Need help: Pricing strategy for a developer tool with 400000 users

[cph_dev]

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

[tannerbrockwell]

Patio11 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_pric... [2]: https://stripe.com/atlas/guides/saas-pricing

[runawaybottle]

Are there any good reads on the notion of the ‘pathological customer’?

[DoreenMichele]

I'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.

[tubularhells]

I'd say if you go freemium, do not provide support. Have an email address there with autoreply set up that says 'your account is free and as such, we cannot promise an answer'. Then have a dedicated zendesk integration for the actual paying customers. No problem giving basic service away for free, just make sure you don't spend time on people who leech.

[cph_dev]

Thank you, I will read this, it looks interesting

[leesalminen]

Just to follow up, I’m also in the B2B SaaS space and positioning ourselves as the “premium” option with the highest price definitely helps separate the wheat from the chaff. Every time we offered a discount to a business they turned out to be the neediest, sucking up a disproportionate amount of support resource. Every single time.

[codegeek]

This. Every time we have offered a discount to a client (we are premium in our industry as well), it almost always bites us. I just lost a client who decided that it wasn't worth it even after getting a 20% recurring discount because he wants 10 new features that he didnt realize when signing up but doesn't wanna pay for anything. Never again. Don't discount the price. Give extras if needed but never discount your price.

[cph_dev]

Thanks, it is true, until now we have given all our users very good customer service, but going forward we cannot do this for all, we want to focus on the paying users more then the free ones.

[codegeek]

First, 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]

Thank you

[kohanz]

Have 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]

Hello 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]

> 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/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.

[kohanz]

Enterprise SAAS charge between $1,000 and $10,000 USD per seat per month?

[sigil]

In some cases! It sounds like your tool doesn’t (yet) deliver that kind of value. If your viable price point really is closer to $10/seat, consider reframing these conversations as “$1,000/month for up to 100 users.” As patio11 points out in that essay, dollar figures below $500 or so seem like a rounding error to an enterprise. Or worse, something unserious.

[noodle]

Its hard to give more specific advice without knowing more about the product, but to me it does sound like the most straightforward path would be to keep your existing free plan as-is today, and then offer a paid plan structure on top of it, turning yourself into a freemium offering.

You don't need to reduce your free offering to make space for a paid plan - not right now, at least. Maybe you will eventually, but if you think you still have space to grow your free plan and it the unit economics are manageable for you, that's a half million or so and growing hot leads for your paid plan.

> 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 an entire engineering organization with multiple teams is using your product, the vast majority will pay for it if you find the right features, pricing and positioning. A small dev team at an unfunded, pre-revenue startup might want to pinch pennies some, but if orgs that have a significant sized engineering team are starting to use your tool, paying a reasonable amount monthly is a rounding error compared to the cost of their salaries.

> 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.

There is always difficulty in getting people to go from free to paid. It doesn't matter how much the pricetag is, there's resistance to pulling out the wallet across the board. You shouldn't be trying to minimize the price of your product. In fact, I'd personally look at a $1 price tag and wonder if the software is robust enough to use at my organization. It would make me NOT want to buy it. Price it reasonably. Some people will never pay for your product. Your goal isn't to convert all of your users to paid accounts, your goal is to convert enough people at an appropriate pricing structure for you to have a sustainable, successful business.

[cph_dev]

Thanks, it is very helpful

[skmurphy]

This 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-Prof... Mark Stiving's Impact Pricing is also quite good 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-hou...

[cph_dev]

Thanks, I will contact you soon

[skmurphy]

Thanks for reaching out I am glad we were able to close the loop on this.

[j0057]

> Pro/Enterprise plan with features like (SSO and integrations)

https://sso.tax/

[cph_dev]

Thanks, 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

[gtsteve]

Can 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]

Thank you, do u have any email id, I can contact you about more advice on SCIM

[gtsteve]

I'm happy to answer any questions here.

[cweagans]

This is definitely not the takeaway for that website. SSO should not be a huge expense. It's a critical thing, even for small organizations.

[j45]

First, 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]

Thanks, I will contact u via email

[Jugurtha]

Have a look at these resources on pricing and bootstrapping respectively:

- 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

[cph_dev]

Thanks, will check them

[StratusBen]

First 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]

Thanks, will contact you

[benlivengood]

If 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]

yes, will find one, thanks

[tubularhells]

Make 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.

[mguerville]

Tomasz 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]

Thanks

[AmirSani]

Let 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]

Thanks, will think about it

[robk]

Would love to talk if you want some business advice and potentially funding at valley style terms :) email in bio

[cph_dev]

Thanks, I will contact you by email

[robk]

Pop me a note! Didn't see one come through yet

[cph_dev]

Sent you an email today :-)

[aristofun]

Can you give a link to the tool please?