Episode 719 | How to Test Pricing, Lifetime Deals, and Building Something for Everyone (A Rob Solo Adventure)

Rob Walling:
This is in line with that thinking. That really, even if you’re a horizontal product, you still have to make some difficult decisions about who your someones are going to be. Who are you going to have everything for? Because even if you have a horizontal product, there are going to be different use cases and you are going to have to make hard decisions with incomplete information as the founder, or as the product leader, about what to build and what to say no to. 

You’re listening to Startups For the Rest of Us. I’m your host, Rob Walling. Today, I’m going to be covering some solo topics. There’s a listener question or two thrown in here, but they are questions that I think apply to a Rob solo adventure. 

The first topic I’d like to cover today is about testing pricing for your product. This came about when I asked Twitter for questions when Derrick Reimer was going to be on the show and we got more questions than we had time to cover. This question was an overflow that I saved in a questions Trello board. It’s from Kat at buildthekeyword.com. She asks, “How do you test different prices for your product?” The answer is there are several different ways to do this. 

Testing pricing is hard, but the thing to think about is there’s testing pricing for brand new customers who are coming to your website, or doing a demo or sales call. And then, there is changing pricing on existing customers. Notifying them, “You’re currently paying $50. It’s going up to 100,” or 75. Separate those two things in your mind. Because what you don’t want to do is change and test prices on existing customers without being really confident that those price changes are in order. Usually, you test it on new folks coming in. 

I have only known of one SaaS company that ever test prices. Everyone else just does not have the volume, and frankly it is so much work to do this well. It’s truly just split testing. Having people click and the price appeared differently, the standard split test definition that we talk about. It’s not something that I see almost anyone doing. Usually, the way that you test pricing if you have a low touch funnel is you go to your pricing page and you just change the pricing on it. You see how it impacts your conversion rate over the next week or month. I’ve called this a poor person’s split test before, which is it’s not ideal, it’s not scientific. But if you have a real pulse on your business, and you have a decent flow of traffic, and prospects, and people coming across your pricing page frankly, then you can see patterns. When I used to test pricing, it was only when I had a lot of folks hitting that pricing page. Because if it’s a trickle, you can’t see the difference. There’s too much noise. 

Usually, most people don’t look at changing their pricing as a test. They often say, “I’m going all-in and I’m just going to change my pricing. I think I’m priced too low or I think the value metric is off.” They go to the pricing page in the Stripe call, and they just change it. I’ll say hope for the best, but really it’s a calculated risk. It’s a calculated gamble of odds are pretty good I’m under-priced, I feel like I’m under-priced. I am going to solve that by raising all of my tiers. Or by, let’s say, dropping my lowest tier is something people frequently do. Obviously, I’ve seen several TinySeed founders do that. And then, trying to make it work. There were times, when I’ve raised prices, where I was just like, “I’m committed to making this price point work.” It’s called aspirational pricing. I aspire for my product to be worth this much, this is the business I want to build, it has this pricing. Therefore, I’m going to keep building features to where this price is a no-brainer. 

You can say, “I want my price points to be $1000, that’s the minimum.” It’s like yeah, it’ll take you years to get there, or you’re just in the wrong category to have that kind of price point. There’s all kinds of ways I can poke holes in what I just said. But for me, it worked. It allowed me to build a great business. 

If you are demos, and it’s one-call closes, or it’s procurement, or whatever, and it’s a high touch sales environment, you can just unpublish your pricing from your website. You can either say, “Starts at 499 a month. Starts at $1000 a month,” whatever it is. Or you can list some pricing and call us, or you can just not list pricing at all. Have a pricing page. When they click through say, “Hey, click here to talk to our demo team.” You could say our sales team. You could say, “Click here to talk to the founder to learn more about how we structure the product and how this works.” Then you split test it a bit, and you start quoting prices that are higher than what you’re currently changing, basically. You see the reaction. You see if folks choke, or you see if folks … 

Usually, what you’ll do is you’ll double your price and someone will say, “Oh, yeah. Great,” and they still sign up. Then you’ll double it again, and maybe get some pushback from a few but you realize, “Oh, I can still close some deals. This is how I think of testing pricing. Notice I haven’t said test price drops. That does happen, it’s just very, very infrequent. Usually if you’re testing, you are trying to test the price elasticity of your space and of the folks who visit your website. Or the folks who are raising their hands and becoming leads for you. It is an inexact science. It just always is. 

So is attribution. When people are clicking through and converting, where did all these leads come from? You can’t attribute 100%. Can you attribute 60 or 70 percent? Yeah, probably. Is that good enough, is that the best you can do? It probably is. It’s the same with any hard decision where you have incomplete information. You do the best that you can. Part of it is some founder gut. You collect what data you can, and you make observations, and then you make a bit of a gut decision about, “Should I continue with this price increase, or is it not working? Have I killed the business?” Not even killed the business, have I slowed the growth? 

It’s not just testing pricing. It could be I’m going to add a credit card before free trial. I’m going to remove the credit card before a free trial. I want to try freemium. I want to discontinue freemium. I want to keep the pricing the same, but I just want to change the structure. I want to change the value metrics. So my tiers are still 50, 100, 200, but maybe I don’t price based on storage, now it’s priced on emails sent, or whatever. There’s a bunch of different things you can do here. 

Before I did these, I would always have a conversation, well A, with myself. But B, with a couple other trusted folks that I had. Is this a co-founder? Is this an advisor? Is this someone in my mastermind? Is it a mentor, if you’re in a program like TinySeed. I would get the best advice that I knew how to get. I would factor that in with my own gut feeling, and then I would test. For me, most of the time, I was dealing with low, medium touch funnel so I could test on the website and we also had a lot of traffic. It allowed me to quickly … I wasn’t split testing, keep in mind. But I knew historically, in any given week, how many new trials we got. And in any given week, how many new conversions we had. I could see, within a week, I was like, “Okay, we’re still on track but our pricing has increased from there.” Or, “We’re ahead of track.” You could get a gauge for it early. It wasn’t definitive, but it made me feel more comfortable with it. 

Testing pricing is hard, it really is. But I would actually say you have an advantage if you are doing high touch, if you’re doing demos, and that allows you to have conversations with people. It allows you, you double the price, you quote it to them and they say, “Wow, that’s out of our budget.” You say, “Oh, what is the budget? What is your budget?” Or, “We can work with you. For example, if you want to pay annually, I can knock 20% off of that.” I’m not saying sell from your heels. I’m not saying you just back off instantly. But when you are increasing prices, there are ways to back off that increase in realtime on a sales call if you realize that you have potentially over-quoted for this particular prospect. 

Thanks for that question, Kat. I hope it was helpful. 

My next topic is about one-time payments, especially folks talking about them on Twitter. It is usually indie hacker founders, who are now doing, I don’t know if they’re following in the Basecamp steps of doing once. They’re doing lifetime deals on SaaS, which doesn’t quite … Who was it, Ahnar and I were talking on this show? It might have been Derrick. Where I said if you collect one-time lifetime payments for a SaaS, but you now need to keep that SaaS running for years, and years, and years, is it a little bit, I don’t want to say Ponzi scheme, I know you’re not doing that intentionally. 

Basically, if you don’t sell additional lifetimes a year from now, you will be paying server costs, hosting costs, whatever, all the other costs, storage costs, whatever else is there. Even maintenance cost, unless you’re doing everything yourself. You are taking that out of one-time earnings that you got 12-months ago. It’s just an odd model. One time software makes sense if you download it and install it, and there is “no maintenance.” I don’t need to do bug fixes, I don’t need to maintain server infrastructure, and all that. That’s one my struggles with it. 

My other struggle is I almost feel like people don’t understand how different one-time revenue is from recurring revenue. Monthly recurring revenue is the golden standard. This is the cheat code of every other business, where they want to get paid monthly on a predictable schedule. SaaS has that cheat code built in by default. You’ve heard me talk about the cheat codes of SaaS being net negative churn and a handful of others. But even annual revenue, when it’s recurring, can be tricky. It can seem … 

I’m going to give you an example. We’ll get folks who apply for TinySeed. You’ll see their revenue over the past six months, we ask for MRR. You’ll see it going up. It’ll be six months ago, it was 1000. Then it was 2000, 3000, 4000, 5000, 6000. We’re like, “Well, this is an interesting early stage business.” For a business to be growing that quickly over that short a period of time, obviously depending on their customer count and all this, they have some product market fit. Someone is wanting to buy this, they’re sticking around. There’s growth, they know how to market. There’s signals there. It’s early, but you see it. Then we’ll get on a call with them and we’ll realize they are collecting annual payments. All those numbers have to be divided by 12. Because it’s actually $6000 of ARR, of annual recurring revenue they collected. Which, divided by 12, is only $500 a month of MRR. 

Really quickly, we can have a $6000 MRR business, that appeared to be that way but wasn’t actually, suddenly become a $500 MRR business. Which frankly, is at the bottom, bottom end of the threshold at which we would even consider funding a company. So it went from this amazing business to oh this is, I won’t say unfundable, but as a general rule, we don’t fund companies with MRR that low. That’s just going from monthly to annual. 

One-time is another order of magnitude removed from this. To where, this is the old days, where I started the first of every month with DotNetInvoice, which was $300 downloadable software. First of every month, $0 in revenue. It was such an uphill battle to grow that business. It was a step one business, there was a bunch of things around it so I’m not trying to extrapolate my experience with that one thing. But once I went to recurring, I swear, I will never go back. Recurring revenue is where it’s at. Whether you’re doing annual … I’m not saying monthly is better than annual or anything like that. 

I really want to caution you against getting caught up in what feels like zigging when everyone else is zagging, but just doing it for the sake of being a contrarian. It feels like this willful belief in something that … As I’m saying annual and recurring, and doing the math, and then saying one-time is just so, so much less valuable than that, there are folks on Twitter in the indie hacker community who are posting these one-time things and acting like it’s a big deal. It’s something, but you’re selling a lifetime whatever for $50. You’re just competing on price at that point. I guess that’s good, to get your brand out there. There are pros and cons to this. But this is not the kind of business you should aspire to. 

If you’re listening to this podcast and you view it as a step in the direction of trying to get your name out, great. Be really aware what you’re getting into if you’re going to be charging lifetime or one-time deals. It’s not a never from me, but it’s a be very, very cautious of how you think about that revenue. As Ruben Gomez says, he did an App Sumo deal. He views those users, he got paid once, and he made I forget what the number is, 33,000 or something from it. App Sumo takes the lion’s share, they take 70 or 80 percent, I believe. He views them as freemium users. He says, “They don’t even think of them as paid users.” That’s how you need to think about it. They are free users that you happened to get a check at one point to maybe help you develop, to maybe help you build. 

I think that’s a much more healthy way to do it. Personally, I can’t imagine ever doing lifetime deals, actually. Then those customers, if you go to try to sell this app, now they are a liability because you have to service them and there is no ongoing revenue. There are some problems with it. It’s not a never do, but it’s a highly discouraged. If a TinySeed company came to me and said they were going to do a lifetime deal, it’s like forking your code base, it’s like translating it into other languages, it’s like launching a second product. I would be pretty hard against it, unless they convinced me that they have thought through all of the ramifications, both positive and negative, and they could convince me why it’s the right choice. 

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My next topic is one from Des Traynor. I saw a tweet from him. He’s the co-founder of Intercom, which I believe is a unicorn company out there with a few billion. He spoke at MicroConf several years back, he’s a good dude. I invited him actually to speak at a recent MicroConf, but he’s busy. He said he has a hard time getting out and about, and speaking at events. But he tweeted, “Having something for everyone gets you acquisition. Having everything for someone gets you retention. Choose wisely.” What an insightful tweet. I respect Des a lot as a product thinker. If you’ve heard any of his conference talks frankly, he’s done talks at YC, he’s done talks at MicroConf. Search him up on YouTube. 

His thinking, for me, it always lines up with a lot of the things I’m thinking, but it takes them to the next level. He says things that, once he says them, I’m like, “Oh my gosh, that’s brilliant. Oh my gosh, that’s obvious.” But it wasn’t obvious before he said it. That’s the best type of philosophy or thinking that I like, which is something that makes me realize something new, it educates me, but it feels very also intuitive at the same time. 

I love this idea. “Having something for everyone gets you acquisition. Having everything for someone gets you retention.” And, “Choose wisely,” he’s implying you have to choose between those. Because in a perfect world, wouldn’t we have a bunch of stuff for everyone so that we could acquire new customers? And then, we could have everything for just one or two of those ICPs. But what he’s saying is then you lose the others, they all churn out. This is in line with that thinking. That really, even if you’re a horizontal product, you still have to make some difficult decisions about who your someones are going to be. Who are you going to have everything for? Because even if you have a horizontal product, there are going to be different use cases, and you are going to have to make hard decisions with incomplete information, as the founder or as the product leader, about what to build and what to say no to. 

This is where realizing who your ideal customers are, who are your best customers, who are the ones who are least price sensitive, who are the ones that get the most value out of your product that churn that least. That are, I don’t know, the best to work with, and that just love it, and stick around. And they tell their friends. They do all these things that help push the business forward. Those are the folks that you try to build everything for. It can often to be hard to find those people, or to know what their commonalities are. 

It might be as simple for you as it was when I built my last startup, Drip. Originally I was like, “Well it’s going to be SaaS founders, and bloggers are using it, and WordPress plugin developers.” There might have been one other, but I think those were the first three. What I realized quickly was WordPress plugin developers were not actually a great audience for it. There’s a bunch of reasons for it. But it became obvious that really, SaaS founders, because there wasn’t a great ESP for SaaS at the time, and then bloggers because they were trying to move automations, move up from MailChimp or move down from Infusionsoft. Then what we realized is we actually were naturally, organically acquiring ecommerce customers. 15% of our customer base was eComm and we had never marketed to eComm. 

It was surprising to me when we found that out. I didn’t know. We had a few thousand customers. We had a virtual assistant. This is before AI, I’d have AI do this now. But we had a virtual assistant go through and categorize a big sampling of them. It turns out that it was surprising to me that so many eComm folks were using it. There was later a pivot to focus on eComm after I left, or as I was transitioning out. Now, it’s been a pivot back to where it’s more of a general email marketing tool and not going specifically after eComm. But those realizations … Drip is a horizontal play. It is an ESP. It could be used by anyone. We had realtors using it. We had folks building custom, bespoke tailor in London. We had podcasters, we had all this stuff. We had internet marketers, info marketers, course makers, all this stuff. That was actually the third, I was grouping bloggers with course folks. I think today they’re called makers or creators, but that term wasn’t really around back then. 

What that made us realize though, is I could bucket the feature requests into, “Oh, they’re SaaS, so they’re going to want this. I want to build some stuff for SaaS.” We did realize that SaaS wanted to go down a path that was really complicated. At a certain point, we backed of it, I’ll say. Folks like Customer.io and Userlist have done a much better job of catering to SaaS. But the bloggers, the course creators and eComm were folks that we were taking comments, thoughts, and really trying to serve. 

Now what we also realized was that bloggers were high churn. Bloggers really hopped around. They would quickly switch. Or they would stop blogging, that’s what we saw a lot. They were very price sensitive, actually. It became this interesting balance of you can have a few ICPs, especially if you have a larger team. But you can’t have 20. You would need separate products if you were going to do that. You would need a lot of folks working. Can you imagine, one code base that catered towards 20 different ideal customer profiles? It’d be a mess. 

That’s what I like about what Des is saying here. It’s, “Having something for everyone gets you acquisition. Having everything for someone gets you retention.” That idea of having everything for one ICP in the early days, and then two, and then three. Maybe you never even get to three, maybe you do only have a specific vertical where you’re targeting HR representatives that work for construction firms, for example. And that is your vertical, then maybe you really do have one ICP. That makes it even easier. Then you build everything for that someone. At a certain point, you tap out your total reachable market. Then, you get to decide do I build a second product for this same ICP? Or do I expand into an adjacent vertical? Do I move to be more horizontal? Do I raise prices? Whatever else, you figure out how to get past that plateau. 

But having something for everyone, a little bit for everyone, it can get people in the door. But does it create the longterm retention, and net negative churn, and expansion revenue, loyal customers, retention, all that? It’s hard to do that. You have to build a product that your ideal customers love and need, and solves a desperate pain point. Desperate enough that they are willing to stick around through the ups and the downs. It’s easier said than done. But that’s why I liked Des’ relatively succinct yet elegant statement of choosing wisely, which you focus on. 

The last topic is on recommending things to other people. This is a person-to-person recommendation thing I’m thinking about. As an example, when I recommend a biography to someone I will say, “Even if you don’t know this person or know their story, it’s a really good story.” This is Phil Knight with Shoe Dog. I don’t really care about the advent of Nike and the start of the company. In fact, I didn’t even wear Nikes when I was a runner, I love ASICS. The idea of Nike was just, “Okay, is this going to be interesting?” It is so well written. If you’re listening to this and you haven’t read or listened to Shoe Dog, I recommend it. It’s an incredible story. One of the best parts is that it ends right at the startup story because it ends, I believe, right before they go public. It’s like once they go public, I don’t really care. I don’t want to hear the trials and tribulations of being a big company, it’s not something that interests me. That’s one of those books where I’m pretty opinionated. Even if you don’t know the person, it’s good. 

Versus the Sid Meier autobiography. If you don’t know who Sid Meier is, you don’t know the games he made, it’s fine. But it’s really cool if you know Civilization. His book is called Sid Meier: A Memoir, or something like that. If you know some of the games he created and you hear him, the touchpoints are really interesting. 

Another one is Masters of Doom, which is the story of id Software, that made Doom, and Quake, and Wolfenstein 3D. I never played any of those games, didn’t really care about them. Even if you haven’t, it’s incredible. It’s one of my favorite audiobooks of all time. Then there are others where, again, you need to know the person in order to be super interested in it. I actually felt like John Romero, who is one of the id Software guys, has a book. It’s an autobiography called Doom Guy. That one was similar where it’s like, “This is cool.” But if you don’t know him or don’t know the story, I think it’s less interesting, so you have to weigh that. 

The reason I’m bringing this up is I think this is a helpful mindset or a helpful framework to think about why you’re recommending someone and letting someone know that. It’s like having strong tastes about particular elements of it. Because I get recommended, I’ll ask on Twitter or I will just get recommended stuff. I’m often like, “What did you like about it?” Because I want to figure out if our tastes are in line enough that it’s worth my time. It’s not the cost. Buying a book, whether it’s on Audible, or on Kindle, or in dead tree version, the cost is irrelevant for me. It is the time it’s going to take me to get into it and evaluate it. I dig in pretty deep on recommendations. 

I’ve had a lot of recommendations. Like I will ask specifically, “Hey, I’m looking for a book that goes deep on SaaS or startup marketing approaches.” I’ll say tactics, specifically marketing tactics, “I want to know a good one to recommend to people.” People will just recommend just crazy random (beep) like, “Shoe Dog by Phil Knight.” I’m like that’s not startup marketing, what are you talking about? Or someone recommended The Lean Startup. Its talks almost nothing about marketing. There’s nothing about marketing tactics in there. It’s this fundamental misunderstand of what the question asker … it’s like they see a keyword, maybe it was an AI answer. I don’t know, man. It’s like they see a keyword that says startup and the AI writes something. But you didn’t think it through, so usually I have a followup question of if I didn’t know any better, I wouldn’t know those were not good suggestions for what I was looking for. 

That’s why, if I’m going to recommend something to anyone, to a friend or to a startup founder, I will tell them, “I recommend you read this book and here is specifically why.” In fact, I recommended Chet Holmes Ultimate Sales Machine today. What I said is, “I think the book is 20 years old, so it’s a little dated. I also think there’s about a third of it that you don’t need to read, and there’s a third of it that is really focused on the Dream 100 customers. I think that’s what you really need. Then there’s a third that’s about business operations, and you can read that if you want to. But really, the reason I’m recommending it to you is because this whole concept around sales and how we does sales. Even though it’s outdated today, you’ll get the idea and you can adapt it.” 

That recommendation is so much more helpful than me saying, “You should read this book.” Not only does it tell you why, it puts guardrails around which part should you really focus on. “If you really like it, read the whole thing, but in the interest of your time being valuable, you can probably just read the part about the Dream 100.” It allows them to think internally, “Oh, this is why I should or shouldn’t read this.” And it allows them to think, “Maybe I shouldn’t.” Maybe the recommendation is off and I get to make that decision. I think being pretty descriptive when you make recommendations is certainly something that I’m doing and I hope it’s something that you will consider doing as well. 

That’s it for today’s episode. Thank you so much for joining me this week and every week. I’ll be back in your ears again, one week from now. Same time, same place. This is Rob Walling, signing off from episode 719.