Pricing WordPress SaaS: Balancing Value and Growth

[00:00:00] Katie Keith: Have you ever wondered if your pricing strategy is holding you back? Charging the right amount can maximize revenue for WordPress products, but it's not obvious how to find the right balance between value for money and profitability. It becomes even harder for SaaS products which open up pricing opportunities that may not be available for traditional themes and plugins.

And that's exactly what we'll be diving into today.

[00:00:31] Matt Cromwell: This is WP Product Talk, the place where every week we bring you insights, product marketing, business management and growth, customer experience, product development, and more. It's your go to podcast for WordPress product owners, by WordPress product owners. And now, enjoy the show. Hi, I'm Katie Keith, co founder and CEO at Barn2 Plugins.

Thanks for

[00:01:07] Katie Keith: listening.

[00:01:08] Zack Katz: And I'm Zack Katz, founder and CEO of TrustedLogin.

[00:01:13] Katie Keith: And today we're talking about an important topic that most WordPress product owners don't do. Um, pricing WordPress SaaS, how to balance value and growth.

[00:01:24] Zack Katz: Yeah. And that's why we've invited Becca Rice to talk to us today. Uh, Becca, welcome to the show.

Thanks for joining us.

[00:01:31] Beka Rice: Yeah, thanks so much for having me. Please introduce

[00:01:33] Zack Katz: yourself.

[00:01:34] Beka Rice: Yeah. Uh, I'm Becca Rice, as Zack mentioned. Uh, I've worked with, uh, WordPress for a very long time, a little over 12 years at this point. Um, I've also worked on Shopify apps, uh, and other SaaS applications for e commerce, uh, both within and outside of WordPress.

So I'm very excited to, uh, have this chat today.

[00:01:54] Zack Katz: Yeah. And this, this is great. This is an interesting topic for us. We're a podcast for and by product, uh, WordPress product owners. Why does pricing matter for SaaS products in the WordPress space?

[00:02:07] Beka Rice: Yeah, so I think with a lot of WordPress products, there's all these historical pricing models, uh, that folks kind of use thinking, you know, these are the industry standards, so I should probably use these.

Um, but there's a wealth of other ways to price products. that can, uh, as Katie said earlier, maximize your revenue potential and growth opportunities. Um, a good pricing strategy helps you capture as much of the potential value and revenue that you have as possible. Uh, but bad pricing strategies can like severely hamstring a business and even lead to, you know, a really great product being shuttered before it has a chance to grow.

So I think pricing is a really integral part. of making your business viable for the longterm and ultimately making sure that you can keep serving your customers.

[00:02:49] Zack Katz: Yeah. And I think there's also a part of it that, uh, the internet is changing. WordPress is changing and having a plugin doesn't mean what it used to, even five years ago, where everything was on, on device, so to speak, where it like it's on the website and, That's all that it takes.

There's a lot of stuff that takes external communication, even if it's something like, uh, AI integration. That AI isn't free. It's going to cost somebody some money. And so you've got to start thinking about, uh, charging for what people are using, uh, in a service mindset, not just a plugin mindset, which is a different approach.

[00:03:26] Beka Rice: Yeah, absolutely. I think there are a lot of opportunities to have Uh, Hosted or Sass Components, even if what you do is primarily a plugin, right? Um, I remember talking about a recommendation plugin with a friend a long time ago. And was like, yeah, you can do some of this logic on the site, but if you want to build a really advanced, you know, recommendation engine, this is really resource intensive.

You know, maybe you should have that, but then you should have a hosted offering that you have with this. So even if it's something that can be done on the site, sometimes you can offer an overall better product by having Uh, hosted components of that, which are going to lend to, uh, a SaaS pricing model.

[00:04:03] Katie Keith: Yeah, definitely. We've done a couple of previous episodes of WP Product Talk where we talked about SaaSifying your product and when you should and shouldn't do it. And it does seem to open up opportunities for better revenue models. Um, because by having some part of it that's hosted, people have to keep paying you.

They have to keep renewing in order to continue using your product. Whereas if it's a pure theme or plugin installed fully on the self hosted site, then they don't renew and they can keep using it. So there's that that helps with the retention. But it does also open the door to different pricing models.

And it's really interesting to see how WordPress WordPress. pricing has evolved over the years. Like a few years ago, it was all the Envato model, actually the old Envato model, where there was no way for people to renew even for support. And it was seen as the norm to pay like 29 for lifetime or something.

Which is probably the worst pricing model I can imagine. Um, and then you're getting into annual pricing and that was really controversial. Like when companies like WooCommerce and EDD introduced annual subscriptions. I remember that was controversial, but they very quickly published data on the impact of that.

And now I'm seeing a lot coming over from SaaS into the WordPress world, such as monthly pricing and things like that. So that's really interesting.

[00:05:25] Beka Rice: Yeah, we actually do that ourselves, uh, with CheckoutWC, which we acquired a little earlier this year and it offers, you know, both monthly and annual billing.

Um, and there's a lot of benefits to it that we can get into shortly, but I think, um, it's, it's gone very well for us, you know, even as a WordPress plugin provider.

[00:05:40] Katie Keith: Do you have any stats about what kind of proportion of users choose monthly versus annual on that plugin?

[00:05:46] Beka Rice: I have to look it up recently, but, um, I think it's something around like 30 percent around monthly at this point.

Choose monthly. Yeah.

[00:05:54] Zack Katz: And I assume that when you have monthly pricing, you charge a premium of that. Do you do the one free month when you go to annual? What's your pricing strategy for that?

[00:06:04] Beka Rice: Yeah, the annual price is like roughly 20 percent less, uh, overall than, you know, if you have 12 times the monthly price.

So you do get a discount for paying, uh, upfront annually. Uh, but otherwise we found that some folks, uh, want to be able to say, I want to use this for a little while and see how it changes, you know, conversion rates for me. I want to test it out or. Um, you know, if, if I'm going to change my site or my theme, you know, I, I want to commit to a shorter time period.

So we've seen those folks opt into the monthly program.

[00:06:32] Zack Katz: And how does that work when you deal with support? Because I know for, for us, when you sell plugins, a lot of the support happens in the first year of that, uh, of, of that subscription. So how does that, how do you handle that when you deal with a monthly pricing?

[00:06:46] Beka Rice: Yeah. We try to make sure that the monthly price, uh, is first of all, high enough to cover the value and the costs. Right. Um, but then, uh, we found that we don't have like tremendous churn in the first month, so we don't have to worry about like the first month, let's say, recouping your support costs. We know roughly like, what is our volume of tickets per, you know, thousand licenses.

And let's say, okay, if we know that we typically get monthly folks, uh, you know, X number of months, so we can kind of average it out and balance out our costs that way, which is one thing I think we should get into in terms of understanding cost structures for pricing.

[00:07:20] Katie Keith: Yeah, one thing linked to that kind of pricing is at what point do you revoke functionality if they cancel?

So with annual subscription, it is normal to allow people to continue using the product unless it's a SaaS after it expires after a year, uh, if they don't renew. But with monthly, what if they only pay for a month or two? Do you allow them to keep using it? Because I would be tempted to revoke the functionality, say in the first year, but I don't know what the norm is.

[00:07:48] Beka Rice: Yeah, for monthly folks, if they, if they cancel after a couple months, you know, and they don't have a valid license, then the product isn't going to modify their checkout for them. Um, you know, it's still all GPL software, so they could go take that and modify it and use it in a different way if you want to.

But, um, you know, if we're, uh, if they're paying for a license, especially if it's on a monthly plan and you're not paying for the full year up front, then we do have that license check that'll just remove the functionality.

[00:08:12] Zack Katz: And for plugin developers who are interested in converting to trying out a monthly strategy, Uh, how much work was it to add that kill switch into the, the software?

[00:08:22] Beka Rice: Um, not a ton. I mean, it's, you know, uh, active checks for that. Um, we are working on actually, uh, completely rebuilding the licensing system. Um, so we use a plugin that we had acquired called API Manager for WooCommerce for most of what we sell. Um, we've been rebuilding, uh, that project for a while now into a much more robust licensing solution for WooCommerce, which we should launch within the next couple of months.

Um, and so at that point, I think the SDK we have for that should make those kind of feature flag checks much easier.

[00:08:55] Zack Katz: Yeah. And did you, did you introduce this or was it in the product when you bought it?

[00:09:00] Beka Rice: It was in the product when we bought it. So the way it's done now, it's all, you know, just like, Hey, if the license is invalid, We're going to have these checks in these places, um, and, uh, it works very well, right?

So even, even though it, uh, took some effort to implement, you know, we're very happy with the results, but, uh, so that's one of our goals actually in trying to rebuild our own licensing is to make that very easy for other developers to try out.

[00:09:22] Zack Katz: Yeah, one of the things that we're, we're, we're looking into that kind of strategy as well, and I was recently advised not to do monthly because, uh, the charge, like the, the churn, somebody was concerned that I was speaking with, that the churn would be higher and that the number of Possibilities for credit card failures, for example, goes up when you switch from an annual, which is one failure per year, to a monthly, which is, you know, uh, lower, much lower price and every month.

So do you have experience with that?

[00:09:55] Beka Rice: Yeah, I think it's all a math problem at that point, right? Um, we certainly see higher churn on monthly plans. Um, I think that's a good thing. And so, you know, we can get into this a little bit in more detail, but, um, if anyone has read SASTR, you know, a big fan of a lot of Jason Lemkin's work there.

He talks about how annual billing can oftentimes, like, be a mask for churn issues that you don't know about yet, right? Because you're only billing on an annual basis, and so people might not be using your product for the whole year. And they've already churned, you just don't know it until their next renewal.

So, uh, I've always been a fan of monthly billing. I understand the practicalities of WordPress haven't always lent themselves to monthly billing. But I think in terms of the financial model and especially getting that feedback loop from your users. I'm perfectly fine with seeing that slightly higher churn because it's showing me what's happening in my user journey.

So I would say it's a little higher. Um, I think that again, though, when you look at everything in the grand scheme of things, you have to understand what is my chargeback rate? What's the marginal difference between monthly and annual billing? And you know, how many sales am I recouping that I might not have otherwise?

I don't think we have it perfect, but we do constantly try to look at that and iterate and test on it. And we've kept it because it's been, you know, fairly successful. I think it depends on the price point too, to be honest, right? If you have a higher price point annually, um, you know, it might not make as much sense actually to offer a monthly billing.

Which is a little counterintuitive, but usually the folks who are going to buy a higher level license have already done more research about your product upfront. So there's some things that we've had to test into to learn, but that might differ between different products that might be us and not yours, for example.

[00:11:30] Katie Keith: Yeah, that's true. Um, you talk about, uh, testing and experimenting in order to find the sweet spot, so let's move on to story time now, uh, because my story of pricing is largely about that. So at Barn2, we do a huge amount. of, uh, testing and pricing iteration work. I work with, uh, Ellipsis as our marketing company.

Um, and they've got people that are really great at data and they, um, go through all my numbers every six months and analyze all our pricing and conversion rates and revenue and everything since the last pricing change and they make recommendations. So we're constantly iterating on our pricing, not just the actual prices, but also expected.

We're experimenting with different ideas that we've thought of during that six month period. So one thing we do, which is a bit different from a lot of companies, is that because we have multiple products, most of our products are available either on their own or as a two person team. Plugin Bundle. So, um, we found that where we have two plugins that are closely related to each other, for example, our Wholesale plugin closely relates to our Product Table plugin because Product Tables are really useful for wholesale stores.

Two thirds of our wholesale users choose to buy the bundle with Product Table. So that's a really good way of increasing the average order value. And when we experimented, we found that that when to do that, we have to actually deprioritize other things like encouraging them to buy, say a multi site license or something like that, like an agency type license, because there isn't room for everything in the pricing table.

But even though we deprioritize the more expensive licenses, average order value is actually higher simply because we're offering two plugins I presumably has more value to the average user than the option of an agency license or something. But the most fun pricing experiment that I've done this year is with our Easy Digital Download EUVAT plugin.

It's a bit of a weird plugin because it doesn't fit with any of our others. We don't have any other EDV plugins and we built it because we needed it. And it's always been a bit of a thorn in our side, in a way, because it's really expensive to support. The customers who use it are typically developers, often WordPress plugin developers, and they love it.

But they can be quite challenging when they spot annoying little tax things that aren't quite right. So it's always been not that profitable for us. And because it's EDD and not WooCommerce, it has far fewer sales than most of our other plugins. So we've always felt a bit trapped by this because it has this royal user base but doesn't make much money.

So we thought, what should we do? Shall we withdraw it? Well, that will let people down. Uh, what should we do with it? Does anyone want to acquire it? Maybe not. So we doubled the price. Thought, well, let's just do it. Deter people from buying it, but that increased the sales, not just the revenue, but the actual number of sales increased when we doubled the price.

So we increased it to 250 percent of the original price. And even then it's more than doubled the revenue. So apparently extreme price increases can work and they're not always a deterrent.

[00:14:54] Beka Rice: And in that situation, did it, um, reduce any of your support costs or did you feel like you were getting the same volume per purchase?

[00:15:02] Katie Keith: And the volume is the same, but it is more worthwhile. So we're happier to provide that level of support when they've paid more. So it just helps to make it a viable product now. So it's now doing like over a thousand a month. It's still one of our smaller ones, but it was only maybe a couple of hundred or so before some months and just didn't feel worth the hassle.

[00:15:22] Beka Rice: Yeah. That's awesome that it's still the same though. Right. I think, you know, one thing I'd say with pricing changes that people are afraid of is like, If I double price, do I double revenue? Right. Because if, if I haven't, then like, is that really successful or not? And I think a lot of folks sometimes forget that support is part of the equation.

Right. When you have fewer customers, you have fewer costs, you know, in terms of support. And so if, if you maintain the support while increasing that revenue, that's, that's a fantastic outcome. Right, not just for the money, but also because it's a more efficient pricing strategy.

[00:15:53] Katie Keith: Yeah, I did a profit analysis of all of our plugins at one point, and that was near the bottom, and that included support cost and development time, not just the actual revenue from the plugin, and so it's useful to identify which of the plugins are the drain on all types of resources.

But I'm kind of learning some new things about pricing now, because, um, as I've announced recently, we're going to start diversifying into Shopify apps. And Shopify apps have whole different ways of, of pricing. So I've been analyzing how they price and, um, Thinking we can actually learn a lot of this in the WordPress ecosystem.

Like they have a lot more usage of free trials and free tiers and more interesting differentiators, like changing the price based on how much value the product brings to the store owner, which I love. Uh, so I know Becca, you have a lot of experience of that kind of thing. So let's move to your story time.

And I'm very interested to hear your experiences.

[00:16:53] Beka Rice: Yeah. Uh, when. I started working in Shopify, it was, I want to say 2013. And so this is, you know, previous to Kestrel right now, uh, which is our business and while I was working with SkyVerge and Jilt, we also had a separate brand that worked on Shopify apps.

Um, and we often priced it based on like a good, better, best, you know, kind of lineup for apps that there was either, you know, one plan or, or we'd have a few plans. Um, and really that, uh, I think probably in hindsight left a lot of money on the table. And when we launched JILT, which worked with Shopify, EDB, WooCommerce, um, we had to think very differently.

And so I would say with JILT, we made a string of pricing mistakes as we, as we really learned that. The first was JILT, we tried to optimize for as much fairness as possible, which is a wonderful thing to optimize for, right? But at the same time, it needs to be viable for you and your customers. So we, uh, priced Jode at 5 percent of recovered revenue because it was mostly targeted towards abandoned cart recovery at first.

And a lot of people were pretty happy with that, but then a lot of people said, you already send my cart automations. Can you send my other automated emails too? Um, and then that pricing model completely falls down. So then we said, okay, well, that's priced based on the number of unique people you contact every month, because that way, if they get a couple of automations.

Um, that's great, right? Well, that didn't work then when we introduced, like, Winbeck or longer term automations. And it certainly didn't work when we introduced, you know, broadcast and newsletter emails. Because now people had a disincentive to increase the number of customers they were contacting. When you're saying, hey, I contact a thousand people per month on average, and now I'm going to contact ten thousand people when I send out a newsletter email.

Now people don't want to use your product, and that is absolutely not the situation you want to be in due to your pricing scheme. So we made some mistakes there where we finally settled on what was more industry standard, um, in terms of pricing per contact, active contact that you could email. And, you know, we can kind of dig into how we got there, but I'd say that the problems that caused us were one, we left a lot of revenue on the table, and we had to constantly iterate both our pricing and our billing schemes.

As a result of, of that, by maybe not thinking forward enough where we'd be in three years for the product, not just let's say over the next year. Um, and then we also made our own internal reporting exceptionally difficult. Uh, cause we didn't have predictability and forecasting, which I think is something people sleep on and that's not truly pricing, right?

That's billing, but your billing can be driven by your pricing strategy. And that's where we, uh, I think slowed down our own growth sometimes early on just because we couldn't get the metrics and the predictability. in understanding where we were in terms of revenue this month and then where we'd be next month and the following month by having a pricing strategy that just kind of accounted for these things up front.

So we, we had to do several iterations, whereas I think those were learnings that people could internalize now and hopefully incorporate in maybe your first or second iteration of your pricing strategy.

[00:19:50] Zack Katz: And how did you implement these pricing changes and how did you communicate them? Like, so if somebody is on a recurring subscription and then you change prices, did you force move everybody to the new structure?

How did you try to navigate the PR aspect of it?

[00:20:06] Beka Rice: Yeah, we, for some people, it was more advantageous for some less. So we would often try to, yeah, you, I think you had a big list, right? So you were one of those people that it's like, I could end up contacting a lot of people, right? Um, we, we solved it by trying to offer like account credits or show people like, well, Hey, why don't you try these extra features that you would get for the next two months?

And it's, it's going to drive you more revenue. It's going to pay for itself. Right? So we, we had to do like a very high touch thing with our customer success team to communicate that, um, which isn't ideal. Right. And, and, uh, we are very happy to talk to customers more. That's always the benefit of that. But the downside being that you spend a lot of time and then a lot of engineering time restructuring it.

Which, um, I will say I think brings me to one of the key things I learned about SaaS apps that I just want to call out is that you want natural expansion in your pricing and you want net revenue retention, NRR, greater than 100%. So meaning, you know, if I have my customer base this year, even if a few of those churn out every month, Right?

The amount of revenue I get from that customer base should still be greater than where I am now at the end of the year, right? Because those accounts need to expand over time, and you cannot be constantly changing your price. You constantly, you can't constantly raise your prices, right? And so right now, if you're a WordPress plugin developer, and you sell a plugin, and it's 99 every year, and it's been that way for five years, How much revenue have you lost by doing that, right?

Whereas if you have a pricing strategy that's aligned to some kind of value metric or some kind of like, uh, metric that allows you to expand over time, that's even more critical when you have a SaaS app. There's a really great stat on that, that, um, if you have an NRR of like 110%, which is, is pretty reasonable, like, you know, pretty good apps like Klaviyo, Salesforce, HubSpot, whatever, right?

These are fantastic apps because of that. Your revenue will double in eight years, even if you acquire no customers, right? It's just an insane compounding effect that I think is super critical to pay attention to in pricing strategy.

[00:22:03] Katie Keith: That's really interesting because it underlines a key difference between SaaS and most WordPress products.

We do not have that in WordPress products. So if I have a thousand customers who bought last year, They will be grandfathered into their existing subscription cost forever, even if I increase the price for new customers. And since generally about 50 percent of them will drop off each year, I am absolutely not getting more value from that cohort each year in the future.

So do you have any tips for WordPress products to achieve that? Because it feels like as an industry, we're quite far from that at the moment.

[00:22:43] Beka Rice: Yeah, I think it depends on, um, how you want to structure your, your value, right? There's a lot of, a lot of models, you know, people do like cost plus pricing, people do like feature tier pricing, people do usage based pricing, right?

I think if as a WordPress plugin developer, The features you add are the main driver of what people will pay. Then you should obviously continue to improve your product, but you should have a line between what's in this tier versus like, when do I add a new tier that I can get people to upgrade to?

Right. Um, or like Zack, you brought up AI plugins. There should absolutely be tiers of usage, depending on how many queries you're making, right. That are either both aligned with costs or are constantly increasing, depending on how, how much someone uses something. So as WordPress plugin developer, I think you need to be judicious about thinking.

What is the main value of price? And, um, the goal is not to have like the most, like optimally fair price humanly possible, right? Cause oftentimes that's not a viable business, right? It needs to be good for you and the customer. It's got to be, what, what's the key value here? And then how do I make sure that the account I have with the customer can expand over time as they get more value, right?

Because that's what's fair to both of you.

[00:23:52] Zack Katz: And Becca, how do you do that in WordPress? Right? So WordPress is so funny because it could be just one person who has a hobby site. Buying your plugin to accomplish something or it could be an entire state of the United States that needs this for an enterprise level like installation of their multi site that with thousands of sites.

How do you span that when you're thinking about pricing? And also do you consider WordPress plugin subscriptions SaaS?

[00:24:24] Beka Rice: In the most traditional sense, um, not quite right, but if you are going to offer some things as a service, yes, but that also doesn't mean you don't have to price that way. Right. And so I know a lot of folks, for example, always default to, I want to have, you know, an annual subscription because I want to capture all the value upfront.

So people don't like download the plugin and cancel. And, and, you know, I lose a lot of money because like they get all the value upfront, right? Okay. Well then how do we think about that and turn that on its head? Right? So, it probably depends on the plugin, right? But let's take a few examples. One might be, okay, I have CheckoutWC, and it takes, you know, your WooCommerce checkout, makes it beautiful, conversion optimized, far easier for customers to use, um, and contains a ton of integrations.

Great. That's the core value proposition of that. Now I want to add in post purchase upsells, or pre purchase cross sells. What do I do with that? Well, you know, if I'm going to improve all the core value that I have, I should put that in the plugin already. But this is a totally different thing. This is almost like an add on or a separate plugin.

There's another tier of CheckoutWC for that that you can upgrade to, right? And so a lot of times we see people use the core product, like it, love it, understand they get good results from it, and now they want to use it to do more things to drive higher average order value. Well, now you can upgrade to another tier.

So you could think about feature tiers as one way to do that. Um, the other thing you could think about would be, do I have any service components to this where I can optimize revenue? So AI plugins, great example, things like product recommendations, right? If there are things where you're going to do a, uh, a part of the functionality that is, that has an offload or a SaaS component.

You should definitely be thinking about that from a value metric perspective. What's the key value metric? Um, how is that increasing over time, right? And ideally, your value metric is something that always goes up and to the right, right? And so like for JILT, for example, we didn't have that. We tried to pick metrics that like were kind of consistent every month.

And that was part of the reason we pivoted to total contact count, right? You can still like control that. You can make people who are not active for you to market to, but if you do and you send them emails, you'd send them to make money. And so that's like a win win for everybody involved. So I think it's, you can look at feature tiers, depending on what you're doing, or you can try to look at value metric and usage based tiers, um, if there's a possibility to do that in your product.

[00:26:42] Zack Katz: One of the things is that, uh, when you choose a metric, you're pegging yourself to that metric and saying, this is what matters. And for example, Becca, uh, saying like, I'm going to, I'm going to attach myself to whether the customer makes money and when they make money, I make money. Well, guess what? Most businesses don't make money.

Businesses can acquire big contact lists, upload them to a CRM and never email them. And you don't want to not. be paid for them using your service, just because they aren't making money, they aren't sending emails. So choosing the right metric, in your case, was subscriber list, whether or not those emails are being sent, because that relies on your customer doing something that they may or may not do.

They might not use your product, and you still need to get paid, even if your customers aren't using your product.

[00:27:35] Beka Rice: Yeah, there's an art to picking it, right? I won't sit here and say that it's easy to pick the right value metric. Right. To your point, you know, um, if in Jill, we said, okay, attributable revenue is the key, right?

We probably still would have made good money, but if people aren't sending all of the emails they could be sending, right, you have to constantly keep activating them on the product. So I'd say you might have a list of like three to five value metrics that you feel like could all be good ones. And then I think you need to assess where could my app be three years from now?

Would this value metric still be the right thing, then? Is it something that we can always expand our accounts with over time as people get more value from the product? And sometimes there is that level of indirectness, right? Where it's like the most, uh, you know, fair or direct metric could have been attributable revenue.

But that was not the best long term sustainable metric for us. Especially not if we, you know, as we were adding features like, uh, list building features. Right. Which again, you need to get paid for the effort that you're putting into developing the product there.

[00:28:31] Zack Katz: Yeah. And, uh, in terms of my experience with SaaS pricing, I actually had a Shopify app years ago, uh, called Contactify that synced Shopify lists with constant contact, and I, I started out by undercutting everybody and saying like, Hey, they're charging 20 bucks a month.

I'll charge 4 a month. And a lot of people, a lot of people signed up, uh, and my server kept on crashing because I was hosting on a HostGator. I was young. Okay. Uh, I doubled the price and then I tripled the price and, uh, that finally led me to realize I didn't want to do this business anymore. So I stopped doing a Shopify app, um, and got out just as it was growing exponentially.

So, uh, don't, don't be like me. Uh, think a little bit more before pricing.

[00:29:22] Beka Rice: Yeah. If you were going to price that app now, what would you do?

[00:29:26] Zack Katz: I would, I would have to think about that more. I'll come back to you on that.

[00:29:31] Beka Rice: Yeah, immediately. I would think, right. Like you have like either tiers for like number of synced, you know, contacts every month or something.

Right. That sounds like it's a good, potentially like a cost plus type model. Right. Because if your server's crashing, cause you have so much data flowing in between these systems, right. The data flow is, is the primary thing. Like, I'm sure there's probably other ways that you could do that, but definitely I'd say, you know, you can sync multiple 200 contacts a month for free, but then like, you know, you have tiers like a thousand, five thousand, ten thousand, whatever, right?

And that's exactly what I'm talking about is, you know, you don't just have to have a flat rate because it does one thing, right? Well,

[00:30:05] Zack Katz: here's the, here's the other side of it though. Having, going wide and going low isn't, is a strategy saying, yeah, we are way cheaper than everybody else. Uh, we're Costco.

When you go to Costco, you're going to get a dollar 50, uh, you know, hot dog. And that price isn't going to change. You're going to buy a lot of other stuff while you're here. So getting people in the door with a low price is a strategy. As long as you have a plan for big growth in the numbers of people using your product.

Uh, and. Opportunities to upsell those customers. That's the

[00:30:40] Beka Rice: key, right? And I think a lot of people look at like, let's say freemium, uh, as like a pricing strategy. That's not a pricing strategy. That's an acquisition strategy, right? And so in those scenarios where it's like, sure, there might be benefits to going very wide and trying to gain a huge, big audience, especially if there's network effects or like you have a good referral marketing strategy that can be great.

But if you don't have like paths to better profitability or, or like upgrade paths, that's not a pricing strategy.

[00:31:06] Zack Katz: Chris Lemma has a great story about, um. is a friend of his negotiated a really good deal. He thought, he said, okay, great. Uh, every, everybody who, uh, buys the software, they're going to pay this rate.

It's going to be awesome. A whole, like a host is acquiring this, uh, this contract for like this, this fixed price and the host didn't promote it at all and no, nobody used it. Uh, so they didn't end up getting paid at all. And the host got all the value from. Uh, the contract that they had. I don't, I didn't tell, sorry, Chris, that wasn't a good retelling of your story.

Point being, you need to make sure that regardless of who's using your product, uh, you're getting paid eventually. Uh, and that leads me to TrustedLogin, um, which is a SaaS that I'm running. It's, uh, I'm currently in the acquisition strategy, uh, side of it where like, we don't have tons of users using it currently.

Uh, our users are plugin authors who. You need an easy way to, uh, grant access to their, uh, to have customers grant access to their site to plug in authors so that the support team can log in securely. So, uh, that's kind of a complicated thing to describe and sell, uh, and the pricing on it is tough because you don't want to disincentivize people using your product.

You don't want to say, Pay per login and then people are like, well, uh, just send us username and password by email because then we don't have to pay for trusted login. No, you want people to use your product. So having a free tier that shows the value plus having, uh, a minimum cost once you get above a certain level and say like, okay, once you use this number of logins, 10 numbers of logins.

per month, then you start paying. Okay. But what if that never gets reached? What if you have a support team of 10 different people? Does that mean that each 10 of those people get 10 logins? Uh, there are. So many different variables that when you're thinking through price, uh, you need to consider. And so what we ended up doing, uh, we're, we're implementing these pricing strategy where there's going to be a base cost per month, a subscription cost, a flat rate that people pay.

And then on top of that, you pay a amount per login, but that price goes down as the number of logins goes up. So we incentivize people using the product. It gets cheaper. Even as the value, uh, goes up and people like, so if you have, uh, 3000 logins a month, it's 25 cents per login. Like that's, that's a cheaper rate as you go up, up from anyway, the point is, uh, there are a lot of considerations that As you talk it out with somebody, that's one of the things I'm going to recommend as my best advice later on.

Talking through your product and finding out all the different ways that your product could be used and abused is a great way to protect yourself from bad pricing because there's always a gotcha and as long as you've thought about the gotcha and have accommodated for the gotcha, you're going to be okay.

But if you, if you find like, well, if they do this, then they won't have to pay anything. That having a conversation about that will, will help reveal those kinds of gaps in your thinking.

[00:34:33] Katie Keith: Yeah, Trusted Login is interesting because you've got, I suppose, a blue ocean with that. There's no competition at all.

It's totally unique. And so all you need to do is show reasonableness and not disincentivize people to use it. So how would that change for something else? Like, for example, when I was looking at Shopify apps in the area that we're likely to create our own apps, I was really attracted to the ones that charge more based on usage and the size of the store and things like that.

But then I thought, hang on, a lot of the apps that I'm competing with won't be doing that. So does that mean that the biggest stores just won't use my app because they'd have to pay more, even though they can afford it? And it's a little bit like, you know, the whole, um, politically economy thing about taxing the rich.

If you increase taxes for wealthy people, there is an argument that those people will just find ways to avoid tax and move their companies abroad or something like that. It almost feels like that kind of thing where if I charge what I think is a value based way for my Shopify app, then maybe the big stores won't want to use it.

[00:35:44] Beka Rice: Yeah, I think that competitive piece is, is always a big thing too, right? And, um, I think maybe Zack, you said it earlier about like not being confusing, right? Where, uh, you know, convention over cleverness, I think is a really important principle to apply to pricing. We found, for example, with Jilt, when we had to explain like, oh, the price, you know, at one point in time was the number of unique customers, like your monthly, you know, active customers.

If you're not like your total list, and like, if you send multiple emails to that customer, like that's fine. Trying to encourage people to use more and more automations. And like already I've had to explain way too much for that price to make sense.

[00:36:22] Zack Katz: I remember I remember we had this conversation and I was like, Becca, You need a slider on your site that says like, how many users do you have?

And you had already been talking about this. It wasn't any, like, you, you already knew that that was the direction you were headed, but like, give me a slider. Cause everybody's got the slider. I want to see the slider. And if that's the kind of reaction that you, your customers are having, where's the slider, then that's the, that's the pricing strategy you should probably adopt.

[00:36:47] Beka Rice: Yeah. And I think it applies everywhere. Right. Part of, uh, what I've heard from folks is like, okay, well, you know, that's fine. If it's like self serve. But that's like enterprise too. Like if your sales associate is trying to do the same thing and close a sale and explain this, like you've hamstrung your sales team, good sales associates are going to leave and work somewhere where they can close sales more easily.

So it affects like organizations of all sizes. Where that, um, that clarity matters a lot. And, and I think, you know, Katie, it sounds like you're kind of saying something similar with, with competitors, right? It's like, there's clarity and understanding, like, how do I compare you apples to apples with someone else?

And, um, I would say in your shoes, one thing I've also seen folks do is have something that is similar to a competitor. So like, if you do have a competitor, um, a good example would be, we had a Shopify app that was kind of like product add ons for WooCommerce. It would let you add customization options.

GiveWP gives you access to products, right? And most of the apps in that space were a flat monthly fee, right? Well, then you can do that to be competitive, to get people in the door. Think about that as your acquisition strategy. But then as, you know, you talk about that revenue curve and, and maximizing the amount we capture under that curve, okay, well, what else, let's add a tier that has, you know, okay, swatch support, or like, um, you know, that's going to like, uh, customize order emails, right?

Like, look at feature definition as well as a way to maximize that, um, and not just like, okay, well, we have to charge a flat fee because that's what everyone else is doing. But you can have incremental changes to pricing, I think, to try to upgrade people that, you know, are hard, but getting creative like that, I think is where I've seen people have good success in trying to balance that.

How do I be clear? How do I make sure I'm competitive? But also like, how do I keep trying to gain more value over time? Uh, as I provide more value over time.

[00:38:28] Zack Katz: Yeah, those are good points. And the, those kind of, uh, those levers to pull of, uh, provide, I didn't know before I started TrustedLogin, all the cool stuff that you could do in Stripe, for example, uh, because EDD, I gotta say, it's a little limited in that.

And I think also WooCommerce, it's, it's a difficult thing to provide from a WordPress plugin standpoint. All the different options that you have in the subscription world. And I recommend everybody go to Stripe and play around with all these cool metered billing things you can do, because all this stuff we're talking about, uh, much of it is not easy to do in easy digital downloads, at least.

But if you go into Stripe, you can see, uh, you know, usage based tiers. You can see metered, like the metered billing can apply to a number of users. It can apply to a number of actions being taken. You can have very different, uh, intervals rather than just yearly or monthly. Uh, there's a lot of cool stuff that can, that becomes possible if you don't rely on WordPress as your subscription, uh, platform.

[00:39:38] Beka Rice: I will say on one hand, We're working on addressing that in lieu with, with what we're building. Um, but on the second, you know, Stripe is one good option, but I would say there's also a lot of other billing software, like. Uh, Chargebee, Chargeify, um, Killbill, you know, uh, if you, if you're into Java, you can, that's open source.

You can even go run that yourself. I don't recommend it, but you can, yeah, I mean, you can really, you can build like Ruby plugins and other things to extend it too. So you don't have to be a Java developer, but to self host it, I probably, probably would be right. So there's like a lot of. Solve problems. I think sometimes as developers, we have a tendency to be like, well, I could go build that and get excited about it.

And like, please don't go build your own billing system if you can avoid it. Um, cause I think maybe to take us a little bit away from story time for a second, you know, part of what I mentioned earlier is that reporting piece being super, uh, impactful and forecasting your revenue. And so one thing I did learn from, from Joda as well was we, we would bill based on active contacts.

But the problem was we would do a look back and say, Oh, well, this month, you know, you, you contacted a hundred people. So your bill is X, Y, Z, and we did a post bill and that's a terrible idea. And had we used like any off the shelf bill billing software, we would have seen that they don't often do that for a reason.

Because like, it's impossible to predict your MRR going back to what you were saying, Zach, about like issues with fraud, with truing up accounts. Someone cancels in the middle of the month. You have to like try to immediately charge their card when they're canceling, but they've already had some usage. So, if it gets declined, now you can't recoup that, that revenue, right?

So, I would say that, um, when we go from pricing into it's, it's, you know, sister problem billing, please just use what's out there and, and use best practices and, and above all, do pre billing. Even if it is usage based and you do like, um, prorated, you know, subsequent charges or a true up at the end of the month or, or something to like recoup anything else in the account that you may have needed.

Um, we found pre billing is just so much better in terms of reporting on, you know, this month's MRR, projected next month's MRR, what is our net revenue retention, what is our month over month churn, right? When you pre bill, you have all of that, uh, easily in front of you, and also measuring your account expansions a lot more easily.

[00:41:51] Zack Katz: And what do you do? You're good at things, Becca, so, so, how do you I appreciate

[00:41:57] Beka Rice: that you think so. I sound smarter than I am just because I've got a lot of help.

[00:42:02] Zack Katz: But how do you track all these numbers? Like, uh, I know there, there's like ProfitWell and there are other services that, that can help, uh, guide analysis of numbers.

[00:42:12] Beka Rice: Yeah, I, ChartMogul, I think is another one that's, that's reasonably priced. Um, we honestly Because we had our own bespoke thing in Jilt, we would do like, uh, it was hosted on Heroku. So we had data clips, which were nice. And we could pipe them into a sheet. And we had like an automated sheet that built everything for like weekly snapshots.

And so like, I would love not to do that again. I would love to use something that is more off the shelf, but that's why I think a lot of these existing tools are helpful because you do get those billing, um, and, and key metric snapshots, uh, completely off the shelf already prepared for you. Which is like, why have I pre billed this month?

What will I pre bill in the next month? How much have I expanded or contracted accounts this month? Right. When you're. using an existing billing system, and that's all off the shelf, a lot of that comes either baked in or with a subsequent tool like ChartMogul. Um, if you're much bigger, you know, you could even think about getting into your own data warehouse type thing, which we had at SkyVirgin.

I loved it, but it is a lot of work unless somebody on your team is, is very passionate about that.

[00:43:13] Katie Keith: Yeah. So when you are using these things and tracking the data, How, what metrics would you use to compare? So let's say you made a pricing change three months ago. What actual metrics should we be using to say, is this successful? And then come up with, what shall we do next?

[00:43:32] Beka Rice: I think on the pricing piece, there's, there's maybe a few guidelines, I guess I always look at.

You know, one is obviously going to be profitability, right? And I think it's hard sometimes for folks who understand their costs, but um, obviously you have your hard costs like hosting costs, if you have them, you know, your own website, licensing software, et cetera, et cetera, as well as your support costs.

I think folks forget to try to, you know, incorporate support cost, um, across the board. So when I look at success, I need to make sure that I'm hitting, you know, acceptable margins when I include all of those things first and foremost. Um, you know, we, we shoot for 30 to 40 percent, uh, margins at minimum, uh, after we, after we look at those costs.

Um, the next thing I would say is we always look at, um, MRR forecasting and, and month over month growth rate. Uh, we target less than three percent month over month. user churn. Um, and then to counteract that, obviously we target a certain percentage of account expansion that would cover that churn so that our net revenue retention is still positive.

Right? So if I've lost 3 percent of my customers in a given month, um, I need to make sure that all the customers I still have are expanding their usage over time so that I'm basically offsetting that loss. Um, and we compare those month to month. When we look at longer term metrics too, especially for SaaS apps, we always found, um, ARPU, Average Revenue Per User, to be a pretty good guiding.

metric as well. Um, and so, you know, with, with Jill, we were targeting like, uh, usually 90 to a hundred dollars a month and, and seeing like, can we, can we kind of push this up, um, to help us better understand our unit economics as well. So I think it can get overwhelming to try to look at a lot of those metrics.

Um, if you are just starting in the SAS, in the SAS space, I would say your unit churn and your MRR have to be your guiding principles. And then once you start to get some data, then you need to look at account expansion or net revenue retention to show you. You know, am I, am I offsetting losses from customers who leave me?

[00:45:33] Zack Katz: And the margin, you don't have any margin when you start.

[00:45:38] Beka Rice: Yeah. And I think when you start, like, it's just going to be so much harder to know your costs, right? Like how many support agents do I need for my user base or per, you know, a hundred users, a thousand users. Right. So I think getting to margins, like when you're first starting can just be super difficult and you kind of do, um, I think we're close to profitable, right?

Like that's fine. And in the beginning you should definitely pay attention to that as you get more data, but. Um, yeah, I think, you know, which, which numbers go up, right? Does the MRR number go up? Good. That's great. That's what we want to focus on. Does the churn number go down? We're happy. I mean, more importantly, though, like talk to customers, right?

Pricing can only take you so far. You still have to build something people want.

[00:46:19] Zack Katz: That's a great point. I know we're getting tight on time, but communicating with customers about, uh, like finding out which customers to talk to about pricing and how to talk to customers about pricing, uh, and get their feelings on it.

Um, how, how did you do that?

[00:46:37] Beka Rice: I think that's a good one because I think alignment there is important. Uh, I think maybe Katie said it earlier, talking about like the, uh, the segment. Yeah. Right. Which is like, if I have a certain segment of customers that I'm targeting, those are the people that I care about their feedback most.

Right. And so like, I think especially people who do like, let's say a freemium model have a tendency to like, Oh, feedback is good feedback. I'm like, I like my free users. I'm happy you're here. I don't pay attention to your feedback. Like, I pay attention to it when my paid users also say it. And so, I feel like pricing is kind of similar, right, where, um, I can't remember the source off the top of my head, but there's like, are you hunting, you know, rabbits or deer or whales or whatever, right?

Like, what's the size of the account to, let's say, get to a million or two million dollars in ARR? Which I think is kind of like a skate velocity, right? And so you can get like, you know, 100 of these accounts or a thousand of these accounts, you know, or one whale, right? And what are you trying to go for?

And so when I think about, um, pricing, I think, okay, well, my marketing strategy or the kind of people I'm going to acquire is this. And so that's the kind of people I'm going to listen to for pricing. And that's where I want my ARPU to be too. And if my ARPU is a little bit below that, you know, then I need to dig in.

Is the product not meeting needs? Am I churning people in different cohorts at different rates? Um, is my marketing just not right for the kind of people I'm trying to acquire? It could be any of those things. I think that's where some creativity and honestly, I love those problems. I think they're the fun problems to like figure out what part of the system is not working as you expect it to.

Um, but you know, in a nutshell, it's make sure that your price is right. is tailored to the kind of customer you are trying to get. And then forget about everybody else, right? Like if I'm charging a hundred dollars a month, I'm probably not going after the enterprise clients of the world. They would look at that and laugh at that.

Great. Goodbye. Don't need you. If you sign up, great. I'm not going to pay attention to your feedback. I'm not going to add, you know, single sign on support and, and, you know, SOC 2 compliance.

[00:48:31] Katie Keith: Yeah, that makes sense. And that will also help our product not to be too bloated as well, because that also applies to feature requests and other types of feedback, not just pricing.

So we only add features that our actual target customers want, and that will prevent things like scope creep as well.

[00:48:48] Beka Rice: Yeah. And to be fair, if you're listening to this and you're like, what are you talking about? Right. You've just started out. It doesn't matter. Again, MRR, number go up. And so like, if you're not sure about your target customer right now, That's okay.

These are things that I think as you start to get a little more maturity and you have groups of customers, that helps you go to the next level and know what to build next.

[00:49:08] Katie Keith: Yeah. And we talked about lots of stuff and as we can see, it can be really complex. You can really delve in there and make a whole, uh, Science slash art.

It's actually both of this, or you can keep it simple. So let's wrap up and keep it simple. What is our one piece of best advice? If you're going to do one thing with your pricing, then what should you do? So my best advice on that is try a few different pricing things, having looked around at what other people do and use your common sense, and then measure the results.

Then make some changes, measure again. So just keep changing and iterating. And that way you will gradually get towards a sweet spot on your pricing. So Becca, what about you?

[00:49:58] Beka Rice: I mean, I'm, I'm going to cheat slightly because I'm going to lump a couple of things together. I would say, uh, find a value metric that you can create pricing tiers for and pre bill for it.

So kind of smush them together. But I think that's. That's the key for, for long term success and especially net revenue retention.

[00:50:20] Zack Katz: Yeah. And mine is to play around with Stripe. Find out what's out there because it seems, you know, when in the WordPress space, it seems like, oh, you just have annual billing.

Well, there's a bigger world out there.

[00:50:35] Katie Keith: Absolutely. Yeah. So, well, that's a wrap. Becca, thank you so much for joining us. Where can people find you online?

[00:50:43] Beka Rice: Yes, I would love if you would check out, uh, Kestrel. at CastrolWP. com. Like I said, we've acquired, uh, some much, uh, much loved WooCommerce products, and we're always building more.

Um, and you can find me personally on, um, at B E K A underscore Rice on Twitter, uh, or BeccaRice. com on Blue Sky.

[00:51:04] Zack Katz: Well, that is the end of WP Product Talk Season 5. We put a bow on it.

[00:51:09] Beka Rice: Season finale. I love it.

[00:51:11] Zack Katz: Yeah. Ending with a bang. Uh, join us again for Season 6, uh, starting on January 22nd of 2025. So everybody listening, happy, uh, end of 2024 from WP.

Product Talk. Happy holidays.

[00:51:29] Katie Keith: Yeah. Well, special thanks to PostStatus for being our green room. If you're enjoying these shows, then do us a favor and hit like, subscribe, share it with your friends, mention it in your newsletters. And most of all, we hope to see you for a brand new season of WP Product Talk in 2025.