’re left with the true enterprise solution sale which is insanely rare at the one man shop level. Rare is generous, it’s really unheard of.
- Price messaging is important but hardly the holy grail. In any sale you’re trying to stack up enough wins vs the competition for you to get the sale. So you might lose a few points with some customers for being cheaper, but you’ll also certainly win a few points with others.
You’ve also totally disregarded brand strength. Most bootstrapped startups have 0 in the wider B2B world. Very often you’ll be up against funded or public competitors with some to very strong brand recognition.
It’s a fallacy that just being higher priced means people think you’re better. Customers aren’t stupid. A strong brand positioned as premium can demand a higher price. Very few people reading my advice have anything close to a strong brand.
Honda sells the Acura MDX for $50k and the Honda Pilot for $30k even though they’re basically the same car. Sure there are some enhancements for the MDX but not $20k worth. It’s because the Acura brand is premium. You don’t have a premium brand, nor are you ready to start out day one (or probably year one) defined as a premium brand. They’ll be way too many holes in your game to pull that off.
The Honda Pilot isn’t “cheap crap”, but it’s also not pretending to be something it isn’t. An even better comparison is say the Kia Sorrento. Kia knows it can’t directly match the MDX so it works from a different angle.
- Saying “offer the same price” is very easy here but less easy in real life. It means having the exact same pricing model and tiers. Right there most direct comparisons start to break down. What’s in my “pro” plan isn’t the same as what’s in your “Team” plan, etc. I’m per user, you’re tiered, I offer free setup, you charge a setup fee, etc etc etc.
So when the prices seem similar and the features seem similar and they have more brand strength you’re going to lose those battles a lot.
You make the assumption there will be feature parity. That is incredibly unlikely. Your year one bootstrapped startup will not have feature parity with a 5 year old established app. There are other angles you can play like having a workflow that works better for certain kinds of companies, but feature parity will not (and probably should not) be one.
Freemium and charge less are not orthogonal at all. Freemium is simply your advertising budget. You can’t actually buy Google ads because you have no money. Most SaaSs are so cheap to run now though that you can afford to give away the service itself at some level.
Once they’re using it, in fact, you probably can charge a bit more since they’re committed (in theory), but in any case still undercutting the competition is likely to your advantage as ultimately the customer is still going through the checksheet of factors for buy/don’t buy. If you do charge more it will have little/nothing to do with having to charge more for freeloaders, but rather because you’ll be able to charge more since the customer is already committed to your product and moving would be a hassle so paying you a bit more for those extra features and not having to move is a convenience fee.
This is certainly based on the idea that you’ve built your freemium app in a bootstrapper friendly way. If you go full VC startup and build an app that’s expensive to run this all breaks down. But I’m not speaking to those people.
One more note here. Charge less is often interpreted as cheap, but it’s really a value play. Value is the intersection of price and quality. I want bootstrappers to think about creating the best VALUE for their customers.
I struggled a bit initially with “charge less”. It sounded like a race to 0. Reading through this thread is helping me see it from a different angle. As a bootstrapper there are certain advantages and disadvantages we have. One big advantage that should be used is the option to charge less. That’s a huge advantage that many companies don’t necessarily have because of higher operational and fixed costs.
This email I received a few days ago about a new feature I released on my service really pounded home the point:
I finally got a chance to play around with this and it works well. Bummed that it isn’t available on the Studio plan, but it beats UserSnap by $4 and you’ve got great customer service, so you’ll get my business if it works in the client’s environment!
A $4 dollar difference, $75/month vs $79 was the deciding factor.
Charge Less FTW.
That’s great! $4 on $79. Amazing, but people are smart. They explicitly or subconsciously do the math. $4 x 36 months is $144. By the way, charging $83 would not give you the premium priced market positioning so very little reason not to be cheaper.
The interesting thing on that price point is that I have a plan that is 1/2 that price but lacks one important feature. That feature is worth double to most people without push back. It’s all about figuring out what people are willing to pay for.
‘Charge more’ has certainly taken on a life of it’s own.
Simply charing more than your competitors (or even charging the same) is very naive, especially if you cannot actually compete on the same product/service level.
However, many developer minded founders have traditionally under valued their work. They do not properly take into account the time they save their customers and the value they bring.
Ultimately you should charge for the value you bring to the table. If that is not enough to support the business, then, you don’t actually have a business.
And I should also mention, that sometimes this changes. Today you could bring a lot of value…and tomorrow someone could do something which wipes out that value.
Yes, how your business changes is rarely talked about. You see it go both directions. Lots of value early on, but competition or changing marketing whittle that value away. Then the flip (and I think usually more common) that your value prop is weaker early on and gets stronger.