This is one of the best (and easiest to read) articles on pricing I've ever come across. No formulas, no complexities explaining A/B tests and other scientific research, just a story of a guy who made some software and heavily underpriced it.
I also found the link to indie theatre incredibly interesting as well.
Excellent article, but I think it's important to point out that in both his examples (his own sales and the theater) the products/shows are being compared to products/shows that are vastly more expensive. Even after raising his price, qlab sounds pretty cheap next to other similar programs prices at $1000+. Even if the theater tripled their prices, they'd be pretty cheap compared to broadway.
If the standard price for an audio suite like his was $50, I bet the increase in price to $249 would not have been as warmly received (to put it mildly). I don't think this works if your product isn't comparable to some other product that costs an awful lot more than what your charging.
I think the brain switch into anti-deceive mode and customers become suspicious if your price is too low compared to other products. It would feel just like someone selling you a brand new car for $200, you would seek where is the issue, and probably won't buy it even if you couldn't find any issues.
It's very impressive to see the increase in number of licences for v2, but I suppose some of them are v1 user that upgrade. It would be nice to see the number of licences sold to new customers only. That looks like a very good financial move anyway.
FWIW, that other product has since lowered their price to be more comparable to QLab, and all those recent figures hold in a world of more price parity.
There are limits, of course, depending on the competition. But most software that has proved popular is probably justified in some type of price increase, especially if more features are added.
I'm about to increase the price by 30%. Hopefully it won't make much difference to the purchasers, but an extra 30% revenue will make make a big difference.
I like that the title of his post reinforces his point, using "2 bucks" instead of the common "2 cents." It suggests that this information is worth more than a typical opinion (and given the detail and outcome of the post I think he's right).
I would really like to see Chris Ashworth interviewed on Mixergy. I think he's got a great story on niche marketing, problem solving, and pushing things forward.
If you're doing SaaS and discovering your price is too low, do you raise your price grandfather in your current users for a certain period of time?
Conversely, if your price is too high, do you lower your price give your current paying users freebies (an extra month or two) for paying at the higher price?
I know at the very least I'd want to avoid another ZenDesk situation (http://news.ycombinator.com/item?id=1357592); having happy customers seems very important. Obviously there's a certain point where one needs to cut bait, though.
I'm in the "Grandfather Everybody in at their current price" camp on this one. It gives you a ton of upside, and not much downside.
Grandfathering somebody in at a low price messes with their head in a good way. Suddenly, they're getting a better deal than everybody else. They're saving money. Hell, they're making money every month they keep that thing. No way anybody's going to make them give it up. They earned it by being an early adopter.
I did this with S3stat when I raised the price from $2/month to $5/month. Here it is a year later, and most of those two buckers are still around. Attrition is fairly high among the five dollar camp, but the early guys are holding on to their cheap subscriptions like they were gold.
Better still, when their credit card expires or they accidentally cancel their account, I get to send them this email:
Looks like your card expired. Head over to S3stat.com when
you get a chance and reactivate your account. It looks like
you were on our old $2/month pricing model, so that's what
we'll set you back up with when you reactivate.
... Six hours later, I generally get a little ping in my inbox telling me I've gained a new "Legacy" subscriber.
So sure, there's a downside, in that you miss a chance to convert those folks to the new pricing model. But in doing so, you'd need to factor in the immediate loss from a percentage of them simply saying "No. It's not worth that much to me", plus the even scarier "What? I'm still paying for that??? Thanks for reminding me to cancel", as well as the long term higher attrition rate from people who aren't eternally grateful to you for giving them such a good cheap rate while you're charging everybody else more.
I think that about sums it up. Grandfathering: good. Not Grandfathering: possibly bad.
Interesting, and I think that might identify the dividing line--if your customers are managers then they're probably using Other People's Money, and may not be as frugal as founders, freelancers, and direct consumers.
Remarkably well-written. Wordy, yes, but entertaining, and insightful.
I'm inclined to agree with his points; and, I wonder how it relates to free (libre) software. Maybe not at all, but it would be really fulfilling to have that kind of user.
Great article. I think the importance of starting with a low price point to generate a customer following remains key in this story however. So raise your price but don't expect all customer groups to react like the Qlab ones did!
Like my co-founder said, "if you price it too low, customers would think it is worthless." However, this is totally different from the micro-pricing ecosystem so don't get me wrong.
2. There is a much wider selection in the number of video games they can choose to play.
So you have two forces working against you. First, if you raise your prices, there are a lot of other games people can play. Second, if you raise your prices, people can simply choose not to play at all.
Not so with audio engineers. They must have the software to make a living, giving them a lot less choice in the matter. They also probably become more intimately familiar with the software than most gamers become with video games. Finally, the context encourages a level of maturity that recognizes the impact of freeloading and fosters good-customership.
So, that's why you probably won't be able to charge more for a video game. Although they do get away with it in some contexts (rock band, some racing games).
P.S. as much as you would like to believe gamers will pay for quality wherever they find it, there's also this issue that in your industry (apparently roguelike games) there's this huge norming influence toward free-to-play games. That probably doesn't help you much.
Also, gamers are notoriously cheap. Consider WoW players who whine about the servers being down, and their justification: "I pay 15 bucks a month, and they can't even keep the goddamned servers online!? WTF!"
Frustrating, to say the least. $15/mo for (in many cases) 60-80 hours of entertainment per month, if not more for the extremely hardcore.
I don't agree that gamers are cheap as a group. Most gamers I know not only own several consoles and a graphics card that cost more than many peoples computers, they also happily buy $60+ games on the day of release several times a month. If you try to tell them that by waiting 6 month they can get the same games for half the price, they'll look at you as if that was the stupidest thing they've heard in their entire life.
I agree, I don't think it does. $50 feels like a lot even for a commercial-grade game, $60 feels like a fortune; gaming also has an enormous piracy problem (look up what happened to Paradox Interactive with the release of _Demigod_).
Gaming isn't really the same field as commercial software; a product is released once, and that's the end of it, as opposed to needing long-term support like a commercial product does. Put another way: after people buy Halo 3, they aren't likely to upgrade to Halo 3.11 for Workgroups.
I suspect the game psychology is quite different. A person looking for a sound editing suite needs a sound editing suite, and the question really is whether to chose Suite A, B or C. A person looking for a game is probably looking for any game, and knows even if they buy your specific game they might not get into it and therefore not get full value. They are also not concerned about ongoing support. So I don't think this guy's lessons apply.
I also found the link to indie theatre incredibly interesting as well.