If you asked me if I could ever write an article about pricing a couple of months ago it would probably make me laugh. I didn’t know anything about product pricing even though I’ve launched my first SaaS project. The way I priced my product was solely relying on my own intuition as well as looking how other similar SaaS products priced their services. I think this is what most beginners do.
Why on earth then write an article if you’re not an expert on pricing? Because I’ve come to realize that it’s totally okay to write about topics you’re not expert on. Chris Coyier’s tweet “Write the article you wish you found when you googled something” inspired me to start writing about things I wish I could find on google. I started to use blogging as an excuse to learn a specific topic. This article is a fruit of that inspiration and I’m happy to share it with you all.
There aren’t many articles on side-projects pricing even though the number of revenue-generating side-projects is growing. If you go to Indie Hackers you can see many of them there and many makers in the community wonder and ask questions about pricing as well.
In this article, I’ve summarized everything I learned about side-project pricing. For the last two months or so I’ve started to read about pricing and talk to people who are knowledgeable about pricing. It really helped me to understand the basics needed to create a more successful pricing model for a SaaS project. In this article, I’m using Cronhub (my side-project) as an example to better explain my view and thinking process because I believe it’s easier to digest new information using an example.
All my learnings here apply to SaaS products but I think other types of businesses can benefit from them too.
Monetizing your project from the day 1 is very important. You can think of the “monetization” as a feature that you want your product to have. This feature significantly increases the success chances of your product. Usually, you build features for your customers but this one is for you, to keep you more motivated to work on your project.
Your motivation and persistence are the key drivers to move your project forward. If you value something it keeps your motivation high. What’s the easiest way to know whether your project is valuable? Asking people to pay for it. In my opinion, if you can find 10 people paying for your project then you can find 100, 1000 and more. Finding the first customers are the hardest.
Because finding the first customers is hard it’s important to set up the right pricing model in the beginning. Pricing is a living feature and as any other feature, it requires multiple iterations until you get it right. It’s totally okay to make mistakes in the beginning and in fact, for Cronhub I’m still not sure whether I’ve got it right or not. However, I’m open to change it if need be and that’s what matters.
If your intention is to build a business from your side-project then you should charge for your project. It’s hard and more often demotivating to work for free. You value your time and others should do, too.
Since I’m not an expert in this field I can’t give you very technical answers to pricing strategies. However, one thing I can do is to explain these strategies in a more human way with simple words.
Maybe that’s even better for you? 🙂 Good. Let’s get to it.
The primary goal of the pricing strategy is to maximize your product revenue. According to the book that I’ve read “The anatomy of SaaS pricing strategy” (which a great book btw), there are three pricing strategies for SaaS products.
This is the most basic pricing model you can think of because it really makes sense. First, you calculate everything that costs money to your project and then
Let’s take Cronhub as an example. Cronhub is a
I think most first-time side-project builders take this approach because it’s simple and it covers the costs. The challenge with this pricing strategy is the unpredictability of the future. If your costs unexpectedly go up in the future your profit margin will cut and you will have to increase your prices.
As the name implies this pricing strategy is influenced by your competitors. When you don’t know the initial value of your product you usually turn to your competitors. You check their pricing tables so you can come up with yours. Well, I have done it for Cronhub too.
If you’re launching a product in a new industry it makes sense to check competitor pricing because you don’t want to go too high or too low. We’re always afraid of losing customers because of the big price difference from competitors.
This pricing strategy is simple and less prone to be wrong. You can probably spend an hour or so researching competitors and come up with a pricing table that is similar to your competitors. This way your future customers won’t think that your product is too expensive or too cheap. The one downside I see for this model is that you don’t want to be guided by your competitors from day one. You want your product to have its own personality and it should be reflected in the pricing as well. Use competitor pricing as an inspiration and benchmark but not your guiding strategy. For me, I see this strategy mostly used in combination with other pricing models.
This strategy is also called customer-based strategy and is solely based on your customer surveys and research. You want to know how much your customers are willing to pay for your product and the only way to do so is to go and talk to them. Most companies use in-product surveys to collect this data.
Many other benefits come with this strategy too. You get to know your customers and their needs which helps you to build the best product. I think following this strategy you’re most likely to come up with a better pricing table. However, this model can only be applied after some initial iterations when you have a decent customer base. That’s why I believe that this model should be used as part of the last pricing iterations on your pricing table. It doesn’t mean that you should not talk to your customers from early days. Just set a goal for yourself that you eventually want to use this strategy to decide your pricing table.
You may want to re-apply this strategy every so often because your customer base is changing and the market needs do, too.
Break down your customers into groups
The reason I wanted to write about customer groups is that I strongly believe that breaking down your user base into groups is not only important to build a better product but also to model your pricing. When you start thinking about pricing you naturally measure it with only one dimension using just a single variable (like I used only the monitor count as a pricing measure for Cronhub).
However, you want to add another dimension based on your customer groups. There is a term called “Pricing Axes” which I first heard from Joel Gascoigne in our company retreat this year in Singapore. These axes represent variables that you can use to better model your pricing. For instance, Cronhub has 2 pricing axes now after launching the team plan. The first ax is the number of monitors and the second is based on the team member count.
Breaking down my customers into groups helped me to come up with the second ax for Cronhub. I have divided my potential customers into two groups, solo developers, and developer teams. It naturally makes sense that there should be different pricing for each of these groups because their needs are different. Following this strategy, I’ve created two pricing plans for the team depending on the count of the team members they need.
Applying the strategies on Cronhub
I want to also talk about how I’ve applied above-mentioned pricing strategies for Cronhub and the pricing challenges I’ve faced when starting Cronhub.
Cronhub is a product for developers. I knew that developer market is not an easy one to be in but it didn’t stop me starting something I’m very passionate about. I really enjoy hanging with developers and getting to know them better. For me, what mattered most is to launch a product that will serve this market.
Being a developer I know how much developers love to use free tools. However, they’re also prone to pay for a product that provides significant value to their flow and productivity. I want Cronhub to be one of these tools. I launched Cronhub with only two plans, “Free” and “Developer ($7/month)”. I wanted to see whether this is something other developers will pay for or not.
My very first pricing model was mostly a symbolic strategy to validate my idea. I didn’t spend much time thinking about the pricing plan and followed Cost-Plus pricing strategy to use the monitor count as a divider between free and the paid plan. In the first month, I’ve got couple paid customers which made me revisit my pricing. That’s when I’ve decided to invest a little bit of time to learn about this topic.
After two months of reading and seeking advice from product people I’ve come up with these key learnings that I’ve applied on Cronhub.
- Don’t give up too many things in the free plan
We tend to give up too much in the free plan especially in the beginning. It’s quite possible that your product doesn’t offer any free plan however for Cronhub I wanted to use this channel as a way to acquire customers. Limit the free plan to the minimum.
- Know your customer groups
Knowing your customers is important to understand how much they can afford to pay for your product. Cronhub’s free and developer plans are intended only for solo developers who have projects on the side. I have two team plans “Startup $19/month” and “Business $49/month” and they are intended for engineering teams. Engineering teams should collaborate together so the team support is necessary. Team sizes are different and that’s why I’ve priced these plans by the number of team members.
- Think about your conversion flow
Picturing the customer conversion flow in your head is really helpful in understanding how pricing may work and that’s why I’ve decided to offer a free plan. The way I imagine the flow is a developer signing up for the free plan to use it for their personal projects. If he/she likes my product very much the chances are high that he/she will also promote my product in the company that he/she works at. It’s the word-of-mouth effect. Now someone from her company signs up to try the team plan and there you have your potential lead who is very likely to become a customer.
- Your pricing is probably too cheap
Don’t be afraid to raise your prices. We tend to undervalue our product because we are afraid that no-one will pay if it’s expensive. This is true especially for people who don’t have experience with pricing. Unfortunately, pricing your project very cheap may discredit the value your product provides. It can make people question the quality of your product. That’s why you want to find the sweet spot when it’s not cheap and also not expensive.
- Pricing will affect your long-term productivity
If you’re a single person team then you probably do the product support as well. Higher paying customers tend to create fewer support requests compared to the customers who have signed up for the lowest pricing plan. Think about your time and how you want to spend it. If you’re planning to stay a one-person team then this will make a huge difference. For Cronhub, eventually, I’m thinking to have only 2 plans, free and business plan. The free plan will be for developers and the business plan for small and medium-sized engineering teams. Instead of having many low paying customers (and spending many hours answering support questions) I would prefer having a small number of high paying customers (and enjoy building a product).
Thank you very much for your time. I hope you enjoyed reading this article and learned a little bit about side-project pricing. Writing is what I enjoy doing most after programming and I hope to write more articles in the future. If you don’t want to miss any of my writings then you should follow me on Twitter. Feel free to say hi to me or ask questions below!
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