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.
- People who were pricing their own web projects wrong.
- People who price poorly today, but will end up changing their models.
- 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
Chris 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.