18 ms·

The cup-of-coffee pricing fallacy

102 points by gingerlime 7y ago

NikkiA 7y ago
I've always hated it because it makes the assumption that everyone is at the same position in the class hierarchy - I'm poor, the last time I drank a coffee shop coffee was something like 8 years ago and even then it was bought for me by my psychologist, your 'cup of coffee a day' price just sounds extravagant to me.
- marriedWpt 7y ago
  Maybe it's by design? You aren't their target demographic. People that do spend money on a cup of fast coffee would realize it's fine for their budget, and associate whatever offer with something affordable.
- notyourday 7y ago
  You are unlikely to be a customer of a paid-for commenting service as the alternative is free. PS. I don't get the downvotes. Someone who says they won't spend $5 on a coffee because they are poor would be willing to pay for commenting feature on their website?! Something that they could get for free?
  - mercer 7y ago
    > Please don't comment about the voting on comments. It never does any good, and it makes boring reading.
    - buzzerbetrayed 7y ago
      - from the hacker news guidelines, for those like me who didn’t immediately realize this
- TheCoelacanth 7y ago
  It would be a pretty unusual product if their target market is everyone. They probably have a specific demographic in mind with their marketing.
- pembrook 7y ago
  But if you’re poor...you’re probably also not in the market for a $100/m B2B Saas product.
  - notyourday 7y ago
    If you're poor you are not a target customer for any non-essential paid for monthly service.
    - vhvjkyhkogvv 7y ago
      A cost of doing business is one of the most essential expenses there is.
      - notyourday 7y ago
        If an owner of the business cannot afford or won't frivolously spend $5/day on a coffee, he or she won't spend money on a SaaS feature that he or she can get for free. Even if he would, to get $500/mo the SaaS would need to find one hundred of such owners. If SaaS is to price its service at $100/mo, then people for whom extra $5.00/day is a big deal won't be looking at this service at all, won't be contacting the owner about implementing yet another feature, etc. To get to $500/mo revenue, SaaS would need to find 5 owners.
        deleted 7y ago
        [deleted]
      - monadic2 7y ago
        The absurdity of an “essential price”... essential to what, class?
        tomnipotent 7y ago
        To doing business? Doesn't seem absurd at all. Do you think business should just land in your lap for free without having to spend anything for it? That what seems absurd to me.
- QuantumGood 7y ago
  > "...anchor against another online service." So this isn't really against the idea, only against using coffee in the analogy. One of the underlying principles, "Present costs as small pieces, and rewards as a large sum" is important, but there are many other relevant approaches, e.g. free trial, money-back guarantee, etc., etc. Effective marketing usually combines approaches. Analogizing to other small costs can NOT be the whole pricing strategy.
- perl4ever 7y ago
  Pretty much nobody buys a cup of coffee every day. If people who think they do or might actually did, then places wouldn't sell those "bottomless" cups. Also, what's a "coffee shop coffee"? Does that mean a place that charges more than $2 for a large?
tootie 7y ago
It's funny because I've often had the opposite thought. Cafes should sell subscriptions. The margin on a single cup of coffee is humongous because there's so much overhead in running a cafe and such variable demand. That seems like a perfect business case for a subscription model.
- gruez 7y ago
  Sounds like a great way to end up with a cafe full of freelancers working on their macbooks.
  - ValentineC 7y ago
    Turning it into an oversubscribed co-working space with third-wave coffee included in the subscription.
  - moolcool 7y ago
    That's a good "problem" to have if you price and market it correctly
    - gwd 7y ago
      Right, but then you don't really have a coffee shop anymore. I disagree with the posters above who say there's a 90% markup on the coffee. What you're buying at Starbucks isn't a coffee, but a coffee plus the right to sit at a table and use the wifi for an hour or two. And as OP points out, at the moment, this is pay-per-use: when I need a place to sit down for a bit, whether in my own city or some other city, or when I need a table to sit and chat with someone that's not in either of our homes, I buy the right to take a seat for $4. They even give me a cup of coffee to go along with it. Making it a subscription would completely change the way I related to such a business. I mean yeah, I wouldn't have to drink coffee just to sit down. But I'd be thinking each month -- am I getting a good value out of this subscription? I'd be sitting a lot more in the shop than I normally would; which would mean more regular income for the owner, but less space for random people in a strange town who want to have a nice place to sit for an hour. $4 for a one-off, no commitment, pay-as-you-go service with instant gratification (buy the coffee, take a seat) seems like a pretty nice deal to me; and it makes cities nicer places to be than if you had to have a subscription.
ewams 7y ago
In many instances I would argue relationships in the B2B sale are more important than price. I have both lost and won many deals because of only the relationship. Just recently a fairly large one we lost had a fantastic ROI, about a 10% ramp time to the competition, and even had the CTO's buy in. But we lost and found out it was bc the VP was neighbors to the other sales rep and he convinced the CTO not to buy from us. From what I can gather from the other folks that were championing for me was mostly untrue FUD was used by this VP, all in an effort to help his buddy. Their cost was supposedly ~30% higher and I usually stomp that product to the ground - because of business cases.
notyourday 7y ago
I'm the person who has been quoted. The person whom I addressed that was going to run a business selling access to a commenting feature. https://news.ycombinator.com/item?id=22209411 https://news.ycombinator.com/item?id=22209411 The competition for that feature is free comments via Facebook so anyone who does not want to spend money has that ability. The other set of "competitors" is accessed for free via open source software that one can install. As soon as the person signs up a first client, he or she would have to provide the service for some period of time. Just shutting it down won't be an option. Any and all businesses are a pain in the ass to operate. Say that in order for this "business" to be viable in the eyes of the person running it ( not profitable, just viable ) it would need to eick out $500/mo in revenue. To do that at $5.00/mo he would need to get 100 customers. That's a very tall order because the competition is free and price sensitive customers are going to go to a free service (facebook) or they are going to go to whatever service that shows up that will underprice the OP. There's however another group of potential customers. They are people who for some reason need a problem of commenting solved and are willing to pay for it. Not a lot. But a some reasonable amount of money. What's reasonable? Well, a dinner for 2 in major cities is the USA is going to run you about $120. People who go out in those cities 4-10 times a month are the same people who have a daily Starbucks/La Colombe/Joe's Coffee/Pete's Coffee habit. They could make the coffee at home for $0.25 a cup just like they could make a dinner at home for $3/per person. Instead they choose to spend money not on the cheapest option but on option that simply solves their problem. They demonstrate it by buying Starbucks coffee and going out to dinner twice or three times a week. It is much easier to find 5 of people who spend $100/mo on Starbucks who need to have commenting problem solved and convince them to spend $100/mo on it than to find 100 people who would spend $5/mo who think that spending $100/mo on solving their problem is too much. Why? Because the second group has already demonstrated that $100/mo is an expense they are willing to take.
- detaro 7y ago
  I fully agree with the notion (go for a more premium market - even though I'm sure you could have a long discussion what's the right market and price point here, e.g. $100 seems a bit much for a lot of the "professional blogger" market), but I'm not sure framing a business expense in terms of daily coffee is a good comparison to communicate its value. Are your customers likely to be the kind of people that go out multiple times a month in expensive cities? Some of your customers are small outfits (single person, or side-project of multiple people), a group of people where I'd expect "daily expensive coffee" is seen as more frivolous then spending the same on a sensible business expense. And larger businesses don't think in those terms at all when budgeting, but much more in risk, saved employee hours, saved money spent on contractors handling the same thing, ... The "nice meal" analogy might work slightly better here, but also always has the risk of seeming out of touch for people from other regions.
RealDinosaur 7y ago
I found it hilarious when a LA based startup compared their pricing structure to a 'nice meal' (50-100$) Not only did it insult my definition of a 'nice meal', but also made me not want to give them any more money for 'nice meals'. A nice meal is 700 calories from healthy sources. An extravagant meal is the price they quote. Similarly $5 is not the price of a coffee... It's about 30p.
- notyourday 7y ago
  That's exactly why targeting people to pay $5.00/mo for software as a service is a mistake. At that tier SaaS gets people who complain about $5.00 cup of coffee.
- grecy 7y ago
  I've never spent more than $35 on a meal in my life, and I like to think I've had some mighty good ones!
  - dhxudkwjwhh 7y ago
    Even in big cities I have trouble spending more than this on a single meal. If I'm covering a date or sharing a bottle with the table that changes obviously, but unless you're going to a suit and tie or otherwise haute kind of place then $50 is absurd.
- gnicholas 7y ago
  I used to see older relatives post photos of very fancy meals they ate, and I thought they were being irrational/foolish. Then I had kids and realized that if you only eat out with your spouse (and no kids) 2-3 times per year, spending that much is not so crazy. If you have a babysitter, that will easily run $50, and it seems odd to spend more on that than the food/experience at the restaurant. But to be clear, when people refer to a "nice meal" costing $50-100, they're talking about an evening of being waited upon, not just the food. What you're paying for is service, ambiance, and restaurant location (overlooking a beach? at the top of a skyscraper?). It's not crazy for someone to decide to choose to indulge by buying nice food bundled with a relaxing experience, compared with buying nice food separate from a relaxing experience (going on vacation, going to a sporting event, having a massage). But for the record, I agree that $50-100 is an extravagant meal. I think they chose the euphemism "nice" to make it sound like the tradeoff was for something not so extraordinary.
orasis 7y ago
There is little need for opinions here - just A/B test and see what works better.
- TomGullen 7y ago
  It’s hard to test in some cases when there’s high variance, and customers seeing regular price changes comes with its own downsides.
  - orasis 7y ago
    This isn’t A/B testing a price change, it’s just an associated message about N cups of coffee.
seanwilson 7y ago
To me, the coffee price comparison makes your service sound like it's a frivolous and unimportant purchase. You're better pointing out how much it will cost a business in time and money to solve a problem themselves and compare that to the cost of your product. If you're selling too cheap, the problem probably isn't big enough or important enough.
- deleted 7y ago
  [deleted]
ineedasername 7y ago
The "cup of coffee" analogy always struck me as though it was asking, "Hey, wouldn't you be willing to pay twice as much for your coffee as you do now?" And, well, no. It also misses the mark for anyone who says, "I'm not paying $100 a month for coffee, that's rediculous, I'll make my own. Now for those who actually do buy their coffee daily, it still assumes Also,it still asdumes a sort of laziness in personal budgeting. If you keep a personal budget and diligently track luxury extras like buying coffee at many x the price if making your own, and a the other little things, then you're going to be very aware and deliberate about incurring additional expenses of that sort. And so if you position your value-proposition in terms of "only a cup of coffee" instead of the value-add of the service itself, then you're automatically poorly targeting your message to the entire population of people that keep careful budgets.
- notyourday 7y ago
  Most of small SaaS is an equivalent of a luxury service.
- LeoTinnitus 7y ago
  I'm pretty sure there was an article on here just recently about how people who spend money even on dumb things don't do it because they don't budget, but because it provides other particulars of happiness. It stated that human life is complicated and min maxing life financially differs from person to person. So while they may spend $200 on coffee, but may also bike to work daily. Or they just flat out enjoy it and trade money for that enjoyment. However, the Lionshare of consumers are not rationalizing their purchases like people such as myself often do (I know that comes off as incredibly pretentious, I'm just using myself as an example). I've gotten worse with my money (or better) intentionally so as not to be too cheap and give off the feeling that I'm tight. Normally I'd be that way, but people dislike those kinds of people...like a lot. Overall just think of it as people paying a tax for something to further continue. It's a tax you don't have to pay, but can freely do so if you choose.
  - ineedasername 7y ago
    You can spend lots of money on dumb things and still budget. But a person who diligently budgets their money will not spend money on dumb things at the expense of debt, lack of proper long term financial planning, etc. Dumb things can fit into a careful budget.
jmnicolas 7y ago
The problem with "cup-of-coffee pricing" is that if I trust everybody that has a subscription to sell to me, at the end of the month I will be broke. Too much subscriptions is death by a thousand cuts.
- notyourday 7y ago
  Exactly. People who want a service for $5.00/mo aren't viable customers for SaaS
  - WWLink 7y ago
    They can be if the SaaS is really really simple. I'm imagining stuff like what used to be $25 shareware that the owner now charges $10 a year for.
- WWLink 7y ago
  Plus what kinda cup-of-coffee are we talking here? A pack of coffee costs me ~$7 and will last me at least a few dozen cups! Even if I count a generous amount of creamer, that's $3-4 a bottle and should be good for at least a dozen cups of coffee (again, really generous with that creamer lol). If I'm out of town I'll grab a cup at mcdonalds or something. The regular cofee maxes out around $1.59. Or I could go fancy and get a medium caramel macchioto for $3.25 or so. So you're telling me I can get their software for $0.50-$3.25 a month? Not bad! :D
pixelmonkey 7y ago
On the other hand, most SaaS founders, especially in B2B, are inclined to charge too little for their service. So the coffee analogy can wake you up that $5/mo or $10/mo is an almost ridiculously low price for a piece of software that solves any sort of problem. It's worth pondering why SaaS founders are so inclined toward underpricing. I think this is because SaaS founders, especially if they are developers, tend to be really frugal in their SaaS and PaaS spending. For example, they'll use things like their DigitalOcean Droplet cost or their GitHub Pro subscription as a point of comparison. They'll think, "Those services are so valuable, and so cheap, so why would anyone buy my thing for more? I certainly wouldn't." But what they tend to forget or ignore is that, especially in B2B, it's not your buyer's wallet or money at stake. It's your buyer's (or your buyer's department's) allocated budget. And budget allocations for businesses in mid-market and enterprise are always measured in thousands of dollars, and sometimes in millions. All they care about is spending the money wisely -- that is, appropriately trading money for revenue, for cost reduction, for time savings, for company cultural impact, or, ideally, for all of the above. At that point, pricing too low can be counterproductive: many enterprises will, consciously or subconsciously, worry that your pricing being that low means you are a counterparty risk and thus not even worth hiring as a vendor. In the B2C space or in the "B2B tools for individual employees" space, to understand your pricing power requires understanding your buyer demographics. If you are selling productivity software to executives, they will think in terms cost relative to their time and the time of their assistants and subordinates. If you are selling hosting software to entrepreneurs, they will want low starting pricing but be OK with pricing that scales quickly with growth. If you are selling a video streaming or premium content service to consumers, they will anchor you against Netflix, Disney+, Hulu, and cable. Selecting your price is a very important part of your strategy and how your service is perceived. Picking the lowest price you can afford at reasonable margins, which is a kind of obvious default, is often a terrible strategy.
- deleted 7y ago
  [deleted]
laurex 7y ago
When I lived in NYC, a local coffee-place-slash-home-design-store offered a subscription, whereby if you used it almost every day, you'd be getting significant discount on your artisanal latte. I think they went on to try and create some kind of loyalty rewards app, but for a while, this concept was real. https://www.10best.com/destinations/new-york/new-york/articles/fair-folks-a-goat-more-than-meets-the-name/ https://www.10best.com/destinations/new-york/new-york/articl...
nunez 7y ago
I hated this assumption too, but for different reasons. First, the price for a plain old cup of coffee at Starbucks differs from region to region, but it usually normalizes at around $1.80 (taxes included). Refills are $0.52. While, yes, Starbucks’s coffee-based offerings (like lattes) are more expensive, coffee from Starbucks is quite cheap and VERY consistent (and cheaper than at a mom and pop coffee shop). Second, there is more value from that cup of Starbucks coffee than the coffee itself: the space, the music, the Wi-Fi, etc. Products that make this comparison usually don’t offer the same value proposition.
- OJFord 7y ago
  > First, the price for a plain old cup of coffee at Starbucks differs from region to region, but it usually normalizes at around $1.80 (taxes included). Refills are $0.52. That sounds really cheap, or what's a 'plain old cup of coffee' - does Starbucks sell filter coffee over there?
  - kaslai 7y ago
    Yeah, around me you can get simple drip coffee from Starbucks for about 1/2 to 1/3 the cost of an espresso based drink. Last I was there, I think the biggest drip cup they offered was around $2.30 and the smallest was about $1.50. It's been about 3 years since I actually got a drip coffee from Starbucks so the prices might be slightly higher now.
    - dhxudkwjwhh 7y ago
      The crazy part, speaking from So-Cal, is that daily black coffee drinkers at Starbucks can even save a few cents on top of that if they buy one of the monthly refillable tumblers. I think you only get one free refill per day but I've been to a lot of places that don't care enough to refuse me another refill so mileage may vary.
      - masonic 7y ago
        The special tumbler is an annual holiday offer that bundles free coffee/tea for the entire month of January for $40. Starbucks accounts (free registration) get free refills. Own-cup gets a $.10 discount.
fortran77 7y ago
Of course this author has to virtue signal about how _he_ would never buy a Starbucks coffee > First off, I would personally never buy a cup of coffee at Starbucks. But I understand why some people would. He'll only take his Arch Linux Pinebook (ok, I just assumed that) into his "local roaster" > The cup-of-coffee-fallacy becomes much more obvious when it comes to subscription services. I might buy a cup of coffee from my local roaster, and would happily buy many cups, some beans, and snacks on a regular basis.
WalterBright 7y ago
I drink a pot of coffee a day, which works out to around $.03 per cup. Pretty cheap for that vice. I know that Starbucks tastes better than my drip machine, but I don't really care. Coffee is coffee to me, java junkie that I am.
- kaoD 7y ago
  Just get an espresso machine (the real ones, no capsules) and a bean grinder. Coffee from freshly-ground beans tastes way better than Starbucks, is still $.03 per cup and takes only a few seconds to make with an electric grinder. Moka pots work too and are cheaper (though espresso machines are real cheap at least here in Europe) but the coffee isn't as creamy and it takes a few minutes to boil (even though it needs no attention). With a large moka pot it's easier to make large quantities though (but I hate stale coffee so I favor espresso machines). Still better than drip. If you're really into coffee get a superautomatic machine. Best coffee I've ever had, instant and with zero effort.
  - derriz 7y ago
    "A few seconds to make" is a slight exaggeration no? I had such a grinder/Gaggia set-up and it took time and effort. Producing good espresso at home without very expensive automated machines, is a commitment. There's a lot of fiddly cleaning involved - the grinder has to be cleaned meticulously after use as do the various bits of the espresso machine. The finely ground coffee is very sensitive to static so tends to jump/attach itself to white t-shirts and plastic kitchenware - more cleaning. All this cleaning is required even if you just want to make one espresso - otherwise later uses will have a nasty taint. There's a lot of experimentation required to produce a decent espresso with crema from such a set-up. Depending on the beans, their age, the weather, etc., the fineness for grinding and how tightly you packed the portafilter would vary. On good days I was getting 3 out of 4 but that still meant 1 in 4 (or more) were dreck.
    - kaoD 7y ago
      That wasn't my experience. The grinder and espresso machines I used just needed rinsing between cups and a quick scrub at the end, plus cleaning the water tank once a week (depending on water quality, tap water is gross). Moka pots are a pain to clean though, but you can buy a huge one to produce a large quantity.
richk449 7y ago
Article misses the fallacy of the comparison. If I buy a cup of coffee, I get my end of the bargain immediately* and no further commitment on my part is needed. For most saas offerings though, I’m basically committing to a regular payment in perpetuity. Usually if I stop paying, I not only lose the immediate benefits, but also whatever I have put into the app in the time I used it. Even if it is just storage, if I cancel it, I have to find a way to replace the storage and the access to the storage from my devices. Committing to a monthly payment is usually not the same as buying X coffees for a month. *or close to immediately if it is one of those annoying poor over places
- hsitz 7y ago
  I think the article did discuss your point, "But [with a cup of coffee] nowhere am I asked to 'subscribe' to anything. I buy it, enjoy it, and that’s it. I’m not committed to buy another cup ever again." Maybe you wanted him to emphasize that particular aspect more.
  - OJFord 7y ago
    I actually do 'subscribe to coffee' though; I get beans delivered by https://pactcoffee.com https://pactcoffee.com (UK only I think). I can't recall the keyword for this in the realm of economics, but it's a weird thing to compare 'good value' across sectors. I do it quite often, wonder why I think X is such a rip-off when I won't even blink at Y - perhaps for that reason I've never had a problem with coffee-currencied pricing. At least for consumables (coffee, groceries, SaaS in the sense that even if you don't consume a quota you consume a timeframe) I think there is value to be had in comparing their relative value, but only secondarily to comparison against something of the same type of course.
    - watwut 7y ago
      Most people can afford a thing for price x easily. Had they never balked at price x, they would pay 20 times x and that is entirely different number. Meaning, it is not just about comparing value of goods. It is much more about keeping strategy that is easy to remember and execute, but allows you to keep savings.
gnicholas 7y ago
This article frames the cup-of-coffee pricing comparison as: "$100/mo is less than a cup of coffee every day". But I most frequently see the comparison as: "$5/mo means giving up just a cup of coffee once a month". In this formulation, I think it's a pretty reasonable comparison, since a prospective user doesn't have to sacrifice much (just a semi-luxury item, one day a month) in order to use your service. The author's criticisms don't seem to hold as much purchase (no pun intended) in this context. I'd be curious to know if others think of cup-of-coffee pricing as $5/mo or $5/day. The only context where I can remember hearing per-day pricing is life insurance or supporting a child in a developing country.
- bryanrasmussen 7y ago
  $100 a month is less than the amount I spend on coffee, but most people seem to think I have a problem.
  - gnicholas 7y ago
    If you spend this much in coffee shops, I highly recommend you try the Cash app, from Square. If you turn on the "coffee shop boost", you get $1 off of every purchase made at a coffee shop. There's a 30-minute recharge period required between purchases, and a $1.50 minimum purchase. The sign up process is a little bit of a hassle, but for anyone buying multiple cups a day, it's probably worth it. If you sign up via an invite code, you get $5 free (and your referrer does too). For anyone who wants it, my referral code is: https://cash.app/app/HSMSVXP https://cash.app/app/HSMSVXP, or you can just sign up at http://cash.app http://cash.app. note: I do not work for the company — I just find this perk to be very handy!
- wink 7y ago
  I don't think it's any more reasonable. I like coffee, but I've not bought even a 4€ cup of coffee in a few months. Actually I don't visit coffee shops a lot, I much prefer drink my coffee at home (or at work, where it's free)... Also if they argued that 7€ would be just 2 beers per month... maybe I'd still take 2 beers over some ridiculous SaaS. TLDR: I don't like subscriptions.
SllX 7y ago
Coffee is cheap. Anytime you go to a coffee shop and purchase coffee, you’re paying for everything that isn’t coffee: lease, labor, worker’s comp, milk, sugar, taxes, syrup, whipped cream, cups, lids, sleeves, straws, equipment maintenance, etc.
- imtringued 7y ago
  That's not really what the article is about. Getting coffee is low risk. Apps are high risk. There are so many garbage apps that aren't worth a single cent and choosing the right one is very difficult.
  - SllX 7y ago
    And there are many “coffees” that people are overpaying for because the coffee itself is so cheap. I think we’re in agreement here.
segmondy 7y ago
The cup-of-coffee pricing does make sense. It's not for everyone, there are folks who drink coffee at least 5x a week by paying for it. Those sort of statements are targeted to them. However the fundamental flaw is that in that thinking is with software, someone might just show up and offer free software, we don't see the same with coffee. What makes B2C software hard to sell today is the free apps. Consumer's are now price sensitive to useful apps and most companies think they can make it with ads.
bravoetch 7y ago
The author misunderstands people. Nobody is doing the math or spending effort to otherwise rationalize spending decisions this way. It's an emotional plea - and we're all dumb so it works. Same reason all retailers are always having a 'sale'. We really are that stupid.
Gunax 7y ago
One more thing: things seems cheaper when priced over smaller intervals. For some reason, 50 cents per day sounds cheaper than $15 per month which sounds cheaper than $180 per year. I don't know why. It's a bit like how everything ends in .99. even when you know it's being used on you, it still works.

102 points by gingerlime 7y ago

I've always hated it because it makes the assumption that everyone is at the same position in the class hierarchy - I'm poor, the last time I drank a coffee shop coffee was something like 8 years ago and even then it was bought for me by my psychologist, your 'cup of coffee a day' price just sounds extravagant to me.

marriedWpt 7y ago
Maybe it's by design? You aren't their target demographic. People that do spend money on a cup of fast coffee would realize it's fine for their budget, and associate whatever offer with something affordable.
notyourday 7y ago
You are unlikely to be a customer of a paid-for commenting service as the alternative is free. PS. I don't get the downvotes. Someone who says they won't spend $5 on a coffee because they are poor would be willing to pay for commenting feature on their website?! Something that they could get for free?
- mercer 7y ago
  > Please don't comment about the voting on comments. It never does any good, and it makes boring reading.
  - buzzerbetrayed 7y ago
    - from the hacker news guidelines, for those like me who didn’t immediately realize this
TheCoelacanth 7y ago
It would be a pretty unusual product if their target market is everyone. They probably have a specific demographic in mind with their marketing.
pembrook 7y ago
But if you’re poor...you’re probably also not in the market for a $100/m B2B Saas product.
- notyourday 7y ago
  If you're poor you are not a target customer for any non-essential paid for monthly service.
  - vhvjkyhkogvv 7y ago
    A cost of doing business is one of the most essential expenses there is.
    - notyourday 7y ago
      If an owner of the business cannot afford or won't frivolously spend $5/day on a coffee, he or she won't spend money on a SaaS feature that he or she can get for free. Even if he would, to get $500/mo the SaaS would need to find one hundred of such owners. If SaaS is to price its service at $100/mo, then people for whom extra $5.00/day is a big deal won't be looking at this service at all, won't be contacting the owner about implementing yet another feature, etc. To get to $500/mo revenue, SaaS would need to find 5 owners.
      - deleted 7y ago
        [deleted]
    - monadic2 7y ago
      The absurdity of an “essential price”... essential to what, class?
      - tomnipotent 7y ago
        To doing business? Doesn't seem absurd at all. Do you think business should just land in your lap for free without having to spend anything for it? That what seems absurd to me.
QuantumGood 7y ago
> "...anchor against another online service." So this isn't really against the idea, only against using coffee in the analogy. One of the underlying principles, "Present costs as small pieces, and rewards as a large sum" is important, but there are many other relevant approaches, e.g. free trial, money-back guarantee, etc., etc. Effective marketing usually combines approaches. Analogizing to other small costs can NOT be the whole pricing strategy.
perl4ever 7y ago
Pretty much nobody buys a cup of coffee every day. If people who think they do or might actually did, then places wouldn't sell those "bottomless" cups. Also, what's a "coffee shop coffee"? Does that mean a place that charges more than $2 for a large?

tootie 7y ago

It's funny because I've often had the opposite thought. Cafes should sell subscriptions. The margin on a single cup of coffee is humongous because there's so much overhead in running a cafe and such variable demand. That seems like a perfect business case for a subscription model.

gruez 7y ago
Sounds like a great way to end up with a cafe full of freelancers working on their macbooks.
- ValentineC 7y ago
  Turning it into an oversubscribed co-working space with third-wave coffee included in the subscription.
- moolcool 7y ago
  That's a good "problem" to have if you price and market it correctly
  - gwd 7y ago
    Right, but then you don't really have a coffee shop anymore. I disagree with the posters above who say there's a 90% markup on the coffee. What you're buying at Starbucks isn't a coffee, but a coffee plus the right to sit at a table and use the wifi for an hour or two. And as OP points out, at the moment, this is pay-per-use: when I need a place to sit down for a bit, whether in my own city or some other city, or when I need a table to sit and chat with someone that's not in either of our homes, I buy the right to take a seat for $4. They even give me a cup of coffee to go along with it. Making it a subscription would completely change the way I related to such a business. I mean yeah, I wouldn't have to drink coffee just to sit down. But I'd be thinking each month -- am I getting a good value out of this subscription? I'd be sitting a lot more in the shop than I normally would; which would mean more regular income for the owner, but less space for random people in a strange town who want to have a nice place to sit for an hour. $4 for a one-off, no commitment, pay-as-you-go service with instant gratification (buy the coffee, take a seat) seems like a pretty nice deal to me; and it makes cities nicer places to be than if you had to have a subscription.

ewams 7y ago

In many instances I would argue relationships in the B2B sale are more important than price. I have both lost and won many deals because of only the relationship. Just recently a fairly large one we lost had a fantastic ROI, about a 10% ramp time to the competition, and even had the CTO's buy in. But we lost and found out it was bc the VP was neighbors to the other sales rep and he convinced the CTO not to buy from us. From what I can gather from the other folks that were championing for me was mostly untrue FUD was used by this VP, all in an effort to help his buddy. Their cost was supposedly ~30% higher and I usually stomp that product to the ground - because of business cases.

notyourday 7y ago

I'm the person who has been quoted. The person whom I addressed that was going to run a business selling access to a commenting feature. https://news.ycombinator.com/item?id=22209411 https://news.ycombinator.com/item?id=22209411 The competition for that feature is free comments via Facebook so anyone who does not want to spend money has that ability. The other set of "competitors" is accessed for free via open source software that one can install. As soon as the person signs up a first client, he or she would have to provide the service for some period of time. Just shutting it down won't be an option. Any and all businesses are a pain in the ass to operate. Say that in order for this "business" to be viable in the eyes of the person running it ( not profitable, just viable ) it would need to eick out $500/mo in revenue. To do that at $5.00/mo he would need to get 100 customers. That's a very tall order because the competition is free and price sensitive customers are going to go to a free service (facebook) or they are going to go to whatever service that shows up that will underprice the OP. There's however another group of potential customers. They are people who for some reason need a problem of commenting solved and are willing to pay for it. Not a lot. But a some reasonable amount of money. What's reasonable? Well, a dinner for 2 in major cities is the USA is going to run you about $120. People who go out in those cities 4-10 times a month are the same people who have a daily Starbucks/La Colombe/Joe's Coffee/Pete's Coffee habit. They could make the coffee at home for $0.25 a cup just like they could make a dinner at home for $3/per person. Instead they choose to spend money not on the cheapest option but on option that simply solves their problem. They demonstrate it by buying Starbucks coffee and going out to dinner twice or three times a week. It is much easier to find 5 of people who spend $100/mo on Starbucks who need to have commenting problem solved and convince them to spend $100/mo on it than to find 100 people who would spend $5/mo who think that spending $100/mo on solving their problem is too much. Why? Because the second group has already demonstrated that $100/mo is an expense they are willing to take.

detaro 7y ago
I fully agree with the notion (go for a more premium market - even though I'm sure you could have a long discussion what's the right market and price point here, e.g. $100 seems a bit much for a lot of the "professional blogger" market), but I'm not sure framing a business expense in terms of daily coffee is a good comparison to communicate its value. Are your customers likely to be the kind of people that go out multiple times a month in expensive cities? Some of your customers are small outfits (single person, or side-project of multiple people), a group of people where I'd expect "daily expensive coffee" is seen as more frivolous then spending the same on a sensible business expense. And larger businesses don't think in those terms at all when budgeting, but much more in risk, saved employee hours, saved money spent on contractors handling the same thing, ... The "nice meal" analogy might work slightly better here, but also always has the risk of seeming out of touch for people from other regions.

RealDinosaur 7y ago

I found it hilarious when a LA based startup compared their pricing structure to a 'nice meal' (50-100$) Not only did it insult my definition of a 'nice meal', but also made me not want to give them any more money for 'nice meals'. A nice meal is 700 calories from healthy sources. An extravagant meal is the price they quote. Similarly $5 is not the price of a coffee... It's about 30p.

notyourday 7y ago
That's exactly why targeting people to pay $5.00/mo for software as a service is a mistake. At that tier SaaS gets people who complain about $5.00 cup of coffee.
grecy 7y ago
I've never spent more than $35 on a meal in my life, and I like to think I've had some mighty good ones!
- dhxudkwjwhh 7y ago
  Even in big cities I have trouble spending more than this on a single meal. If I'm covering a date or sharing a bottle with the table that changes obviously, but unless you're going to a suit and tie or otherwise haute kind of place then $50 is absurd.
gnicholas 7y ago
I used to see older relatives post photos of very fancy meals they ate, and I thought they were being irrational/foolish. Then I had kids and realized that if you only eat out with your spouse (and no kids) 2-3 times per year, spending that much is not so crazy. If you have a babysitter, that will easily run $50, and it seems odd to spend more on that than the food/experience at the restaurant. But to be clear, when people refer to a "nice meal" costing $50-100, they're talking about an evening of being waited upon, not just the food. What you're paying for is service, ambiance, and restaurant location (overlooking a beach? at the top of a skyscraper?). It's not crazy for someone to decide to choose to indulge by buying nice food bundled with a relaxing experience, compared with buying nice food separate from a relaxing experience (going on vacation, going to a sporting event, having a massage). But for the record, I agree that $50-100 is an extravagant meal. I think they chose the euphemism "nice" to make it sound like the tradeoff was for something not so extraordinary.

orasis 7y ago

There is little need for opinions here - just A/B test and see what works better.

TomGullen 7y ago
It’s hard to test in some cases when there’s high variance, and customers seeing regular price changes comes with its own downsides.
- orasis 7y ago
  This isn’t A/B testing a price change, it’s just an associated message about N cups of coffee.

seanwilson 7y ago

To me, the coffee price comparison makes your service sound like it's a frivolous and unimportant purchase. You're better pointing out how much it will cost a business in time and money to solve a problem themselves and compare that to the cost of your product. If you're selling too cheap, the problem probably isn't big enough or important enough.

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ineedasername 7y ago

The "cup of coffee" analogy always struck me as though it was asking, "Hey, wouldn't you be willing to pay twice as much for your coffee as you do now?" And, well, no. It also misses the mark for anyone who says, "I'm not paying $100 a month for coffee, that's rediculous, I'll make my own. Now for those who actually do buy their coffee daily, it still assumes Also,it still asdumes a sort of laziness in personal budgeting. If you keep a personal budget and diligently track luxury extras like buying coffee at many x the price if making your own, and a the other little things, then you're going to be very aware and deliberate about incurring additional expenses of that sort. And so if you position your value-proposition in terms of "only a cup of coffee" instead of the value-add of the service itself, then you're automatically poorly targeting your message to the entire population of people that keep careful budgets.

notyourday 7y ago
Most of small SaaS is an equivalent of a luxury service.
LeoTinnitus 7y ago
I'm pretty sure there was an article on here just recently about how people who spend money even on dumb things don't do it because they don't budget, but because it provides other particulars of happiness. It stated that human life is complicated and min maxing life financially differs from person to person. So while they may spend $200 on coffee, but may also bike to work daily. Or they just flat out enjoy it and trade money for that enjoyment. However, the Lionshare of consumers are not rationalizing their purchases like people such as myself often do (I know that comes off as incredibly pretentious, I'm just using myself as an example). I've gotten worse with my money (or better) intentionally so as not to be too cheap and give off the feeling that I'm tight. Normally I'd be that way, but people dislike those kinds of people...like a lot. Overall just think of it as people paying a tax for something to further continue. It's a tax you don't have to pay, but can freely do so if you choose.
- ineedasername 7y ago
  You can spend lots of money on dumb things and still budget. But a person who diligently budgets their money will not spend money on dumb things at the expense of debt, lack of proper long term financial planning, etc. Dumb things can fit into a careful budget.

jmnicolas 7y ago

The problem with "cup-of-coffee pricing" is that if I trust everybody that has a subscription to sell to me, at the end of the month I will be broke. Too much subscriptions is death by a thousand cuts.

notyourday 7y ago
Exactly. People who want a service for $5.00/mo aren't viable customers for SaaS
- WWLink 7y ago
  They can be if the SaaS is really really simple. I'm imagining stuff like what used to be $25 shareware that the owner now charges $10 a year for.
WWLink 7y ago
Plus what kinda cup-of-coffee are we talking here? A pack of coffee costs me ~$7 and will last me at least a few dozen cups! Even if I count a generous amount of creamer, that's $3-4 a bottle and should be good for at least a dozen cups of coffee (again, really generous with that creamer lol). If I'm out of town I'll grab a cup at mcdonalds or something. The regular cofee maxes out around $1.59. Or I could go fancy and get a medium caramel macchioto for $3.25 or so. So you're telling me I can get their software for $0.50-$3.25 a month? Not bad! :D

pixelmonkey 7y ago

On the other hand, most SaaS founders, especially in B2B, are inclined to charge too little for their service. So the coffee analogy can wake you up that $5/mo or $10/mo is an almost ridiculously low price for a piece of software that solves any sort of problem. It's worth pondering why SaaS founders are so inclined toward underpricing. I think this is because SaaS founders, especially if they are developers, tend to be really frugal in their SaaS and PaaS spending. For example, they'll use things like their DigitalOcean Droplet cost or their GitHub Pro subscription as a point of comparison. They'll think, "Those services are so valuable, and so cheap, so why would anyone buy my thing for more? I certainly wouldn't." But what they tend to forget or ignore is that, especially in B2B, it's not your buyer's wallet or money at stake. It's your buyer's (or your buyer's department's) allocated budget. And budget allocations for businesses in mid-market and enterprise are always measured in thousands of dollars, and sometimes in millions. All they care about is spending the money wisely -- that is, appropriately trading money for revenue, for cost reduction, for time savings, for company cultural impact, or, ideally, for all of the above. At that point, pricing too low can be counterproductive: many enterprises will, consciously or subconsciously, worry that your pricing being that low means you are a counterparty risk and thus not even worth hiring as a vendor. In the B2C space or in the "B2B tools for individual employees" space, to understand your pricing power requires understanding your buyer demographics. If you are selling productivity software to executives, they will think in terms cost relative to their time and the time of their assistants and subordinates. If you are selling hosting software to entrepreneurs, they will want low starting pricing but be OK with pricing that scales quickly with growth. If you are selling a video streaming or premium content service to consumers, they will anchor you against Netflix, Disney+, Hulu, and cable. Selecting your price is a very important part of your strategy and how your service is perceived. Picking the lowest price you can afford at reasonable margins, which is a kind of obvious default, is often a terrible strategy.

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laurex 7y ago

When I lived in NYC, a local coffee-place-slash-home-design-store offered a subscription, whereby if you used it almost every day, you'd be getting significant discount on your artisanal latte. I think they went on to try and create some kind of loyalty rewards app, but for a while, this concept was real. https://www.10best.com/destinations/new-york/new-york/articles/fair-folks-a-goat-more-than-meets-the-name/ https://www.10best.com/destinations/new-york/new-york/articl...

nunez 7y ago

I hated this assumption too, but for different reasons. First, the price for a plain old cup of coffee at Starbucks differs from region to region, but it usually normalizes at around $1.80 (taxes included). Refills are $0.52. While, yes, Starbucks’s coffee-based offerings (like lattes) are more expensive, coffee from Starbucks is quite cheap and VERY consistent (and cheaper than at a mom and pop coffee shop). Second, there is more value from that cup of Starbucks coffee than the coffee itself: the space, the music, the Wi-Fi, etc. Products that make this comparison usually don’t offer the same value proposition.

OJFord 7y ago
> First, the price for a plain old cup of coffee at Starbucks differs from region to region, but it usually normalizes at around $1.80 (taxes included). Refills are $0.52. That sounds really cheap, or what's a 'plain old cup of coffee' - does Starbucks sell filter coffee over there?
- kaslai 7y ago
  Yeah, around me you can get simple drip coffee from Starbucks for about 1/2 to 1/3 the cost of an espresso based drink. Last I was there, I think the biggest drip cup they offered was around $2.30 and the smallest was about $1.50. It's been about 3 years since I actually got a drip coffee from Starbucks so the prices might be slightly higher now.
  - dhxudkwjwhh 7y ago
    The crazy part, speaking from So-Cal, is that daily black coffee drinkers at Starbucks can even save a few cents on top of that if they buy one of the monthly refillable tumblers. I think you only get one free refill per day but I've been to a lot of places that don't care enough to refuse me another refill so mileage may vary.
    - masonic 7y ago
      The special tumbler is an annual holiday offer that bundles free coffee/tea for the entire month of January for $40. Starbucks accounts (free registration) get free refills. Own-cup gets a $.10 discount.

fortran77 7y ago

Of course this author has to virtue signal about how _he_ would never buy a Starbucks coffee > First off, I would personally never buy a cup of coffee at Starbucks. But I understand why some people would. He'll only take his Arch Linux Pinebook (ok, I just assumed that) into his "local roaster" > The cup-of-coffee-fallacy becomes much more obvious when it comes to subscription services. I might buy a cup of coffee from my local roaster, and would happily buy many cups, some beans, and snacks on a regular basis.

WalterBright 7y ago

I drink a pot of coffee a day, which works out to around $.03 per cup. Pretty cheap for that vice. I know that Starbucks tastes better than my drip machine, but I don't really care. Coffee is coffee to me, java junkie that I am.

kaoD 7y ago
Just get an espresso machine (the real ones, no capsules) and a bean grinder. Coffee from freshly-ground beans tastes way better than Starbucks, is still $.03 per cup and takes only a few seconds to make with an electric grinder. Moka pots work too and are cheaper (though espresso machines are real cheap at least here in Europe) but the coffee isn't as creamy and it takes a few minutes to boil (even though it needs no attention). With a large moka pot it's easier to make large quantities though (but I hate stale coffee so I favor espresso machines). Still better than drip. If you're really into coffee get a superautomatic machine. Best coffee I've ever had, instant and with zero effort.
- derriz 7y ago
  "A few seconds to make" is a slight exaggeration no? I had such a grinder/Gaggia set-up and it took time and effort. Producing good espresso at home without very expensive automated machines, is a commitment. There's a lot of fiddly cleaning involved - the grinder has to be cleaned meticulously after use as do the various bits of the espresso machine. The finely ground coffee is very sensitive to static so tends to jump/attach itself to white t-shirts and plastic kitchenware - more cleaning. All this cleaning is required even if you just want to make one espresso - otherwise later uses will have a nasty taint. There's a lot of experimentation required to produce a decent espresso with crema from such a set-up. Depending on the beans, their age, the weather, etc., the fineness for grinding and how tightly you packed the portafilter would vary. On good days I was getting 3 out of 4 but that still meant 1 in 4 (or more) were dreck.
  - kaoD 7y ago
    That wasn't my experience. The grinder and espresso machines I used just needed rinsing between cups and a quick scrub at the end, plus cleaning the water tank once a week (depending on water quality, tap water is gross). Moka pots are a pain to clean though, but you can buy a huge one to produce a large quantity.

richk449 7y ago

Article misses the fallacy of the comparison. If I buy a cup of coffee, I get my end of the bargain immediately* and no further commitment on my part is needed. For most saas offerings though, I’m basically committing to a regular payment in perpetuity. Usually if I stop paying, I not only lose the immediate benefits, but also whatever I have put into the app in the time I used it. Even if it is just storage, if I cancel it, I have to find a way to replace the storage and the access to the storage from my devices. Committing to a monthly payment is usually not the same as buying X coffees for a month. *or close to immediately if it is one of those annoying poor over places

hsitz 7y ago
I think the article did discuss your point, "But [with a cup of coffee] nowhere am I asked to 'subscribe' to anything. I buy it, enjoy it, and that’s it. I’m not committed to buy another cup ever again." Maybe you wanted him to emphasize that particular aspect more.
- OJFord 7y ago
  I actually do 'subscribe to coffee' though; I get beans delivered by https://pactcoffee.com https://pactcoffee.com (UK only I think). I can't recall the keyword for this in the realm of economics, but it's a weird thing to compare 'good value' across sectors. I do it quite often, wonder why I think X is such a rip-off when I won't even blink at Y - perhaps for that reason I've never had a problem with coffee-currencied pricing. At least for consumables (coffee, groceries, SaaS in the sense that even if you don't consume a quota you consume a timeframe) I think there is value to be had in comparing their relative value, but only secondarily to comparison against something of the same type of course.
  - watwut 7y ago
    Most people can afford a thing for price x easily. Had they never balked at price x, they would pay 20 times x and that is entirely different number. Meaning, it is not just about comparing value of goods. It is much more about keeping strategy that is easy to remember and execute, but allows you to keep savings.

gnicholas 7y ago

This article frames the cup-of-coffee pricing comparison as: "$100/mo is less than a cup of coffee every day". But I most frequently see the comparison as: "$5/mo means giving up just a cup of coffee once a month". In this formulation, I think it's a pretty reasonable comparison, since a prospective user doesn't have to sacrifice much (just a semi-luxury item, one day a month) in order to use your service. The author's criticisms don't seem to hold as much purchase (no pun intended) in this context. I'd be curious to know if others think of cup-of-coffee pricing as $5/mo or $5/day. The only context where I can remember hearing per-day pricing is life insurance or supporting a child in a developing country.

bryanrasmussen 7y ago
$100 a month is less than the amount I spend on coffee, but most people seem to think I have a problem.
- gnicholas 7y ago
  If you spend this much in coffee shops, I highly recommend you try the Cash app, from Square. If you turn on the "coffee shop boost", you get $1 off of every purchase made at a coffee shop. There's a 30-minute recharge period required between purchases, and a $1.50 minimum purchase. The sign up process is a little bit of a hassle, but for anyone buying multiple cups a day, it's probably worth it. If you sign up via an invite code, you get $5 free (and your referrer does too). For anyone who wants it, my referral code is: https://cash.app/app/HSMSVXP https://cash.app/app/HSMSVXP, or you can just sign up at http://cash.app http://cash.app. note: I do not work for the company — I just find this perk to be very handy!
wink 7y ago
I don't think it's any more reasonable. I like coffee, but I've not bought even a 4€ cup of coffee in a few months. Actually I don't visit coffee shops a lot, I much prefer drink my coffee at home (or at work, where it's free)... Also if they argued that 7€ would be just 2 beers per month... maybe I'd still take 2 beers over some ridiculous SaaS. TLDR: I don't like subscriptions.

SllX 7y ago

Coffee is cheap. Anytime you go to a coffee shop and purchase coffee, you’re paying for everything that isn’t coffee: lease, labor, worker’s comp, milk, sugar, taxes, syrup, whipped cream, cups, lids, sleeves, straws, equipment maintenance, etc.

imtringued 7y ago
That's not really what the article is about. Getting coffee is low risk. Apps are high risk. There are so many garbage apps that aren't worth a single cent and choosing the right one is very difficult.
- SllX 7y ago
  And there are many “coffees” that people are overpaying for because the coffee itself is so cheap. I think we’re in agreement here.

segmondy 7y ago

The cup-of-coffee pricing does make sense. It's not for everyone, there are folks who drink coffee at least 5x a week by paying for it. Those sort of statements are targeted to them. However the fundamental flaw is that in that thinking is with software, someone might just show up and offer free software, we don't see the same with coffee. What makes B2C software hard to sell today is the free apps. Consumer's are now price sensitive to useful apps and most companies think they can make it with ads.

bravoetch 7y ago

The author misunderstands people. Nobody is doing the math or spending effort to otherwise rationalize spending decisions this way. It's an emotional plea - and we're all dumb so it works. Same reason all retailers are always having a 'sale'. We really are that stupid.

Gunax 7y ago

One more thing: things seems cheaper when priced over smaller intervals. For some reason, 50 cents per day sounds cheaper than $15 per month which sounds cheaper than $180 per year. I don't know why. It's a bit like how everything ends in .99. even when you know it's being used on you, it still works.