Pricing software is one of the toughest jobs facing independent developers. We’re stuck in this awkward position where we don’t necessarily have the name recognition to demand the highest prices, but we also can’t afford to “give away” the hard-earned fruits of our labor.
On one side of the argument we hear the endless feedback from the “Cult of Too Expensive.” These are the seemingly endless supply of irrationally whiny “potential users” who insist that a product is “good, but too expensive.” They would buy our products if only they were $5 cheaper. Who are these people, and who gave them access to the internet? They wouldn’t be nearly so annoying if their price wasn’t always ridiculously low. It’s not uncommon to hear people disparaging $15 products (mine among them) as “too expensive.” At some point, you have to wonder whether these people eat out of a dumpster or live out of the back of their truck. Not that there’s anything wrong with those lifestyle choices, but it has little to do with what represents “good value” to ordinary people. In many cases, I get the sense that people got an idea in their head about how much software should cost in 1983 and haven’t adjusted for inflation since.
Another line of thinking suggests that a product must be priced high enough to demand the respect it deserves. This makes common sense, and resonates with many an aphorism: you get what you pay for, etc. In a recent email thread, Brent Simmons (of NetNewsWire and MarsEdit fame) summarized the problem of underpricing software as a matter of perception:
“Anything under $19.95 sounds like a hobbyist or teenager trying to subsidize their iTMS habit. Anything $19.95 or higher sounds like a professionally-made and supported product.”
Surely there is some wiggle room in the exact price, but the logic is compelling. At what point does “bargain pricing” hurt your sales more than it helps them? And how much does this value perception depend on the context the product is stuck in? I think most would agree that the price $1 is too high for a candy bar, too low for a bottle of wine, and just about right for an MP3. The travesty is you won’t even try the $1 bottle of wine, despite the low investment. “It can’t be good!” The magic number for “palatable” wine is between $6-$12, depending on who you ask. Is $19.95 that magic number for palatable consumer-oriented software?
Tom Harrington of Atomic Bird doesn’t seem to think so. His system maintenance utility, Macaroni, costs just $8.99. The company’s flagship product is decidedly not a hobbyist project, and sees substantial sales to both individual and institutional buyers. But even at its low price, he gets hecklers. “I had people who complained Macaroni was too expensive when it was $7.99,” he told me. Is nobody safe from the insane Cult of Too Expensive? Is Macaroni a success because of its reasonable price, or in spite of it? One nice side-effect of such a low price is that a modest rise in price, such as the one from $7.99 to $8.99 should produce a massive 12% increase in revenue. But now that he’s set the pattern of a low price point, is he stuck there?
There is a prevailing wisdom in marketing that “prices should only come down.” This would suggest that developers should “aim high” and then correct when nobody buys the product. This is how a computer would solve the pricing problem: start high and iterate until condition “good sales” is met. But such a strategy in real life could be a public-image nightmare. We hope to hit “pretty much on target” from the start, to avoid embarrassment and second-guessing. If you price too low, you’ll have a hard time imposing a major increase. If Atomic Bird raises the price of Macaroni to $25, there will undoubtedly be squawks of “but my friend bought it for $9 last week!” Most developers who raise prices tend to do it gradually, and in conjunction with feature upgrades. The price remains static between 1.0 and 1.2, but when some major changes happen for 2.0, the price might get bumped by $5 or $10. This makes for something of a “stealth increase” that can really add up over the years.
But sometimes drastic actions are called for. The price can be simply too low. Whether it’s a question of perception or practicality (income not matching expenditures), the price of some products needs to be seriously corrected in order to set things right. Chris Liscio has been struggling for months to find the right price for his professional acoustic measurement software, FuzzMeasure Pro. Catering to a specialized audience where competitors are often priced in the $500-and-up range, his pricing conundrum was tougher than most. For this product, $19.95 was certainly not the magic number. But what was? Just getting his new company off the ground, Chris wanted to make sure his pricing was competitive, but his experience was educational. He told me that he originally intended to charge $125 for FuzzMeasure 1.2, with an introductory “sale” for $85. This is how he released the product: on sale for $85 but making no secrets about the forthcoming increase to $125. What happened when he raised the price? In his own words:
“On August 1, I released FuzzMeasure 1.3 at the full price of $125 and expected sales to drop drastically. Quite the opposite occurred — my license sales doubled, and total sales dollars went up by nearly 200%.”
Hello! Sign me up for developing niche audio software! Charge more, sell more, everybody’s happy (especially the developer). Today FuzzMeasure retails for $250, almost 3-times its original price, yet it still undercuts the competition by hundreds of dollars.
At the extreme end of pricing corrections are movements from and to “Free.” People hate it when things stop being free, and love it when things become free. Unless they just bought it. Then they’re angry because they got “ripped off,” even though it was a good deal before it was free. An application that recently went from $25 to Free is Don Briggs’s Suite Modeler. It’s hard to tell what the motivation was for this move. Probably the market was never particularly lucrative, and to be honest things are moving pretty steadily towards a newer dictionary format (sdef) that sort of obsoletes the application. But it was $25, and now it’s free. Somebody’s probably stinging.
Kevin Callahan’s Accessorizer has been a life-saver for many Cocoa developers over the past several years. Roughly in conjunction with its 2.0 release, its price jumped from Free to $20. Now this is a perfect example of something that people love to get upset about, even if it makes no sense at all. “Because you let me use your software for free for several years, you have no right charging for it now!” This seems to be a common sentiment. Ironically, if Kevin’s app had been $30 from the start, a reduction to $20 would have been met with cheers. I’ve even heard tell of some people describing the sudden shift in strategy as a “greedy move” on his part. And what precisely was selfless about their years of freeloading off of his hard work?
Another product to go from Free to $20-ish is Fraser Speirs’s FlickrExport. This product used to be so free you could download the source code (still can for the 1.x version). Now it’s closed-source and costs money. Not free as in beer. Not free as in speech. Free as in demo. Yet somehow I don’t hear the same amount of outrage in this case. Perhaps it’s because Fraser eased customers into the idea over a period of time. Over a period of months he hinted at the transition to a for-profit enterprise, and gave salient reasons for why this was an important direction to take the product in. Users, the ones you care about – not the crazy Cult of Too Expensive, seem to be amazingly resilient if given half an ounce of reason to be so. After all, they want to like you, they just need a little psychological hand-holding.
So what’s the takeaway from this article? Price your product above the “magic number” for your target market, but not so high that nobody buys it. Easy, huh? I wish. What is your target market? Obviously Macaroni, NetNewsWire, and FuzzMeasure fall squarely into distinct ones. Where will FlexTime fall? Probably somewhere between the $14.95-$24.95 – i.e., the price of a mid-range economy bottle of wine. Will I match the magic number? We’ll see. And I’ll get my share of hecklers, too.