WooThemes Has Raised Their Prices

You want to blame someone? Blame Steve Jobs.

Seriously – here’s why. He created a computing ecosystem that suggested tens of thousands of dollars in software development costs could be recouped at $.99 per transaction.

That’s not a model. There’s no feedback loop to that model. In the end, some companies are wildly successful because more and more people make one-time decisions, while other companies just fail and disappear.

But this isn’t a post about Steve Jobs. I just thought that if you wanted to get to the bottom of all this, we should look to him – as he’s always hailed as the answer to all things.

It’s about you and me.

The truth is that it’s not really about Steve. It’s about you and me. Because we bought the message Steve was selling.

We too bought into the idea that software was cheap. And if it’s cheap, we shouldn’t be expected to pay much. And if we shouldn’t be expected to pay much, then we get mad when someone charges us more – like WooThemes.

We bought into the idea that mass is a business model. “Lower your prices, and you’ll see your market grow!” is what we chanted to every WordPress theme and plugin developer. Deep inside, we were ready for $.99 themes and plugins, weren’t we? And we’d just say, if you sell more, you’d make more.

But there is some seriously poor logic there.

Growing your customer base grows your costs, not just your profits.

I’ve said this before – we’re all bad at pricing math. An increase in pricing by 10%, even if 10% of our customers quit is not an equal value proposition. That’s because support has costs. And if you lose 10% of your customers, you’ll lose some portion of cost for support. And that’s where you suddenly see better profits.

So premium pricing with fewer customers can actually be better for business than more customers at cheaper prices.

Why are we shocked?

Should we be shocked when a theme or plugin developer raises prices? Absolutely not. The pricing pressure in the WordPress community pushes prices to levels that are unsustainable, in my opinion.

Support has costs. And I’m not just talking about ticket support. I’m talking about the constant requirement to add code to an existing plugin or theme because things change over time. Features have to get added just to keep up with the table stakes of the game.

In e-Commerce, for example, can anyone predict how much more complex things will get? From payment gateway features and integrations, to PCI compliance, to receipting, shipping, and taxes?

What’s shocking is that some of us were hoping to get all that for free (or $.99).

“Wait, this is about the impact to my business!”

Some of the people complaining really were frustrated because it impacts their current customers. I get that. Any time we see a change to pricing that would impact folks beyond ourselves, it’s time to sit up and pay attention.

But dig a little deeper and you find out that maybe the real issue, one I see a lot, is that we’ve been pricing our projects wrong this whole time.

If we price on value, then there should be more than enough margin if we want to pay the upgrade to get the newest version of a plugin a year later.

If we’re using cost plus pricing, where we’ve added just a bit of profit margin on top of our existing costs, then we’re in trouble – because our existing costs just went up.

So if the added $100 or $1,000 (for 10 extensions) a year or two from now really hurts the pricing we had for our e-Commerce sites, we should step back and ask ourselves a more important question.

What is the value of an e-Commerce site?

Now I’ve worked on a handful of WooCommerce projects and I’ve never been on a site that only sells ten eBooks a month. That would be a pretty anemic site. But the cost, in terms of plugins, might be $200. Every year. The cost of WooCommerce and WordPress is free. Let’s say my time was worth $50 and hour. So should I charge $400 for my site?

If my anemic site generated ten sales (at $10) a month, then that’s $1200 in revenue – from that tiny site. And that’s only in the first year. And let’s assume I hoped it would get bigger and better in year two. I might see it generate an additional $2,000. So in two years the revenue would be $3200.

What is the value of that small site? Some might say its real value is 3 to 6 times the yearly revenue. That would put it in the camp of $10,000 to $20,000.

And we’re worried about paying WooThemes $200 every year?

Maybe we’re getting ahead of ourselves.

Maybe we should take the issue to actual customers. I don’t mean you or me. I mean those business owners. Do they think their site is only worth $400? I doubt it.

That’s why, when it comes to WooThemes, I normally have clients buy their own plugin extensions and their own theme. That makes them a direct client of WooThemes. It gives them direct support. And it highlights their yearly investment in their site.

Now that didn’t stop me from buying 37 extensions – all with unlimited lifetime licenses. But here’s the thing. When I read “lifetime,” I read it differently than others. I don’t read it as “for your entire lifetime.” Instead, I read it as “for as long as we’re in business.”

Because if you sell too much “lifetime” products with a one-time charge, your business will eventually end it’s lifetime. And that’s how long I get the product.

This is why I applaud WooThemes

I applaud what they’ve done, in raising prices, because what they’re really done is increase their sustainability. They’ve ensured that their lifetime will be much longer than it would have been just days ago.

I know, as a developer, that it can feel frustrating to think my costs will go up a bit, and that lifetime now is equal to two years. I get that. But what I love is that I expect they’ll be alive in two years now. And that’s important.

You’ll see others complain. I know it. But I think you’ll be able to put them into three big buckets.

  1. People who were pricing their own web projects wrong.
  2. People who price poorly today, but will end up changing their models.
  3. People who price poorly today and aren’t around in two years.

I could be wrong. But I’m pretty sure WooThemes will still be here. And if they are, then the next time we’re together at the San Tan, the beers will be on them. They’ll have, after all, even more of my money.

Photo: weskriesel via Flikr

LemaFaceChris Lema is the VP of Software Engineering at Emphasys Software, where he manages high performers and oversees product development and innovation. He’s also a blogger, ebook author and runs a WordPress meetup in North County San Diego. His coaching focuses on helping WordPress businesses, or businesses wanting to leverage WordPress.

  • jeffikus

    Looking forward to enjoying those beers someday Chris ;-)

    • http://www.ryancannonray.com Ryan Ray

      I second and third this, I’d thoroughly enjoy the beers! :)

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  • florenceroad

    great article. I’m a big fan of woo themes, started with gazette edition years ago. I happily pay my monthly dues amd have purchased many extensions. Why they haven’t charged for woo commerce is beyond me… awesome piece of software. Raise the prices I agree, won’t stop me one bit. Dave

  • Ansel Taft

    To be clear Chris: you’re not disappointed your ‘lifetime’ licenses just got chopped to 2-years updates and support?

    • http://www.ryancannonray.com Ryan Ray

      Correct, even though before our price changes his lifetime license may have been unlimited/lifetime/forever/etc… there’s no sustainability in that. Meaning all of WooThemes might have collapsed within the next two years rendering his license useless, and the product on life support.

      Essentially saying that his lifetime license is only as good as long as WooThemes can stay in business.

      • Ansel Taft

        True, but did we read the same announcement? That was not Woo’s central thrust. This move was to *increase* revenue so they could do more. More support, more products, more everything.

        • Chris Lema

          Here’s the thing Ansel – I know the recent hires they’ve made in the WooCommerce support space. They’re keeping all those extensions afloat. If they can’t get paid, it’s cheaper to kill the extensions. And if they do that, the whole thing falls apart. So, yes, I’m okay with 2 year licenses. The clients I work with have their own licenses. So this was just for me. And if I have to pony up a bit more here and there, it’s not the end of the world. But I never built a business model off that “unlimited lifetime” benefit (because I didn’t buy it).

        • Vayu Robins

          I’m with you on this Ansel. To me the problem lies in the way WooThemes presented this price increase and changed the terms & conditions. I am totally cool with new price tags on their products, but not on the products I have already purchased. I’ll happily pay more for their products, as long as I know before I purchase them. I have no idea how bad the state of WooThemes economics is now, but by increasing prices on all extensions and limiting the support and updates to 1 or 2 years for all new purchases, for both new and returning customers will surely bring a bit of an increase in income.

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  • http://www.hermesthemes.com/ Dumitru Brinzan

    And people were surprised when HermesThemes launched with a $199 per theme price tag.
    Glad to see people catching up, hopefully $10 shops will slowly disappear, and the community will grow as a whole.

  • http://www.hughlashbrooke.com/ Hugh Lashbrooke

    It’s awesome to hear from someone who really gets it :)

    One of the greatest lessons I learned in this industry was from the first dev house that I worked at: “Code is commodity.” As developers (freelancers, agencies, theme shops, plugin shops, etc.) we sell business value, not code – the code is irrelevant as long as it delivers value to the customer. If I quote someone on a new website they’re usually genuinely shocked to hear that it’s over R1000 (about $100) and they’re only shocked because we’ve let them think that the web is cheap. Yes, code can be very cheap, but the value one gets from it (particularly things like WordPress and WooCommerce) is almost immeasurable.

    As an industry, we’ve drastically undervalued ourselves and effectively told everyone that we think we’re not worth all that much. Hopefully our price changes at Woo will start encouraging people to value themselves properly and actually get paid in full for the business value that they provide.

  • Chris Ames

    Chris. Dude. You totally nailed it.

  • Bart Pluijms

    Perfect! I couldn’t say it better! And indeed, it makes me think about my own business as well.

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  • http://www.chrisrouse.us/ Chris Rouse

    Great response, Chris. I think most people who are mad about this haven’t sat back to look at the fact that the pricing wouldn’t work. They would rather see the company fail rather than pay for updates to help keep them alive. You had a great response to the commenters on the WooThemes announcement as well.

    I shared quite similar thoughts on my site (http://www.chrisrouse.us/lesson-learned-unlimited-isnt-sustainable-but-customers-dont-care) about this before getting to your post about it. I’m new to the web development community, but I’ve worked for a couple of software companies over the last 5 years, so I’ve seen this same kind of reactions when we EOL a product and eliminate discounted upgrades.

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  • http://341design.com.au Chris Howard

    This is the best news I’ve heard in ages.

    I’m yet to find a vendor in any other market offering free support and service for life. Ford won’t service my car free for life. When my clothes wear out, I don’t get to take them back to the shop for free repairs.

    The 20th century software model of “sell, sell, sell” is outdated and was always wrong. The biggest problem is it does nothing to encourage great development, since the more it sells, the greater the demands on support, plus the focus sub consciously becomes about “units moved”.

    When a business has to care about units moved above all else, the product will suffer. Support and development lose priority, coz all that matters is making another sale, even if the customer may ultimately hate the product or support.

    As a plugin developer it scares me that I’m caught in this model. My sales are fairly consistent, and have been over the last 3 years, but as my customer base has grown, so has the need for more than me providing support.

    If things keep going this way, eventually all profits will go into paying for support staff. And then that won’t even be enough.

    Of course, I could sell more. I could “sell, sell, sell”. But firstly, the market is finite. And secondly, that takes the focus off development of a great product.

    In the “sell, sell, sell” model, you wake up every day starting at zero.

    I don’t want to grow my sales – well, certainly not as a primary focus. I want to build and develop great products. I want to develop a solid income that allows me to employ a good team for support, free me up for “great development” and still have enough left over to “feed the family”.

    The surest way of achieving that is a subscription model. What I really like too about that annual fee model is it forces you to make a great product and provide great service, else you won’t get paid next year.

    I can’t applaud WooThemes enough for taking the lead on this move from the old model to the this model.

    They’ll cop some flak but it will ensure better products and better support. And that’s what you really want as a customer.

    • http://341design.com.au Chris Howard

      And to throw in another analogy much closer to home for all of us in the web industry, I don’t know of any business that sets up websites and provides free lifetime support! So why should we be expected to provide free lifetime support for our software?

      If my software costs $25 and I employ support staff at $25/hr, then anything over 60 mins of support per customer in the **lifetime** of the software means I’m making a loss. And if I’m doing support and I’m worth $100/hr… then 15 mins is all it takes for me to be effectively losing money.

  • griffyn

    It’s amazing that you commenters support illegal contractual business practices. ..And from 8Bit no less.

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  • Ansel Taft

    Before any more comments roll in about how there’s no lifetime whatevers in other industries, that’s simply not true. A couple examples to help lift some of the collective amnesia overhanging this discussion:

    1. Lifetime auto parts. It breaks, they replace it for the life of the vehicle.
    2. Lifetime updates to GPSes, traffic and maps.
    3. Window tinting. It bubbles, they replace it.
    4. Lifetime access to training, sites like Udemy sell their courses that way.

  • csfalcao

    I like the 0,99 product market. It helped create a natural behavior/culture for customers: go to App Store and buy new apps. When you are habituated then a $1,99,$ 2,99, or higher buy will be easier.

    Another good approach is of Apple computer hardware: you charge a higher entry level fee (buy a Macbook, iMac, etc) and charge good software low prices (Final Cut Pro X $300, Motion $50).

    Support is another story, and a very different one. You can charge by hour, by job/issue or subscription. Free support doesn’t exist, neither “unlimited”.

    I prefer pay a flat fee for 1st year (software and support), then a discount flat fee for the next years (updates and support).

    I think it’s important to note that Woothemes support changed while back to support mainly bugs, and they wont support the SIMPLEST customization enquiry (HMTL/CSS, ETC), just pushing you to a woo recommended coder/company.
    I think this kind of “impersonal” support, just “hire someone” is really sour and negative to the customers.

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  • John C

    Today another ThemeShop announced that they raise their prices http://teslathemes.com/blog/important-news-pricing-adjustment-and-highlights/

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