Choosing a Pricing Model

Colleen and Michele workshop what the pricing model should be for Colleen's SaaS.

Colleen Schnettler  0:00 
So one of the things I kind of wanted to talk about was a few weeks ago on the podcast, I sat here and I told you that what I really want is a job where I only have to work nine to five. And I bring that up.

Michele Hansen
Yeah?

Colleen Schnettler
I seems great. But my husband totally called me out on this, he pointed out that I have had jobs where I've only had to work nine to five, and I have quit them all.

Michele Hansen
Really?

Colleen Schnettler
Yes. And so it just got me thinking, you know, as I go on this journey, and I, I tried to get my mental, like my headspace aligned for what I want to do in the future, I really don't want to go back to a corporate job, I think about this side project thing that I'm doing as something that like, I'm trying, and if it doesn't work out, I'll go back to a regular job. But I don't want to do that, like ever. So I think that's just an important like mental space for me to be in like, this is what I want to do, I want to build a business. And so you know what this might be a huge failure. But that doesn't mean I'm going to give up and I'm fortunate and that I can consult like fill in the gaps until I get there. So I follow this VC on Twitter, her name is Elizabeth Yin, and she had this great Twitter thread about marketing and, you know, starting a business, and one of the things she talked about is like, if you're an entrepreneur, that that is a career and some people you know, you can get five to 10 chances to get it right. And sometimes you can be brilliant and get it wrong. And sometimes you can be not so great and get it right. So you just have to keep trying.

But for me, that's a total mental shift of how I think about this process. Like, instead of thinking of this as a thing I do in my free time that might work out, I'm changing my mindset to like, this is the thing I want to do. And right now I can't afford it to do more than I can't afford to do it more than in my air quotes free time. But long term like this is the path I want to be on. So I just wanted to share that because I thought that was like important that, you know, as we go through this process.

Michele Hansen  2:00 
I remember pre-pandemic, you were working on your consulting Monday to Thursday. And then you were devoting Fridays to side projects, getting your own business going. So it was like, like an 80-20 split between consulting and I'm curious, has that shift? I mean, shifted in the last couple of months? Since you you really started focusing on your in an image management service?

Colleen Schnettler  2:29 
Yes, it really has, I think one of the things, you know, almost all developers will say is like software is harder than everyone thinks it is. And it's just like, all of these things you have to do. And you have to do. So I would say I've almost shifted that balance. I'm doing 80% file uploader and 20% consulting, maybe, you know, probably something like that. Maybe two days a week, I'm doing consulting. But I really, the thing is, I think it's important, remember, like, I really enjoy it. Like I really like this side project, I'm really having a good time. And I'm really learning a lot. And so yeah, it's just, I've just been giving it a lot of time. And I feel like you know, that's something if I'm going to try it, I'm going to try it. So that's what I'm doing.

Michele Hansen  3:16 
Something I hear in your voice is how excited you are about what you're working on. And when you mentioned your conversation with your husband about the times you had a nine to five job and how much you hated them, it sounds like there was no passion there. And so yes, the hours are important, but it sounds like something you value is being challenged. And it sounds like you weren't getting any of that challenge or excitement or newness in those nine to five jobs or even really the responsibility maybe that that comes with running your own project, which, you know, we all know in large corporations, it's the hard thing to find.

Colleen Schnettler  4:03 
Yeah, I totally agree. And it, it really hit home for me that what I really want is -- I mean if I had to pick between being bored and being stressed, but like being challenged, I would pick stressed and challenged. I mean, for me that's that's just who I am. That's what I want. I can relatively I don't wanna say easily, but like relatively, you know, painlessly get a job and that's just not what I want, at least for now. At least, you know, for as long as I see it for the next couple years. I have time. Right there's all this internet propaganda that makes it seem like if you don't have you don't start a business and you're not successful in a year, it's never gonna work for you. And like I have time you know, I can just keep keep working on it until something works.

Michele Hansen  4:48 
I think it's really an advantage is having time and being able to be patient, and I saw that Twitter thread you mentioned as well. And you know what stuck out to me from that is that is that your first business may not be your, your business for the long haul, right? And you know, I was actually just writing about this, how we snowballed small mobile app into Geocodio and basically funded it with that. That mobile app made 20 cents its first month.

Colleen Schnettler  5:22 
Wow.

Michele Hansen  5:24 
I know. It's impressive, right. And if we had been set on quitting our full time jobs as soon as possible, we would not have had the patience to go through basically the year and a half it took to get that up going, that app making enough revenue that then we are exposed to the problems that led us to creating Geocodio and then that app funded you Geocodio and then eventually that app [was] surpassed Geocodio. Do. But if we had been impatience, that would not have happened, but at the same time, you know, sort of what you said we were excited by it.

Colleen Schnettler
Yeah.

Michele Hansen
It was thrilling in a way that we weren't really getting from the rest of our work. And that excitement was enough to carry us through even when the revenue maybe wasn't there.

Colleen Schnettler  6:21 
Yeah. So last week, we talked about me making this software available off of Heroku. Because Heroku is going to make me wait till I have 100 users before I can start charging for it. So remember you, you told me I need to figure out if anyone's going to actually pay for it, which is great advice. Great advice. So I actually sat down. So last week, I kind of like talked in generalities about pricing, but I actually like sat down and tried to figure out how much to charge. And I have no idea like, No, I can't. So I looked at these other competitors. And there's like no consistency in their pricing. I'm -- like, I have no idea. So you have to have the people we talked about are like the big image management companies and their first tier are at $89 and $45, respectively. But there's also an add on on the Heroku marketplace now. The guy just resells S3 buckets. So he doesn't help you upload your files, he literally just gives you an S3 bucket. And he starts at $5. So I feel like there's this huge range. I have no idea like, how should I start with this?

Michele Hansen  7:35 
You have some people you've talked to who asked you if you're planning to make this available off Heroku?

Colleen Schnettler
Yes.

Michele Hansen
Have you asked them what they are currently paying for this, whether that's a service or simply a three are their time? Like, have you gotten a sense of that, from that?

Colleen Schnettler  7:51 
I have not asked them that.

Michele Hansen  7:54 
I think that would be a good place to start.

Colleen Schnettler  7:56 
Okay. And you're just what if they're not using anything right now that they're paying.

Michele Hansen  8:02 
So that can be a good thing, and a red flag.

Colleen Schnettler
okay.

Michele Hansen
It could be a good thing in the sense of if they are only spending time on this. And that time is a painful amount of time for them, like multiple hours per week, for example. And they're really willing to pay for it. That can be a good sign. But if they're not currently paying for it, and they say it's they're spending time on this, but it turns out, that's an hour every six months, then that willingness to pay may not be there.

Colleen Schnettler  8:38 
Right. Right. Well, and the cool thing I think about the foundation I've built with this is this thing can I mean, I'm not changing anything yet, I remember what you said about features having to sit on the front porch. But what I can do with the foundation of what I build is like pretty much limitless in terms of like file sharing.

Michele Hansen  8:57 
Yeah, cuz I think the the question for you is, you know, do you want to go on a sort of pay as you go model, which it sounds like the big competitors do, even if it's a subscription model, where they're basically pre paying for a certain number of credits, that then don't roll over? So do you want to do a subscription model with limits? Or do you want to do a pay as you go model? And I think the big questions there are, what are your customers currently paying somebody else for? And then also, what is their usage look like? Is there any way you can model out what their usage on another competitor or doing it themselves would be? versus like how much that would even cost you? I mean, of course, looking at what it costs you to provide a service is a very rudimentary way of developing pricing and most people would not recommend going that way more of a value based way of pricing, but I think it's helpful to at least know what that is. Just so you know what your floor is for providing the service.

Colleen Schnettler  10:09 
Yeah. And it's interesting because as I've been thinking about this, you'd almost and this isn't, I'm just throwing this out there, it's almost like, you pay one time, I think that to give the person the most value, like you pay one time for the software, and then you're just paying a maintenance fee or something to keep your stuff in Cloud Storage. I don't know, I just don't know. Because ultimately, I'm repackaging cloud storage in a pretty box. And cloud storage is cheap. But I look at what these companies are charging for their uploaders. And I'm like, wow, they're charging a lot. So that's all really good business advice you just gave me. But can I just like, throw a price tag on it to try it?

Michele Hansen
Sure.

Colleen Schnettler
I mean, that's kind of what I was saying. And then, and then see if anyone uses it. And from there, I will just kind of see what happens, and adjust accordingly.

Michele Hansen  11:07 
Have you looked around on like Reddit and Twitter and other places for people complaining about your competitors, and see if they have any complaints about the pricing of them?

Colleen Schnettler  11:18 
So I have done that. But I haven't looked specifically -- when I first started building this, I look specifically for complaints about the service. But I did have not looked for complaints about the pricing structure. So that's a great idea. I like the idea of not going pay as you go. I like the idea of a fixed rate. Because I think one of the frustrations with Amazon is you never know how much your bill is going to be.

Michele Hansen  11:42 
You can also do that more transparently than Amazon.

Colleen Schnettler  11:45 
That's true. That's true.

Michele Hansen  11:46 
Like we have a pay as you go model and people who don't have a lot of usage really like that, because they only want to pay for exactly what they use. And they don't want to feel like they're leaving money on the table by paying for up to 300 credits when they only use 257.

Colleen Schnettler  12:03 
Yeah.

Michele Hansen  12:05 
So if you find on Reddit, for example, people talk about using these services and what they're paying for them, I would encourage you to reach out to those people and say, What would you prefer instead?

Colleen Schnettler  12:14 
Yeah, I think this is a good, this is a good, this is a good circle back to trying to find people again, like I know, I did this in the beginning, which gosh, we've had this podcast for 16 weeks now. So something like that, so quite a while ago. But this is a good time to circle back, I think. And I also I really think I still really think my space is going to be might be in like the no code space, because it feels like there are not, there's not a lot of options in that space. So I will look for those people who look for people using web flow, see what they're doing. Now, I'll look for anyone using Upload Care, or Cloudinary, or any of these other services now and kind of see see what they're saying.

Michele Hansen  12:53 
Sounds like a plan.

Colleen Schnettler  12:54 
Awesome. So in addition to this, trying to get trying to actually get this available off Heroku and having to figure out pricing, I have continued to read the book we've been working through, which is StoryBrand, which is about for those just joining us story brand is basically a marketing book, it's about clarifying your marketing message. So customers will buy your stuff. And I'm on chapter seven, and I have theoretically established myself as the guide, the customer is the hero. And now I need to provide a plan. So this seems pretty obvious. This was not eye opening in any way the author talks about. He says making a purchase isn't a characteristic of a casual relationship. It's a characteristic of a commitment. When they place an order, they're saying, I believe you can help me solve my problem. And I believe it's so much I'm willing to part with my hard earned dollars. So he talks about literally making a plan minimum three steps maximum six steps. And, you know, uses that that quote he uses frequently, which is if you confuse, you lose. So yeah, so I made a plan. And the idea is, you know, you make it simple enough that you were trying to alleviate confusion. That's the goal here. So my plan, my four step plan is one, sign up for the service to add the JavaScript snippet to your website, three, use the new file in the cloud for x. Okay, now that I'm reading it to you, it sounds really bad. Okay, let me try that, again, sign up for the service. That's the first thing you do to you add the JavaScript snippet to your site three, your user adds new files in the cloud, but that's not really something you do. So I'm going to remove that from my plan, delete

Michele Hansen  14:46 
That is part of them getting value out of it.

Colleen Schnettler  14:49 
That's true, your user your user uploads files.

Michele Hansen  14:54 
And if you go with a pay you go model, which you know, I know you may not, if they don't using the product, then you don't get paid. Which is a nice alignment between you and and the customer.

Colleen Schnettler  15:07 
This is interesting, I had not really thought about pay as you go. This is definitely. It's definitely interesting. I'm going to think more about this. But your points valid, like if no one ever uses it. Maybe you never have to pay anything. That seems like a win win, right?

Michele Hansen  15:21 
Wasn't there a step four?

Colleen Schnettler  15:23 
Yes, step four, was access your files in the cloud. So that's my, that's it. That's all that's my process. Like that was a whole chapter make a plan.

Michele Hansen  15:33 
So, so last week, thinking more about about pricing a little bit. So you were undecided on whether to go with free trial versus free tier? And if you're going free tier, what that free tier was? And I'm curious if you did any more thinking on that?

Colleen Schnettler  15:54 
Yeah. So I think because of what I do, I feel like a free trial is not really fair to the customer. Because you're really, I mean, my service is sticky. If you use it, it's a pain in the butt for you to migrate off of it. Because you have to go and you have to download each file, and then you're gonna have to put the files somewhere else, and then you're gonna have to change

Michele Hansen  16:14 
That's the sign of a really promising business, when it's hard to leave it.

Colleen Schnettler  16:19 
You cannot leave. So I feel like a free trial, like, I'd be annoyed with that. If after 30 days, they were like, you have to pay me now because that's a huge pain. Although now that I'm saying it out loud. What after 30 days, I sent you an email, and it was like, here's all the files your users have uploaded. I mean, maybe there's a way to do it without being a jerk, like a gentle way to give them a 30 day free trial. And if the users you know, and then you could be like, hey, you've uploaded one gig here, all your files. And maybe I, I don't know, maybe I could let them stay at that level. But be like, if you want to continue using the service and upload new, maybe what I could do is I could keep their files, so they could still access them. So I'm not totally screwing them over. But then I could say, Oh, this is interesting, what if I ended but if you want to continue to service, now you have to pay for it, versus just a free tier, which is like you get five gigs of storage for free. You can have forever and ever and then when they surpass five gigs of storage? Um, I don't know.

Michele Hansen  17:28 
That's interesting. So free trials work well, when using the product requires legwork from the person who is signing up for it. And basically, you're punting the point of payment until the user has so much sunk cost going into this in terms of their time that they're like, okay, fine, I'll pay you. So like, a great example of this is TurboTax, where you go through the whole thing of uploading your W2s and your mortgage and whatever. And then it's like the very, very last step that they're like, oh, by the way, this is gonna be $49. And you have the file in three states and as an extra $19. And you're like, ah, fine, I just want this to be over with.

Colleen Schnettler  18:14 
Yep, that's me, been there, done that, TurboTax.

Michele Hansen  18:15 
So that can be really effective model where, you know, it sounds like with your plan you just made for the user requires four steps for them to go through in order for them to get value out of it, because they're not going to really sort of see it in action until their user has uploaded something. And then you can see that, and that requires work on their end. Yeah, I think that could. That could be interesting. And and when you have talked about Cloudinary, and whatnot, you've mentioned how you've only used the free tier for those companies and never paid them. And then when they if you have a site where they would actually need to pay somebody, you just build it yourself.

Colleen Schnettler
Yeah.

Michele Hansen
So I wonder if you would sort of bias towards people who wouldn't have a lot of usage by having the free tier bearing in mind that we have a free tier and I'm a huge believer in them, but like anything, it it has to make sense based on the context.

Colleen Schnettler
Right.

Michele Hansen
And I think what you described maybe makes sense that a free trial instead. Now the question is, if you're going to go with a free trial, why a month, why not? Five days, 10 days, 45 days?

Colleen Schnettler  19:29 
Okay, So to your point, I can Oh, you're right, there is a it's not a hard setup, but it's not no setup, either, right? You're gonna have to spend 20 minutes, 10 minutes, depending on you know, how good you are adding the JavaScript snippet and saving the URL, generally not hard. But yes, there is by and they have to do something to make this work on their site. So they're not going to see value in it until their users start to upload files. So for them, how long is that going to take? Or maybe Could you do a free trial up? I mean, I guess I can do whatever I want. But I could also do it up to like a certain file limit, right, like file like storage, like you've had 25 users upload files. Mm hmm.

Michele Hansen  20:10 
Yeah. I think that would make sense. Like, or, you know, a certain storage limit.

Colleen Schnettler
Yeah.

Michele Hansen
I wonder if people would be adding this during the development phase. And so it may actually be six months or something until a site goes live?

Colleen Schnettler
Ooh, yeah.

Michele Hansen
But if they can do you know, it's, I mean, well, then we're talking about a free trial, really, or not at frontier, but a free tier, yeah. Which is, you know, up to a certain low storage limit, it sounds like the cloudinary limit may be too high, almost. And then they have to switch over, which basically means they can use it for free during the development and demo period.

Colleen Schnettler  20:49 
Yeah, I kind of like that I like I like a free tier up to a certain storage amount. And I could do it based on the file size you're allowed to upload. So you know, maybe on your free tier, you can only upload three MB files. I like that, because I feel like that gives people enough buy in to see you know, and then when they want to add video, or when they want to add some kind of ginormous file, they'll be tied into my software, and they'll be willing to upgrade it. Because they'll already like it, like I go back make having this conversation makes me go back to think about why I didn't like the Cloudinary solution, because a lot of people recommended it to me. And I just found that it was so painful to use. And the widget was so ugly, that at that time, and this was years ago, we were like, we're just gonna build it ourselves. So I feel like to decrease the barriers to entry, which is what I'm trying to do might as much simpler. And I think it looks nicer. Like maybe that will be that will be good like that will draw people in and then they'll use it and they'll see it's easy to use, and then they will continue to use it. And then they'll want to add big files, or then they'll have a lot of users that want to use it or something like that.

Michele Hansen  22:00 
So to recap, we just bounced from whether you would have a free portion at all to having a time limited free trial to having a free tier and then having a free tier with a you know, with a storage limit that is not time limited.

Colleen Schnettler  22:21 
Yeah, I have this all under control. Can you tell?

Michele Hansen  22:23 
So I think when you go find people on Twitter, or Reddit or wherever that may be asking them about what they're using, this is a really important thing to ask them. Like, you know, if there was a service that was much prettier, and was much easier to use and get started with. And you got up to I don't know 25 megs of storage. And then you pay for an after that, like, what do you think about that? Or would you prefer something that is you get up to 25 or so you get up to 50 Meg's of storage, but for one month, and then you have to start paying for it after a month and ask them why do you like that? Why don't you like that? What do you wish it would do instead? Yeah,

Colleen Schnettler  23:07 
I think developers are so bad about buying software. I mean, we do but i, this throughout this process, I have run into this over and over and over, where I'm like, I could build this thing that makes your life easier. And the developer I'm talking to is like, Yeah, but I could build that. And I'm like, yeah, of course you could, but you don't have time, you don't want to. Anyway, I The reason I thought about that is because when I first tried this on Reddit, everyone was like, Oh, yeah, I just do this ridiculously complicated process to do it myself. So I will look specifically for users, for people who are already using a different service, just to kind of see where they are.

Michele Hansen  23:46 
And something we talked about a while ago is people tend to be much stingier with their own money.

Colleen Schnettler
That's a good point.

Michele Hansen
The developers can build a client for this directly, rather than it being them having to eat it as overhead as part of the project. I think that would make people much more willing to pay for it.

Colleen Schnettler  24:08 
That's a really good point that I have totally forgotten about. But I know with my clients, they would every single time, rather pay for a service that's $20 a month and takes me 10 minutes to implement versus paying me five hours or three hours or whatever, to do a custom solution that then they have to maintain or I have to maintain, it's still cheaper for them in the long run. And it's easier for them to if they if they are on Heroku it's easier because then they have one bill so they don't have to pay an AWS bill and a Heroku bill and whoever else bill.

Michele Hansen  24:39 
So the tricky thing about this, then is that you not only need to have a pricing model that is acceptable to the developers who are installing it but also to their clients. Because what you just said was, the client would rather have something that they pay $20 a month for then XYZ and so then The question, also to figure out is, is a client comfortable with knowing that there will be a range of costs that it will be somewhere between five and $25 a month? Or would they prefer knowing that it is always going to be $20 a month and that $20 a limit is is much higher than they would ever possibly need? And they know exactly what that cost is going to be?

Colleen Schnettler  25:23 
Yeah, that's a good question. And I don't know the answer to that question. But my intuition is telling me they'd rather have a fixed cost. That has been my experience with clients is they even if the fixed cost is $20, a month more expensive, they'd rather have a fixed cost.

Michele Hansen  25:41 
I would verify that against these people, you're going to go out and find in the wilds of the internet.

Colleen Schnettler  25:47 
Oh, yay.

Michele Hansen  25:49 
But that's it that's worth thinking through is, okay, you have a free tier with a certain limit. And then, rather than having pay-as-you-go, you have monthly subscription plans on top of that.

Colleen Schnettler  26:03 
Yeah, that's what I think that that's kind of this conversation is leading me down that path. I like the transparency of that. I like that you know exactly what you're getting. But I agree that like I need to talk to people.

You think only people who are paying for something or everyone who's I mean, everyone's doing it. But do you think I should focus on people who are currently paying for a solution?

Michele Hansen  26:25 
Maybe try to find half and half. Okay. And you know, I say that saying? Try to find five people who will talk to you. So you need two and a half people on either side. Um, you know, maybe try to find, you know, two or three people who are paying for it, and two or three people who aren't paying for it, but who expressed that this is a pain that they do, and they have this wildly complicated process that they do. Okay, who experience some amount of pain with it.

Colleen Schnettler  26:52 
Yeah, yeah. It's just like, I was thinking about this as I'm trying to make it available. You know, as I'm working on it, I'm just like, no one's gonna buy this. Man.

Michele Hansen
Oh, don't say that.

Colleen Schnettler
And the thing is, people are paying for services like this. And I think it was just like, that's part of this process, right? Like, you build something, I'm still excited to use it. And it was kind of cool. Because like, one of my clients not knowing anything about this podcast, or anything about what that I've built this thing. One of my clients asked me, he was like, would it be so great if they could just dropped their file there? And I was like, Yeah, what I can do that for you in 10 minutes, it was awesome.

Michele Hansen  27:30 
And that is the hero moment. It really was the, the product making you the developer, the hero, that is the moment you want to get all of your customers to.

Colleen Schnettler  27:42 
And that like, that's literally why I built it. Because I was like, Yes, people ask me this all the time. And I'm always like, Oh, it's gonna take a couple hours. And this drop zone code isn't compatible with this drop zone code, and I gotta set you up on AWS. And it's a whole freakin thing. So that was like, a really happy moment for me when he said that because I was like, Yeah, like, it's gonna take me 10 minutes. Sweet.

Michele Hansen
That's amazing.

Colleen Schnettler
Yeah, it was cool.

And that's going to wrap up this week's episode of software social. We'd love to hear your feedback. You can reach us on Twitter at @softwaresocpod!

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