Pricing is hard

I’ve been talking to a friend about pricing a new product and figuring out what to charge, especially when you are first launching, is hard. Really hard. It feels like you are just putting out a guess and hoping it works.

As I thought through the pricing I wanted to share some of my thoughts on it, and what I would do if I was launching a new product today. Much of what follows should be looked at through the lens of a brand new product.

Before even thinking about pricing I’d want to have a pretty good idea on what my expenses are. Without that how do you know where your break-even point is? You don’t, and you are just guessing. Watch any business show on TV and the first thing anyone wants to know is what it costs for a single item. It should be the same with your product. How expensive is a single customer.

Once I had this I would try to figure out how I could fairly price my product. If it’s B2B how can I charge a fair price to a small business, and a fair price to a company of 500? Usually this is done with different plan levels, and a good differentiator is the number of users. To take common pricing terms a single user might be $9 a month, 5 users might be $49, 25 users $129, etc.

This is a simple way of segmenting your customers and also easier on your codebase because you aren’t putting feature flags on a million different things. It’s one code base, everyone gets the same features.

Of course, users are just one way of doing it, there are tons of others. Just remember to have your packages on simple things that are easy to understand. As a buyer I want to know instantly what package I would need.

Out of all the pricing models, I think the two I dislike the most are charging for things I can’t control. For instance, if you are a selling a SaaS CMS and billing based on views or podcast hosting charging by downloads. In either case, the actual amount is outside my control, and I don’t want to have to go create a spreadsheet to see if I’ll fit within a specific plan. Plus neither has any bearing on if I’m successful. I feel like the product creators think income is related to these, but I’m not sure that is the case. It’s never been that way for me.

The second model I don’t like is one price for everyone. Basecamp does this and charges $99 a month. I’m a small business and $1,188 a year is substantial. Where a company with 50 employees and 7 figures of revenue this is nothing more than a rounding error. As a true small business, I get screwed every year.

Like I said in the beginning pricing is hard and there is no right or wrong way to do it. In my opinion, when you launch your first product it’s better to undercharge and make just a little profit than to overcharge and not get any customers. It’s always easier to raise prices than to reduce them, and once you’ve turned someone off it’ll be very hard to get them back.

Think of a new launch getting featured on Product Hunt. Thousands of people will be hitting your site finding out about your creation, if the price is too high, in relation to the market, there is a big probability you’ve lost a lot of really good customers, and you’ll probably never get them back to the site again.

I’ll say it again, pricing is hard and I think all we can do is use our best guess and gut instinct to figure out where to start.

Book Review: It Doesn’t Have To Be Crazy At Work

Do you have employees, run a business, work in software, or sick and tired of your current workplace? If any of those are true then you need to grab a copy of Jason Fried and DHH’s new book, It Doesn’t Have To Be Crazy At Work.

I’ve been a fan of these guys for years and I’m also a Basecamp customer so I’ve been following their path for a while now and was excited to see Jason doing a Q&A at Laracon this year. Those are some of the reasons I jumped in to buy this book but that just got me interested. I thought the book itself was fantastic and that it lived up to the hype.

Our culture says that we should do whatever it takes to succeed. Put in 80 hours if need be, work through the weekend, push through, hustle. Do it for the team, the family life can wait.

Rightly so they call B.S. on this and give plenty of examples from their company and from many leaders in their respective fields. Here is one of my favorite quotes related to this from the book:

A great work ethic isn’t about working whenever you’re called upon. It’s about doing what you say you’re going to do, putting in a fair day’s work, respecting the work, respecting the customer, respecting coworkers, not wasting time, not creating unnecessary work for other people, and not being a bottleneck.

As I flip back through my copy of the book, almost every page has a highlight or sentences underlined. So much of this hit home to me. Another one of my favorite quotes is related to how many companies claim “we are all a family”:

The best companies aren’t families. They’re supporters of families. Allies of families. They’re there to provide healthy, fulfilling work environments so that when workers shut their laptops at a reasonable hour, they’re the best husbands, wives, parents, siblings, and children they can be.

Right now where I work employees just four people outside of the owners and it does feel like a family because we are close, but they 100% follow what the quote above points out and it’s amazing working for a place like that. In fact, much of what is outlined in the book my employer already does, to say I’m lucky in that regard is an understatement.

It Doesn’t Have To Be Crazy At Work is set up in distinct sections with essay’s that support the overarching goal of the section. This allows the book to touch on many different areas of running a business but also makes it accessible to managers, and employees. All wound together in a book that can be read in a short time. Unlike most business books, they’ve left out the cruft and put all the focus on getting their points across as quickly and sufficiently as possible.

It’s a five-star rating from me and you should buy a copy, read it, then give it to your boss or employees.

Where is the Book Publishing Disruption?

There are two primary ways of publishing these days. The first is to go through a book publishing company and the second is through self-publishing. Each has advantages and disadvantages.

If you go the traditional route, typically how it works is they give you an agreed upon amount of money to write the book. Then once it goes on sale you make a low percentage until an agreed upon amount then it goes a little higher. The advantage to this style for tech authors is they handle all the sales, marketing, editing, book cover, etc. So you write the book and get paid.

The downside is the amount you get paid is low. You will, by far, make more money going the self-publishing route. However, everything is up to you. You need a following; you need to understand a little business, how to market, how to hire out contractors for the various parts and on and on. It’s a lot to undertake especially if you have a full-time job, a family, or other responsibilities.

What I’d love to see is an entirely new digital alternative where everything is more favorable to all parties involved. In my opinion, a writer should be able to pitch their book idea to a publisher, and if accepted the writer writes the book, the publisher handles all the mundane tasks like a cover image, editing, and sales & marketing. Then both parties split the revenue 50/50, 60/40, 40/60, just some split that seems fairer than what is currently the industry average.

I do believe something like this should work, but I’ve yet to see anyone come in and try to disrupt the industry. Maybe there is a reason, and I fail to see it?

Profit First

Profit First by Mike Michalowicz is one of the business books I read last year and I decided to start 2018 off by implementing some of the features of this book and I wanted to share they are working well so far. In fact​, it’s​ working so well I got my wife on board and we setup our family budget using the same ideas.

The premise of the book is, of course, on taking your profit first​ and in order to do that Mike recommends creating several different banking accounts. For example, here would be all the different bank accounts for a small business. Income, Profit, Owners Comp, Tax, Operating Expenses “Opex”, and two extras, Profit Hold and Tax Hold.

Then it works like this:

  1. Deposit all revenue into your income account.
  2. Every 10th and 25th transfer out into the main accounts based on percentages above.
  3. Take your biweekly/monthly draw from the Owners Comp account.

Now for my business,​ this felt way overboard and I honestly didn’t need all those accounts. I decided to simplify and go with income, profit, and taxes, then instead of twice a ​month at the end of the month is when I do my transfers. By doing it this way I can look at the P&L statement and know exactly how much income I’ve had and then just move it around.

As I said I’ve enjoyed this process and its​ personal finance at the basics. Every dollar goes somewhere and if you aren’t purposefully planning where that is, then it’s probably getting spent. Because of this, I talked to my wife and we decided to give this same thing a try for our family budget. Here are the accounts Mike recommends you setup:

  • Income Account – Every deposit goes in here
  • The VAULT – Emergency Fund (Start at 1 month. Goal is 8 months)
  • Recurring Payments – Mortgage, Cars, HOA, etc.
  • Day to Day – Grocery, Gas, Dining​
  • Debt Destroyer – For paying off debt

This felt like too many to me again so I simplified, (yes he says you shouldn’t do that, but he isn’t the boss of me):

  • Income Account + Day to Day combined (debit card)
  • The VAULT – Emergency Fund (Money Market)
  • Recurring Payments – Mortgage, Cars, HOA, etc. (regular checking without debit card)

We divided all our recurring payments out and found the exact amount that needs to go in that account, now when a paycheck comes in that amount goes to Recurring, a set percentage goes to the Emergency Fund, and the remainder stays in Income for day to day expenses.

By doing this I’ve noticed a few things. The first is we are spending less per month because the income account doesn’t have a lot in it. Something happens to you when you know your only account with a debit card is low, and that is the personal side that takes over.

I’m sure this system will not work for everyone, but if you feel stuck in a rut that you can’t get out of it could be worth a shot.

Should you reshare old content to social media?

A common theme from blogs and content marketers on social media is to attempt to drive more visitors and engagement by sharing new posts multiple times the week its first published, and then by sharing old posts over and over.

The problem with this style is there are primarily two types of social media users. One is someone who reads their entire feed and never misses anything. By continuing to share the same thing over and over you are putting them off and they will disengage and unfollow. In my opinion, these are also going to be some of your biggest fans, because they follow fewer​ people and highly curate their feed. I am firmly in this camp and I don’t follow many brands because of this.

The other style of follower is one that rarely reads their feed and just skims what’s new. Content marketers seem to believe these are more common and that is why they push content the way they do. I know every market is different but from my experience, ​the opposite is actually true.

Thinking through the two styles and realizing I never post new articles on the weekends I decided to try a hybrid approach. Every weekend starting Friday night through Sunday night I’ve been scheduling a few old posts to be pushed out. I’ve been doing this for a month now and Saturday’s is historically the slowest day for traffic and it has almost doubled from just this change.

I feel like so much of this is just trial and error but for me, ​it’s fun digging into the archives and resurfacing a lot of old content. So far no one has started complaining and once they do I’ll revisit this idea, but you never know until you try.

Berkshire Hathaway’s 2017 Annual Report

The Berkshire Hathaway’s annual report recently published and as always it’s full of great wisdom by Warren Buffett. Here are a few of the quotes from this letter I loved.

When talking about shareholders: ​

While I’m on the subject of our owners’ gaining knowledge, let me remind you that Charlie and I believe all shareholders should simultaneously have access to new information that Berkshire releases and, if possible, should also have adequate time to digest and analyze that information before any trading takes place. That’s why we try to issue financial data late on Fridays or early on Saturdays and why our annual meeting is always held on a Saturday (a day that also eases traffic and parking problems).

We do not follow the common practice of talking one-on-one with large institutional investors or analysts, treating them instead as we do all other shareholders. There is no one more important to us than the shareholder of limited means who trusts us with a substantial portion of his or her savings. As I run the company day-to-day – and as I write this letter – that is the shareholder whose image is in my mind.

Mr. Buffett also mentions the 10-year bet he made and won and closes that section out with this gem:

Performance comes, performance goes. Fees never falter.

Always remember that when you are investing.

Patio11 on charging for your work

Patio11 on HN:

You do not owe anyone an apology for choosing to sell something. You do not owe yourself an apology for choosing to sell something. You do not need to mention the economy or your personal economic circumstances. It will not successfully motivate anyone to pay you a thousand dollars. No lawyer in the country does that. No doctor in the country does that. No teacher in the country does that. You being compensated for your professional labor is not an outlandish request. It is the default. This will discomfit some freeloaders in your community. They contribute no patches or money. Let them wget the binaries; do not allow them to wget an iota of your stress budget.