First of all, I don't think you should charge $25 per month. A company of 10 people spends more than $25 per month on toilet paper! If you're in a market where your customers are cheap or have no money (or both) they may actually be unwilling to pay more than $25 a month. In which case you should ask yourself why you're entering a market where your customers have no money and no desire to spend the little money they have?
You're in software! Software is used in every single company in every country in the world. In planes and cars, in phones and toasters. You could be building _anything_. You could be saving companies millions of dollars with 12 lines of clever Perl code!
But I digress.
- the rule of thumb is that you should charge high prices in small markets and low prices in huge markets. You need a good reason to deviate from the common sense route.
- you generally don't need to worry about total market size. Worry instead about reaching potential customers in the first place.
- If there are only 5000 potential customers, why not really _sell_ to them? Get a fresh college graduate to cold call potential customers and schedule a meeting. Then sell them a site license for $10.000+ and get them to buy a support contract. This I'd say is the "default" way to sell to these niche markets. For $25 a month you can't afford to spend any money on customer acquisition. You can't afford phone support. Every hour you spend per customer on email support is equivalent to 3 months of use of your product/service. Insanity!
- Customers who are only willing to pay $25 a month are a not the easiest customers to have. All customers who pay for my most expensive pricing plan are my best customers. They don't email me, and if they do they don't make demands. They pay on time, every time. The people who send 5 emails in a single week end up purchasing the cheapest plan and end up leaving after a couple of months. You're going to attract these customers with a $25 price point.
- monthly payments doesn't mean "free money forever who-hoo!". It means your product has to convince every customer every month again your product is worth the money.
- ignore all of the above if your goal is to get to ramen profitably as quickly as profitable. You're going to make so many mistakes when building and selling your first product you might as well accept that you're not going to make a lot of money. Building a second product is a lot easier when you're already profitable.
- it's normal to question yourself when just starting on a new product. Everybody else is flying blind too.
- if you can get to the point where you have $200.000 profit where you have to put in 2 hours a day to keep things running smoothly you've hit the jackpot. You can then use your experience and funds to build a bigger and better company that can grow to millions of revenue.
- growth will be linear for your kind of app, not exponential in nature. If you need another 4 months to build the product and another 2 months to get the billing/subscription stuff to work right and another month to set up your company and legal issues you won't realistically launch before April 2011. If you get 5 new customers every month with an "average" marketing effort (and this is not extraordinarily pessimistic) you'll have only 60 customers after 12 months! Of which you're going to lose at least 30%. So you're looking at $25 * 40 = $1000 monthly revenue 12 + 6 = 18 months from now. People are not kidding when they say starting a company is a lot of hard work! Starting a SaaS app is not an instant path to riches.
I've written way more than I planned to so I'm going to leave it at this. I'll just say that I don't have any regrets and starting a SaaS business was one of the best decisions I ever made.