ChrisAshworth.org

If you read this blog with any regularity, you know I have two primary social circles: indie software and indie theater. I’m writing this with both of you in mind, but I’m going to start out with the theater kids and bend it back around. Software kids, sit tight for a second.

See, at the moment the world of indie theater is having a great big-ol’ chew-it-up hash-it-out discussion about the pros and cons and wherefores and howtos of dynamic pricing.

I find this fascinating, and entirely worthwhile. But, aside from believing some version of dynamic pricing is probably a great idea, I don’t have any direct experience using it. So: can’t really comment.

Thing is, the general topic of “pricing” is something I do have a little bit of experience with, and all this talk of dynamic pricing has been getting me hot and bothered about a related subject which has been festering on my blogging back burner for months.

Well, on Friday Dan Granata made a comment on Twitter that made the pot boil over. Dan wrote:

So it’s been a few days, but the comment re: my theatre, “Let’s be clear, tickets are $18, this isn’t Broadway” is a depressing datapoint.

I asked:

Wait, what? Someone was complaining about an $18 ticket being too expensive?

To which Dan replied:

No – they were saying *because* it was $18, they respected us less. Because we charge so little, we must not be worth much.

I tried to clarify:

Ah. Then: depressing because of all the work that goes in to it, and the quality that isn’t being respected?

And Dan explained:

sort of. More that someone who saw the show (and liked it) would still use ticket price as a indicator of quality.

And also that it supports my long-held fear that a low ticket price may actually hurt your reputation, rather than up sales

Which was, it turns out, the precise moment that

My Pot Boileth Over

First off, let’s just set a ground rule here: you know your customers better than I do. (Or at least I hope you do.) If I say something here that feels clearly stupid, and seems to suggest that you should do something that would offend or abuse or exploit your customers, then the rule is: your gut trumps my bloviation.

But I do want to humbly relate a few things I’ve learned in setting a price on my own hard work. It may be instructive. It may not. But at least hear me out, because the way I think about pricing now is very different from the way I thought about pricing at the start. I think it’s useful to know how, at least in my case, things that seemed obvious from the beginning weren’t always true.

Dear indie software friends, dear indie theater friends, this is a letter to you both, from four years in.

First, a few datapoints.

I make a product called QLab. There have been two version of QLab so far.

QLab version 1 had an audio license priced at $49. It had a video license priced at $149. It was very popular. It won a fancy award. It was so successful, in fact, that I quit my day job to work on it full time.

When I released QLab version 2, however, I changed the pricing. To wit:

QLab 2 has an audio license priced at $249.
QLab 2 has an educational discount for the audio license: $199.
QLab 2 has a new rental licensing scheme. It allows renting a license starting at $3/day, or $1/day for educational purposes.

The story I am telling today is about:

Why I decided to change the pricing,
What happened when I did, and
Whether or not I regret it.

While I don’t want to be overly prescriptive here, I have enough evidence at this point to draw a few firm conclusions. We’ll get to them in a second. But first,

The curious case of the complaining customers.

I’m about to tell you a story which I can only really describe as “freaking weird on the face of it”.

It is the story of how my customers complained about my prices for QLab 1. Specifically, how they complained that those prices were

Too low.

I spend some time paying attention to what people are saying about my product. I check the mailing lists. I check the forums. I check the Twitter. And what I found in the days of QLab 1 was that, mixed in with the astonishing news that some people were buying their first Mac ever just so they could use QLab, was the equally astonishing news that some people were unwilling to buy QLab at all because it didn’t cost enough.

Even weirder, I started getting emails from people who did buy it, asking me to raise the price.

Whaaaa?

That’s freaking weird.

I know, right?

But actually… it’s not. And here’s why: my customers knew themselves. They knew themselves much, much better than I did. I had started down this QLab road unsure there was any destination at the end of it. The first steps were for fun, the next steps were for fun and curiosity, and the next steps were for fun, curiosity, and maybe a little extra spending money on the side.

Yet, for my customers, it was more than that. I’d made something that people wanted to be part of their lives. They looked at my prices, and they knew: if this guy doesn’t raise his prices, he’s not going to be around long. They saw this problem clearly, and they saw it long before I did. So they told me.

And you know what? They were right. It took me a while, but eventually I realized they were right. Because at first, hey, I was actually doing pretty well for myself. I quit my job! I was working for myself! I was living the dream! I’d tell my wife at dinner the sales for the day and she’d look at me astonished and say “how many sound designers can there possibly be?” and I’d say, with a hint of hysterical terror in my voice, “I don’t know! Maybe that was the last one! Ha! HAHAHAHHAHAHOHGODOHGODPLEASELETMESELLANOTHERCOPY” But they kept coming! Eventually I managed to even view each sale not with terror, but merely with mild discomfort. Because they kept coming! Surely probability was on my side!

And yet… each sale also meant a new person in our community. New people in the community brought wonderful energy, wonderful stories, and lots of new questions, new requests, and new emails in my inbox every morning. I loved it! But I’m only one guy! And I was running a company that could only afford to be one guy!

And my customers knew it. And eventually, even I knew it. Which brings me to

What happened next.

Probably the most anxious 9 months of my life to date.

Wow, was it really nine months? Let’s see, I quit my job in April, and I released QLab 2 the following January. Ha! Nice! Symbolism, that was a perfect place to step in. Thanks for that.

What did I do in that nine months? I rewrote my product, and I reexamined my company. Both needed adjustments. The product would become QLab 2. The company would become…what, exactly?

I said in my illustrated history of QLab that I was “literally shaking” when I pressed the send button on the email that announced QLab 2. It’s true; I was.

Whatever happened next was essentially going to determine the future of me and my company. Would people like the product? Would they be willing to support it at the new prices? (The audio license had increased in price by 500%! That’s not a little bump!) Would I be able to make a real company, that could support real employees for the real long term? It had been nine months of hundreds of hours of coding, testing, designing, tweaking, second-guessing, hair-pulling work. And all nine months of it came down to pressing that one button. You’d shake too.

Well, here’s what happened:

A fluke? Turns out: no. Here’s the bigger picture:

And here’s the breakdown by count, gross, and license type:

So. What to make of this? The graphs tell part of the story, but what was going on at the human level? Was I fielding outraged emails from customers that could no longer afford my product? Did I raise my profits by turning away large swaths of the community I’d worked so hard to find? When I actually did raise my prices, did everyone, in short, freak the hell out?

To my astonishment, the answer was

No.

Really. It really was.

People did not get angry. I can count on one hand the number of angry emails or Twitter messages I’ve seen about QLab’s price. And for each of those angry messages? I reached out. We talked. I listened to what was making them angry, and we talked about it. And not one of those people are angry anymore.

People did not get turned away. I know of a single customer that turned away because of the price. One. And while maybe there are people who turned away and didn’t tell me, I will remind you that we are selling more licenses. And those licenses are being sold, as far as I can tell, to the same kinds of people as before. How? How could I possibly raise my prices by 500% and not turn people away? Because, remember, I didn’t just raise our prices. I rebuilt our entire pricing structure. I still had the free version. It was still really powerful. I added the rentals. They’re even more powerful, but they’re also really cheap for the situations where it’s most justifiable that QLab should be really cheap. And I added the educational discounts on everything. And, at the end of the day, there was me, a human being who cares and who really wants people to use my software. If someone reaches out to me, we talk. We figure something out. And only once did it get that far and reach an impasse.

In short: I fixed my broken prices, and everyone won.

Or, to put it a different way: Pricing is a single variable in a multiverse of important variables. In this complicated universe of ours, it’s rare that myopically optimizing one variable does the universe any good.

Or, to put it a third way: Pricing reminds us that

There is. No. Spoon.

There’s this single moment in time when money changes hands for a product or service. That’s an unusual moment, because at that moment the product, in some sense, has a real, definable “price”. But before and after that moment the value of whatever is being purchased is a probabilistic blur where reality, emotion, and psychology mix in strange ways.

Each person who buys your software, your theater ticket, your whatever, will assign their own value to the thing. In a perfect world you would charge each person exactly how much they value your software, your theater ticket, or your whatever. But you can’t do that — not just because it will be different for different people but because it will even be different for the same people, depending on when and how you ask them.

By setting a price, you are basically taking a stab or three into a probabilistic soup. We all know there’s no cosmic ledger of “correct” prices. We all know we’re taking a stab. But what we don’t always fully consider — or, at least, what I didn’t fully consider — is how deeply

Psychology trumps.

There is disturbing anecdotal evidence of this in the form of people who spend money they don’t have. But the best evidence I have from personal experience can be summed up in two words: Educational. Discount.

Recall that above I told you the initial price of a QLab audio license was 49 dollars. That was the flat rate. That was the take-it-or-leave-it. That was the here’s-the-best-I-can-do.

And you know wanna know something? You wanna know what question I fielded most often? Any guesses? It was:

“Do you have an educational discount?”

On a 49 dollar license! For a piece of software that, it may also interest you to know, was offering a genuine and viable alternative to a product that, at the time, cost around — wait for it! — 1000 bucks!

Now fast forward to version 2. The price of the audio license has gone from 49 dollars to 249 dollars. But, knowing my most common question about version 1, I also add an educational price: 199 dollars. Or, to put it another way, the new discounted price is 400% greater than the old standard price.

And now? Now we sell more of these than we ever did with the standard price of version 1! Does the new rental license have something to do with this? Probably. It certainly gives a fantastic alternate discount for those who have an exceptionally tight budget.

But I’m telling you that I used to get the “educational discount” question on almost every single license I sold to an educational institution. Now, I have an educational discount, and it’s 400% more expensive than the old non-discounted version, and I have never once received a request for an additional discount!

Psychology is weird!

But also: important to respect!

Alright, let’s bring this home.

Here’s my thing.

You care about your customer. You’re on their team, and they are also on your team. That’s an important relationship. My goal here is not to abuse or break that relationship, but if anything to strengthen it. The right price is the one that’s fair to both of you, and if you’re genuinely on each others’ team, you can stand up for this fact without shame or greed.

When you’re starting out, you try to guess how your customers will value what you do. You’re probably going to be wrong, and you’re probably going to guess low. Because you’re a nice person. You want to make your work “accessible”.

Now, in my experience, there is such a thing as accessibility, but it has a bad psychological influence on you when you’re setting your base price. It skews you low. You’re new at this, you’re not sure what you do is worth money, you’re thinking of all those hypothetical customers who can’t afford more than X dollars for your product, whatever. Point is, here you are, you’ve just started out, you have no data, and you’re a nice person, so you tried to be fair, and accessible, and your price is really low.

Now, shooting low isn’t automatically a terrible way to start. You can always change your price, and it’s not so bad to come out of the gate humble instead of cocky. So the problem isn’t so much where you start, as it is,

What you do next

This is the tricky part, and this is the part I see my fellow young people flubbing.

You essentially have one data point. “This is what happens when I value my work at price X.” Maybe it even works okay. You’re selling a bunch of tickets at 15 bucks a pop. Sure, you’re living on egg noodles, but you’ve got young people coming to see your shows that couldn’t otherwise afford it. Well, maybe. You probably don’t actually have hard data to confirm that, but you’re pretty sure it’s true.

But what if it’s not?

Consider QLab for a second. Lucky for me, I wasn’t just a little ignorant about pricing, I was a lot ignorant. I priced my work so extremely low that my own customers knew I’d overdone it. I’m blessed with smart, professional customers, and they knew my market (i.e. themselves) way better than I did. They knew that in the long run I couldn’t survive on the prices I’d picked. They wanted me to survive. So they warned me: “Your prices are too low. You need to charge me more.”

You’re probably not as dumb as me.

So back to you, and your 15 dollar ticket. Or your 40 dollar piece of shareware. Whatever. The point is, you’re probably not as dumb as me. When you stabbed into the probabilistic soup of prices, you may have aimed better, and gotten a better number up front. If so, that may be a problem, because the warning signs may be less obvious. Maybe your patron thinks to themselves “huh, 15 bucks, that’s a really great price”. And silently enjoys your show. For 10 bucks less than their internal value-ometer was inclined to suggest.

And now, week by week, month by month, where does that extra 10 dollars go? Well, if you never needed it in the first place, good on you; you’re not greedy. A little odd that you’re willing to value yourself less than your customers, but that’s your prerogative.

But if you DO need that extra 10 dollars, then the common wisdom is that it’s going to come out of your budget. Sure, that’s probably true. That’s probably partly where it comes from. But I suspect that maybe only 7 bucks of that really actually comes out of your budget.

I suspect that the rest of it probably comes bleeding out of you.

And that’s a problem.

And, tragically, it may not even need to be a problem. And you don’t even know it.