How do you set, or fix, your SaaS pricing structure? - **According to Y Combinator, you're probably not** charging enough. Find out why below, and check out these tips for setting your most effective pricing yet. - **Consumers are increasingly trusti
How do you set, or fix, your SaaS pricing structure?
-
According to Y Combinator, you're probably not charging enough. Find out why below, and check out these tips for setting your most effective pricing yet.
-
Consumers are increasingly trusting people over traditional corporations, with buyers spending more time consuming user-generated content. Here's a breakdown on what this means for founders!
-
Founder Michael Taylor cofounded Ladder, a 50 person marketing agency, then left to learn how to code. His edtech product, Vexpower, recently hit its first $1,000 week, and he's sharing his journey and insights below.
Want to share something with over 85,000 indie hackers? Submit a section for us to include in a future newsletter. —Channing
🏷 Your Best Pricing Structure Yet
by Zach Ang
There is a lot of clutter out there when it comes to advice on charging SaaS customers, and it can quickly become confusing. Cut to the chase with these top tips below, as indie hackers weigh in!
The Decoy Effect
Here's something that Michel Kanka used to increase conversion for his clients by over 30%.
The Decoy Effect: People change their preferences between two options when presented with a third option (the decoy) that is asymmetrically dominated.
Pricing: If you offer just one price, a customer has two choices. They can either buy or not buy. If you offer two pricing choices, a customer has three options. They can buy the cheaper one, buy the more expensive one, or not buy at all.
When you add the third pricing option, a much more expensive one, it makes the second price (the one that previously seemed expensive) look like a bargain.
Check out this post for more on this!
Pricing framework
An easy framework that Sven De Meyere recommends to all SaaS founders is to base their pricing on a maximum of two variables out of these three:
Using all three of these variables makes a pricing tier way too difficult to understand, so select one or two.
Another tip is that the pricing should go up if your cost to serve goes up, or if the value of your product goes up.
Example: There's no point in increasing the pricing for an email platform when someone adds more users, since your infrastructure cost doesn't really go up, and your users don't get more value because of that. The pricing should go up if they send more emails (higher cost to serve) or use more advanced features (more value).
Keep it simple...
When it comes to pricing, do your best to keep it really simple at first, says Nev Flynn.
I've seen (and been a part of) plenty of projects that have attempted to optimize pricing too early, only to realize that the model wasn't right, or nobody wanted to use the product.
Complex pricing models with several tiers, discounts, referral programs, affiliates, and starter programs cost a lot of developer time, so only allocate it when you're sure it's worth it.
Validate a simple pricing model first.
...but start high
Always try to price based on value for your customer, adds Martdi.
- How much time do they save?
- How much money will they save?
- What's the pain point that you're solving?
Also, charge as much as possible. A higher price might mean less users, but it also means less support and scaling for the same amount of potential profit. Less support will allow you to focus on growth, and pampering your users so that they will never want to leave.
Also, according to Y Combinator, you're probably not charging enough:
Basically, "you consistently undercharge" is the number one piece of advice we give to most startups to fix their pricing.
YC identified four top mistakes that startup founders make when setting pricing:
- Pricing products too low.
- Underestimating costs.
- Failing to understand the value.
- Focusing on the wrong customers.
Jon Yongfook added that founders shouldn't get caught in the trap of undercharging based on user count:
Generalizing a bit here, but if your product can be used by multiple team members, i.e. has some kind of multi-user functionality, you should be charging over $100 per month for that.
If a company has more than one employee, and they are using your app, $100 is nothing.
And here's a closer look at pricing from a psychological perspective. Many founders find this helpful when starting from the very beginning.
Hopefully, the above tips provide guidance on tweaking your pricing structure! However, there's one very important thing to keep in mind: Pricing is a journey, not a destination. You should be evaluating your pricing model regularly, and adjusting accordingly.
What's your top pricing tip? Please share in the comments below!
Discuss this story.
📰 In the News
from the Volv newsletter by Priyanka Vazirani
🧐 Amazon vs. Facebook: Gen Z'ers weigh in on which is more harmful.
📱 People spent more time on mobile apps in 2021 than ever before.
💰 This OpenSea rival is coming in strong with $110M in trading in a day.
👀 Facebook now has patents to VR track your whole body.
🏛 Kim Kardashian and others are being sued over this crypto scam.
Check out Volv for more 9-second news digests.
🥰 Consumers Increasingly Trust Real People Over Corporations
from the Growth & Acquisition Channels newsletter by Darko
Consumers are increasingly trusting people over traditional corporations. Here's what this means for founders!
User-generated content
People are spending more time watching user-generated content (UGC). According to a recent study from the Consumer Technology Association, UGC is catching up to traditional media consumption. In US weekly media consumption, UGC accounted for 39%, while traditional media accounted for 61%.
The most dramatic difference was among teens, who spend 56% of their time consuming UGC. By contrast, people aged 55+ spend 22% of their time consuming UGC. The main reason for this? Choice. According to the study:
Twice as many consumers report difficulty finding something to watch on traditional TV or recorded DVR than on platforms like YouTube, Instagram, and TikTok.
Plummeting engagement and viewership
According to recent Nielsen ratings, primetime news viewership was down by 36% across the three major cable networks: CNN, Fox News, and MSNBC. Also, app downloads dropped 33% for the top 12 mainstream publishers, according to data from Apptopia.
Engagement was down as well. Interactions (likes, comments, and shares) dropped by 65% between 2020 and 2021 for major news publishers, despite more articles being published.
Website visits suffered as well. The top-performing US news websites took a hit by 8% in the first 11 months of 2021, according to SimilarWeb data.
Shopping on social media vs. traditional e-commerce
According to a new study from Accenture, the social commerce industry is expected to grow three times as fast as traditional e-commerce, hitting $1.2T by 2025.
This estimate is in line with what's been going on in Asia, where TikTok keeps stealing market share from traditional players like Alibaba.
What this means for founders
This is good news. People are increasingly preferring to interact with, and buy from, real people on social media, over supporting large, faceless corporations. And who could blame them? Big corporations like Amazon have been involved in a slew of controversy.
It appears that the future of gaining people's trust is essentially staying true to your real, human self, however cliché that might seem. And what about founders who don't like to show their faces or insert themselves into their public brands? Here are some alternative options:
- Get someone else to do it.
- Get over it. Really. You don't need to be a model to appear in front of a camera. In fact, being an "average Joe" will likely make you more trustworthy!
- Lean into writing. You can humanize yourself through writing as well. I mean, look at the style among mainstream media outlets vs. people here on Indie Hackers. It's quite different!
What do you think of these findings? Let's chat in the comments!
Discuss this story, or subscribe to Growth & Acquisition Channels for more.
🧠 Harry's Growth Tip: Conversational Copy
from the Marketing Examples newsletter by Harry Dry
Use the Kitchen Table Test: Read your copy aloud to your loved ones at the kitchen table. If they cringe, or don't understand what you're saying, change it!
Go here for more short, sweet, practical marketing tips.
Discuss this story, or subscribe to Marketing Examples for more.
👨🏫 Michael Taylor's Edtech Product Hit Its First $1K Week
by Michael Taylor
Hi! I'm Michael Taylor, and I cofounded Ladder, a growth marketing agency that I grew to 50 people over the course of six years. I was in charge of operations, so I spent most of my time training the team, solving problems for key clients, and automating the work with no-code tools and in-house tech that we built.
I got more interested in the product side, and grew tired of agency life, so I left my cofounder in charge and parted ways to spend the year learning to code. I built a few different things, and eventually went all in on one idea: Simulator-based courses to teach marketers how to be more data-driven.
I work three days a week on Vexpower with my cofounder (who joined after I had built the initial prototype), and consult on marketing attribution the other two days a week to pay my expenses. We just had our first $1K+ week, so we're hoping that next year we can do 4-5 days a week, and scale.
AMA!
How did you learn to code?
I studied economics in university, but it had no real math requirement. The limit of my technical skills was how to do pivot tables and vlookups in Excel for the first few years.
Then, I took the One Month Rails course about seven years ago and caught the coding bug. It was right about the time that growth hacking was taking off, which made coding seem a lot cooler than running ads was. I was flying to San Francisco every month for work, and I was such a huge Silicon Valley fanboy.
I did evening and weekend tutorials for about five years, then started coding 20 hours a week when I left Ladder in 2020 (then, 40 hours a week in 2021). I added it up, and I've done about two and a quarter years of full-time coding equivalent, and only nine months of that was over the first five years. I had only just gotten to the point of being able to build basic things when I quit Ladder.
Do you build backend or frontend first?
One huge "Aha!" moment that I had, which I don't think even most developers get yet, is that when I tried to build things from the backend (i.e., a Jupyter notebook), I end up with something clunky and unusable. When I start from the frontend (i.e., a mockup in Excalidraw), it comes out a lot cleaner and more elegant. It shouldn't make a difference, because you need to build both front and back to launch, but I think that going front to back, rather than the other way, helps you simplify the offer and align it with what users want.
How do you balance doing two high-performance activities?
I don't feel like I totally have the balance right, but I think it helps that I approach marketing with an engineering mindset: I always try to bring things back to first principles, break the problems into smaller chunks, and then just do the work.
It also helps to focus. When I was at my agency, my schedule was determined by whatever fires needed fighting. Since I left, it's been a battle to stay disciplined and wean myself off of the dopamine of doing lots of different things. I've been slowly cutting my focus down, and getting rid of consulting gigs that were out of scope.
Now, it's pretty narrowly focused, and I'm seeing huge gains all of a sudden. All of my consulting is on Marketing Mix Modeling, therefore everything I learn can become a Saxifrage blog post or Vexpower course. This gives me content to push people to when they have a question.
The challenge will be staying productive as I expand focus. We're starting to work on non-attribution topics for Vexpower courses, and I am working with consultants in those areas to keep me fresh and make the courses useful and realistic. To make space for that, I've cut my consulting back, and will have just one stable client in 2022.
How can developers get better at marketing?
My advice to devs is to stop trying to "get good" at marketing. You can't treat it like an optimization problem until you get to scale. Instead, try and sell to one person at a time until you have a good idea of who they are, and what language to use to get them excited. Once you have that, you just need to put that language in places that those types of people hang out.
Discuss this story.
🐦 The Tweetmaster's Pick
by Tweetmaster Flex
I post the tweets indie hackers share the most. Here's today's pick:
🏁 Enjoy This Newsletter?
Forward it to a friend, and let them know they can subscribe here.
Also, you can submit a section for us to include in a future newsletter.
Special thanks to Jay Avery for editing this issue, to Gabriella Federico for the illustrations, and to Zach Ang, Priyanka Vazirani, Darko, Harry Dry, and Michael Taylor for contributing posts. —Channing
