I recently received an email notifying me of an update to a piece of software I use. I logged in to download the new version and was presented with a ”Buy” link instead of the usual “Download” link. Wait, didn’t I already pay $50 for this software? That’s when I remembered that the seller provides access to download the product for $50 per year.
Before I go further, I want to define software. By software I mean more than just what you install on your computer. I also mean software that runs on a website, such as WordPress themes and plugins.
Sustainable business models
WooThemes is a WordPress theme and plugin provider with thousands of customers and thirty employees. They’ve been at it for about five years now and done exceptionally well with their business. But recently they realized their business model was not sustainable. To deal with this, they made changes to their pricing and terms. The biggest change was not that they increased prices but that they planned to cut short the “lifetime” updates and support promised to earlier buyers. Many cried foul and they quickly did right by offering to “suck it up” and grandfather in lifetime license holders.
You can’t promise something indefinitely without receiving compensation indefinitely and expect to stay in business indefinitely.
Maintaining and supporting software costs money. If the consumers of updates and support never pay again, you will run out of money at some point down the line and will ultimately tank. This is obviously bad for both the business and the customer. Everybody loses. It’s a responsible thing to have a pricing model that keeps users paying for what they consume. But how much should they pay? How much are they willing to pay?
Lower price for renewal
The reader might wonder then why I have a problem paying $50/year for software that I benefit from. I don’t have a problem paying to continue getting updates but I do have a problem paying full price for a part of the product. You see, software as a whole is worth more than an update to that software. Imagine Adobe charging $600 per year for updates to Photoshop. They don’t do that. If they did, they’d make less money because few people would opt to receive updates (or people would renew infreuently). After all, the customer already has Photoshop.
No, what Adobe does is charge a fraction of the original cost.
Many WordPress theme and plugin providers are charging a yearly renewal fee for access to updates and support. Many of them offer a “discounted” rate for renewal, such as 75% or 50% (WooThemes now does this). This is good thinking. The customer is getting less than what they originally paid for. They already have the theme or plugin.
Here are some assumptions:
- It takes less time to update software than to make it from scratch.
- Less users need support after the first year.
Therefore, renewal pricing should be less than the original cost of the product. If a provider feels that 50% is still too low to cover updates and support, that doesn’t mean the customer should pay the full price again. What it means is that the product is priced too low to begin with. Raise the product price and raise the renewal price, but keep the renewal price less than the product price.
Businessman versus customer
It’s essential for the businessman to imagine himself as the customer. I’ve been getting ready to launch churchthemes.com and one of the greatest challenges has been settling on a pricing model. I’ve probably considered everything that has been done and some things that have not. At one point I thought, let’s just keep it simple and charge a yearly fee. One price. You get your theme and pay the same price each year for continued updates and support.
Then I asked my wife what she thought.
She is wise, so what we’ll do instead is have a higher “buy the theme” price with yearly renewal for the updates and support portion at 50%. I am very comfortable with this after finding myself in the customer’s shoes this morning. I myself was unwilling to pay full price for what I felt I pretty much already had. Now if I wouldn’t do that, how could I expect my customers to do the same?
Paying for what you get
In summary, the customer expects only to pay for what they will get. If the price does not meet that expectation, they won’t buy. They won’t renew. That’s basic economics but it’s sometimes hard to remember when you’re on the business side. For software, a lower price for renewal is attractive to the customer and makes sense for revenue generation.
Followup article: “Unlimited” sites is unsustainable too