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Need help: Pricing strategy for a developer tool with 400000 users
I need an opinion, I am a developer and in 2019 I built a tool for developers(it falls in collaboration tool category), I set this tool for free and during 2019 we gained around 15000 users, things were going smooth until Covid-19 came and our tool exploded in popularity.
We get around 20000-35000 new users every month and have around 400000 (Four hundred thousand users) in total, every month around 80000-100000 users use it actively. All the traffic was from Google organic and word of mouth, i recruited 2 fellow develops as co-founders and we spent the whole 2020 to develop the features and make it enterprise ready.
It is free until today and from 1st feb 2021 we want to launch a Paid version. Now we are not sure how to price our tool, we have 3 main competitors and the largest one have around 60000 users, but we marketed our service as a free tool. Now we are thinking about having 90% of the features as free and then offer a Pro/Enterprise plan with features like (SSO and integrations) etc in the paid plan.
The challenge is that there are 20-30 other tools poped up in last 12 months and most of them are copying our strategy of marketing it as a free tool. Now how should we approach this, if we go very hard on pricing and locking features we fear that our users will go to those free tools and our growth momentum will fall. On the other hand we also want to have reveneue and also want to reach 1 million users. Please give ur suggestions as I am very depressed due to this situation.
OTHER NOTES: we are a team of 3 developers and have 2 freelance developers, we have not made any money from our tool and received an equity free grant from Govt (In EU we have this option), we were approached by few investors, 1 want 30% equity for 250K USD(we said no), and other is waiting for some paid conversion. We have spent around 50K of our own investment and 75k from the grant until now, monthly infrastructure cost is around 3000 USD
- benlivengood 6y agoIf you're depressed it's totally worth finding a therapist. I've personally found it quite worthwhile to work on emotional issues in therapy and you can do it in parallel with everything else.
- cph_dev 6y agoyes, will find one, thanks
- StratusBen 6y agoFirst off, congratulations! I've done a lot of pricing work for various developer tools products and at established companies like DigitalOcean and AWS. Feel free to contact me and I'm happy to help (both with pricing and attempting to lift spirits as you call out depression) for free if you'd like: bpschaechter at gmail.
- cph_dev 6y agoThanks, will contact you
- AmirSani 6y agoLet me know if you want help finding more of your competitors or potential enterprise customers. I have proprietary algorithms for this and would be happy to help.
- cph_dev 6y agoThanks, will think about it
- Jugurtha 6y agoHave a look at these resources on pricing and bootstrapping respectively: - Michael Dearing on Pricing: https://www.heavybit.com/library/video/harrison-metals-michael-dearing-on-pricing https://www.heavybit.com/library/video/harrison-metals-micha... - Designing the Ideal Bootstrapped Business – Jason Cohen, Founder, WP Engine – MicroConf 2013: https://www.youtube.com/watch?v=otbnC2zE2rw https://www.youtube.com/watch?v=otbnC2zE2rw
- cph_dev 6y agoThanks, will check them
- mguerville 6y agoTomasz Tunguz of Redpoint Ventures writes a lot on pricing and has published a few studies based on data he’s collected. I would recommend you check them out for inspiration
- cph_dev 6y agoThanks
- skmurphy 6y agoThis is a complex question. Pricing is how you capture the value that your product creates for your customers. Probably the best book on pricing is Thomas Nagle's "Strategy and Tactics of Pricing Profitably. https://www.amazon.com/Strategy-Tactics-Pricing-Growing-Profitably/dp/0136106811/ https://www.amazon.com/Strategy-Tactics-Pricing-Growing-Prof... Mark Stiving's Impact Pricing is also quite good https://www.amazon.com/Impact-Pricing-Blueprint-Driving-Profits-ebook/dp/B005DIBA4O/ https://www.amazon.com/Impact-Pricing-Blueprint-Driving-Prof... You have not supplied enough detail to suggest an approach. You are welcome to contact me for a no cost office session to walk around the particulars see https://www.skmurphy.com/blog/2016/08/01/skmurphy-office-hours-set-your-own-agenda/ https://www.skmurphy.com/blog/2016/08/01/skmurphy-office-hou...
- aristofun 6y agoCan you give a link to the tool please?
- tubularhells 6y agoMake it 2usd a month. Noone will bother with shifting services and spending their time on it instead of spending 2usd a month. I wouldn't. Enjoy your retirement in a year or so.
- j45 6y agoFirst, amazing to see the growth of building something people want, largely self-directed and self-funded. Pricing, after naming in coding is a really slippery concept. 1) You could draw a line in the sand and move new feature into paid plans. This might be tough. 2) If you move enterprise type features (sso, custom domains, branding) into an enterprise “call us” plan it will not be suprising. Many companies buy software this way. Generally speaking, it will be helpful to discover your pricing gates where people can make a decision without an approval. Usually that’s $250/mo, $500/mo, all the way up to $5k depending on the industry and size of client. The path ahead is to test one hypothesis of pricing, or many. You could make one interpretation of how to reorganize your feature to plans, to realize it needs ongoing experimentation. It would not be unusual to adjust your plans more than a few times. 3) My best advice is to recommend a flexible pricing experiment engine, I’m a fan of using/implementing a feature flag management system in combination with a subscription management system. It can built in grandfathering (good karma and referrals), but also provide data on every type of plan you’ve tried. We ended up being able to run multiple pricing structures of the same features to address much more of the product. It became a differentiator because competitors could not bill as discretely and effectively. I have a few (dozen) pricing articles I’d be happy to email your way. I’d have to dig them up and publish them to a link for you otherwise I’d share them now. Relevant background: I bootstrapped an online learning system which also took off due to solving user problems and not copying others. Over time, competitors copied more and more of what we built but we were able to accidentally delay it for several years.. the best thing we did was talk to customer segments liberally but avoid startup hype circles and not pitching to people who weren’t potential customers or allies. For better or worse, startup circles are full of folks looking to poorly implement an idea or space they didn’t understand and in some industries existing competitors they were building to maintain a desktop centric past. If you are working in a historically slowly evolving area (as I am in EdTech), many people look to others on where to go, which is very odd. Happy to connect and chat offline, my email is in my profile.
- cph_dev 6y agoThanks, I will contact u via email
- tannerbrockwell 6y agoPatio11 writes on positioning and pricing in the SaaS space. [1] He works at Stripe, and has an updated discussion as well. [2] I would say that switching to a Subscription model will probably be the most significant part of your transition. "I’d probably increase your pricing to $99 / $499 / $2,499. This intentionally prices out pathological customers on the lower end, who will be exceedingly difficult to deal with. It is my impression that this market is rife with them and that they will require a lot of handholding." [1]: https://training.kalzumeus.com/newsletters/archive/saas_pricing https://training.kalzumeus.com/newsletters/archive/saas_pric... [2]: https://stripe.com/atlas/guides/saas-pricing https://stripe.com/atlas/guides/saas-pricing
- runawaybottle 6y agoAre there any good reads on the notion of the ‘pathological customer’?
- DoreenMichele 6y agoI've seen a number of pieces that talk about getting rid of bad users by getting rid of the freemium model. I've done some looking around and the search phrase "freemium bad idea" seems like it comes up with some hits for the topic. People who want it for free are often unreasonably demanding, feel entitled, need a lot of hand holding and education about how to use the product, what it's really for, etc. People willing and able to pay are much more likely to have their act together, have reasonable expectations, etc. I have mixed feelings about it because of the social implications of excluding those who most need access to something for free, but you should at least be aware that users who want it for free are more likely than other users to be people with personal problems and poor boundaries who can be a pain to deal with. If you want to give it away for free -- at least some of the time -- you need to be aware that setting boundaries other than price will be a necessary part of protecting your time and sanity. All businesses do some things for free. For example, Walmart does not charge you to use their bathroom. But that doesn't mean all cases of giving it away for free are equally good business ideas. Sometimes they are extremely bad ideas and understanding what you should be willing to do for free and when, where, how and why is probably a very understudied and critical detail of how to create a viable business.
- kohanz 6y agoHave you, uh, talked to your users? Maybe I've missed it or you forgot to mention it. Your active and large user-base means you're doing some things right and providing value. It's also an extremely valuable resource for you to get feedback from. Figuring out product (and pricing) direction at scale is a lot less guesswork than when you only have a handful of users.
- cph_dev 6y agoHello Kohanz, Thanks for the comment, we have talked with few usually when we give a demo (8-10 per week) we ask them what they are looking for and most of them are in the tool because of covid as teams are remote and second it is free tool. Then there is another segment these are large enterprises and they ask us a lot about security, sso and integrations we have quoted them price from 1 USD per user per month to 10 USD and reaction is mixed some thinks even 1USD is high price for this kind of tool. We know that many of these will convert but do not know exactly how many, the last type is the users who are using the tool for more then one year and they praise the tool as how it has evolved in this time and they get real value but not all of these will convert. The think i am worried is that our growth happened like this, A dev team from a company started using it and then they like it and in few months it will be 5-15 teams from same company will start using it because they liked it and it was free now If we go hard with pricing and lockout free users then our growth may suffer, Is it a good idea in our case to offer 90% of the product as free and lockout the remaining 10% features for paid. One of my friend in SaaS thinks we are crazy stupid to do it like this, he suggests that we lockout the whole product and offer 1 month trial, the people who really needs this will pay and rest will run away, and I do not feel comfortable doing this. Sorry for the long answer but just want to write everything.
- sigil 6y ago> Then there is another segment these are large enterprises and they ask us a lot about security, sso and integrations we have quoted them price from 1 USD per user per month to 10 USD and reaction is mixed some thinks even 1USD is high price for this kind of tool. The numbers you are contemplating here are shockingly low — 1000x too low — for enterprise SaaS. Questions about security and SSO are “tells” that you’re dealing with a very different kind of customer. If you want to sell to large enterprises, this patio11 article is a good start: https://training.kalzumeus.com/newsletters/archive/enterprise_sales https://training.kalzumeus.com/newsletters/archive/enterpris... Do you or your co-founders have a strong sales background? If not, skip the whole enterprise sales thing for now and focus on converting consumer accounts. With half a million users, even a low conversion rate at a low price point should turn this into a profitable business.
- j0057 6y ago> Pro/Enterprise plan with features like (SSO and integrations) https://sso.tax/ https://sso.tax/
- cph_dev 6y agoThanks, it is very helpful and I never knew companies charge so much for SSO, Now we have also decided to raise the price of SSO plan. Thanks for sharing this
- cweagans 6y agoThis is definitely not the takeaway for that website. SSO should not be a huge expense. It's a critical thing, even for small organizations.
- gtsteve 6y agoCan I make an alternate suggestion? I'd say that SSO should be available on the cheapest or second cheapest tier. However, I would then make SCIM support (automated provisioning/deprovisioning) part of the most expensive tier. If you're a small business, say 20-30 people then you can manage that by hand, but if you're a larger organisation then SCIM is a must-have. I run a SaaS business. When dealing with vendor qualification questionnaires, you can tell the small and large businesses apart by whether they want SCIM support or not. It's my experience that SSO makes your customers very 'sticky', and keeps IT and compliance departments happy. You blend into the suite of tools they use. I'll never forget the first time I saw a client's Okta portal with our app sitting next to Outlook web access, Zoom and Salesforce. This client has only ever increased the number of seats and usage of our software. From my point of view as a SaaS CTO we're happy to pay extra for SSO (i.e. Slack) but not at "contact us" level pricing (for example, Smartsheet)
- cph_dev 6y agoThank you, do u have any email id, I can contact you about more advice on SCIM
- codegeek 6y agoFirst, congratulations on building a product that is used by real users. The question you are now asking is: how to monetize it. My thoughts (as a bootstrapped SAAS founder): 1. Send an email/app notification to all your existing users mentioning that you are starting a Premium Plan from Feb 1st. I think you are on the correct path where you are making this a Freemium product so that it doesn't piss all your existing users off and is a slow transition to paid users. 2. Remember that some existing users will not like it regardless especially if you are taking away any features outside the Free plan that they are already used to. Manage this as needed. Be firm and polite and let the existing users know that some features will only be available in Premium Plan going forward. Make a few exceptions on a case by case basis for your top/best users who love the product. Talk to them directly. 3. Developer tools are hard to monetize because first, devs generally don't like to pay for shit (open source and ability to self create/host tons of free stuff) but if your product is really good, you have examples like Jetbrains etc to learn from. 4. Look at competitors in your space and learn how they are pricing things. Are you B2C or B2B or both ? Figure out who is your Ideal Client Profile (ICP) and find out how your competitors charge for similar customers if possible. Don't copy your competitor necessarily but get an idea. 5. Try to price based on value to the user which is extremely hard to determine early on. There is no magic answer honestly. You may have to experiment. You can either do Per seat model or fixed price model for up to x seats. I prefer the latter but you have to experiment honestly. 6. Your friend's idea is also worth a consideration where you don't offer anything for free but do it only going forward for new users. Grandfather your existing users if you can support it. It is difficult to run Freemium when you are small and have no team/resource/funding to manage the overhead of free users. Monetize as soon as you can being lean/small.
- cph_dev 6y agoThank you
- robk 6y agoWould love to talk if you want some business advice and potentially funding at valley style terms :) email in bio