Photo by Images_of_Money
I recently received the following question from a reader:
[When we spoke at a recent conference] I had been thinking of a $1/month price point [for my product aimed at teachers] to make it a “no-brainer,” and you strongly advised against it, suggesting $5-7 at a minimum. Are you concerned at all about the fact that teachers could continue using the existing work-around solution? I wonder if I provide enough value to rationalize $5-7. Maybe it would be better for me to find more ways to add value rather than lower my price point?
Trying to make money selling an app for $1/month is crazy unless your market is gigantic and you have the expertise or the funds to reach them (and even then, support will kill you).
Let’s look at some numbers:
- If your goal is a meager $2k per month you need 2k customers.
- To begin, that’s a lot of non-technical customers to support for that little money. You’ll still be working a full-time job at that point so it’ll be nights and weekends. Not cool.
- To get 2k customers with a 1% conversion rate you’ll need 200k unique visitors (total, not monthly). If you crank hard on promotion and word of mouth you’ll ramp up to thousands of uniques per month. Unless this is a massive market where you can rank high in a major search engine, it’s going to take you years to drive 200k uniques since you don’t have the budget to run ads.
- Speaking of ads…at $1/mo (or $7/mo), you won’t have the budget to run ads. The cost to acquire each customer (CAC) will be too high compared to the lifetime value (LTV) you will receive from each one. So you will be forced into “free” sources of sign-ups like SEO, word of mouth and vitality. This is not the end of the world, but if you don’t know how to optimize those super competitive channels, it’s not going to be easy.
- In general, and counterintuitively, lower priced products tend to have higher churn, higher support burdens, and more price-sensitive customers.
- Since running into this issue myself with several B2C plays I have personally moved each successive product upmarket, and moved to selling to businesses. Even at $10/mo, it’s hard to grow a SaaS past tens of thousands per month in MRR without a lot of incoming traffic. If that’s your end goal, awesome! If you’re early in your journey
- But honestly, I would try for what I call “Aspirational Pricing,” which is when people ask you to lower your price, you ask “What would I need to build to make it worth the price I’m charging today?” And then build those features (as long as they are within your product vision).
- Charging $50 or $100/month (or more) is such a better way to go, in my experience with my own companies and those I advise.
- Also, in this case, if you are stuck charging $5 or $7/month I would charge annually so you’re at least getting the cash up-front to allow you to grow re-invest into the product and grow the business faster.