Pricing strategy is, in my opinion, the most underrated marketing channel for WordPress products. Pricing is incredibly easy to change, and can have a transformative impact on how profitable a business is.
If you’ve never experimented with pricing before, making some basic optimisations can bump your revenue by 20 or 30%; and if you’ve optimised your pricing in the past, you can still make 5 to 10% improvements pretty quickly.
Pricing is marketing. It is one of the most important factors a customer will consider when deciding whether or not to purchase from you. Yet, it rarely gets the attention it deserves.
I’m not making this up: one of our clients who implemented the recommendations on pricing from their Marketing Audit and Strategy last year emailed me this week (after I’d started working on this article). He told me that, since radically overhauling their pricing as we’d recommended in a recent audit, they’d gone from $500 in revenue for the first 9 months of the year to $10,000 for the final 3 months of the year. Exactly the same product, 20x the revenue.
Those aren’t typical results from working on your pricing, but they show you why pricing is so important. This post will give you some insight into how we think about pricing, what we’ve learned from working with dozens of WordPress product businesses on their pricing through our Marketing Audits, and some actionable next steps you can implement.
Pricing on value
What is a good price for something? We’d probably agree that a “good” price is a “fair” price. A “fair” price will take into account the value you get as a customer, probably the cost of creating the product too, and maybe what competing products cost.
You probably won’t want to purchase for more than the value you get, and I’m not going to want to sell for less than the product costs to produce. This will ensure you get a positive return on your investment from me, and I stay in business.
There are a couple of assumptions here, including that you’re buying for financial reasons (if it was, say, image, you might pay more than the value you get) and that I run a “bootstrapped” business which must always be profitable. Those are true for most WordPress businesses, so let’s run with it.
But what should you do when you’re selling digital products which have very low marginal cost, and margins are potentially huge? You should still be pricing on value. “Pricing on value” just means you price your product in accordance with the value you create for the customer, not in accordance with the cost to you. Value-based pricing occasionally comes into criticism, but it does still meet the definition of “fair” above. As long as the customer is still able to make money, you should have no qualms!
In order to price on value, you need to understand what value your products create for your clients. You may understand that already, or you may need to talk to your customers to find out. Either is fine! Here are some useful scenarios to help you think about this:
- A developer bills their time at $100/hour. They buy your product. If your product can save them three hours/month, they can earn an extra $300! But they see claims like yours all the time; if you know your product is excellently made and isn’t going to break, they’ll definitely save the two hours and won’t have to worry about bugs. You may be able to charge a premium for that. $300/month is $3,600/year, and your product isn’t that expensive.
- An implementer who wouldn’t be able to code the solution your product creates will be able to take on a $2000 project they wouldn’t otherwise be able to do. Your product is an essential part of that project. How much of the $2000 is it worth?
- A small business owner has seen adverts for how easy it is to use WordPress, and tries it out. They have moderately technical requirements and find your product. It takes them five hours to set up, but helps them to avoid hiring a developer (who charges $100/hour), and enables them to win $50,000 of business over two years. And you’re anxious about changing the price from $50 to $60, or even $250 to $270?
You can also see where value is missing, and thus find areas you’d need to focus product development time. If your product isn’t reliable and needs five hours of troubleshooting each month, the developer is now either losing time and money, the implementer can’t finish the project at all, or the small business has just lost a $10,000 project. Value-based pricing swings both ways, and the value does need to exist.
Assuming your customers do realise positive value from your product, let’s look at how to experiment with pricing.
How to experiment with pricing
Pricing is such a good marketing channel because it’s so easy to experiment with. You can change a product’s pricing in a couple of minutes, yet there’s often huge internal resistance to doing so. I can empathise – I’ve done it and experienced it too – but I can report first-hand that this anxiety is most overrated.
This is one of those areas where you can be too close to the product: you see it every day, whereas your customers don’t. It’s more likely that the majority of new customers won’t even notice.
If you approach pricing changes as an experiment then you give yourself permission to try new things out. Commit to your new pricing for a 45-day period, and then analyse the data. If you’re more profitable then keep the changes. If you’re less profitable then just change it back. The worst-case scenario is probably that you make 20% less money for one month. But the best-case scenario? You’ve just dramatically increased the profitability of your business.
To be clear, not all pricing experiments will work out. I’ve cited a handful of examples in this post which generally do work out, but we have also worked on pricing experiments where even a $5 change has worked out very badly. It is true, though, that it is extremely unlikely that the first or second price you settle on is the most efficient price point, and thus there are significant gains to be made from experimenting with pricing.
Let’s get into some practical notes:
- Your experiment should run for 45 days.
This provides two periods: a 14-day period for customers who are currently making a purchasing decision, to “clear”, and then a further 31 days for the test. You need the buyers to clear (as seeing the price go up could put some people off) but only because they’re anchored against the lower price. You should therefore only look at data from the 31-day period.
- Don’t announce the pricing change.
You can create urgency by saying “prices go up in 7 days!”, but that is going to mess with your experiment.
- Apply the change to new customers only.
Existing customers should always get the deal they signed up for.
I’d also advise against looking too closely at the analytics to start with. It’s really important to get the full test period so you can compare it properly. Last year, one client put their prices up just before they went on holiday. They told me if they hadn’t been offline they would have reverted the prices – but they were glad they didn’t, as revenue did end up being significantly higher.
Once you have the data, you’ll want to look at a couple of metrics:
- Total revenue
- Total profit
- Average order value (AOV)
- Average profit per customer
- Conversion rate
If the numbers are close, you may well want to stick with the higher price, as it’s often more profitable to have fewer customers who pay you more. If you use annual renewals, also keep in mind how these numbers will impact those. A higher initial average order value is easier to turn into a higher renewal price.
If you haven’t experimented with pricing before, here’s a simple pricing experiment you can try: put your prices up by 20% over the next 45 days.
And if you have, let’s increase the sophistication of our approach by starting to segment your customers.
Segmenting your customers to increase average order value
Experimenting with your pricing forces you to understand your customers better. Next we’ll cover why, and how to do it.
We talked about value-based pricing earlier, but you may have noted that the different customer profiles I described (the developer, implementer, and small business owner) all realised different levels of value.
Thus, in order to effectively price on value you’ll need to use segments and tiers to capture different amounts of the value your customers realise. This will help you increase your average order value (AOV), one of the most important metrics any store should look at.
- This tier is 1x
- Basic features
- This tier is 2.5x
- Wow premium option!
- Woah, 5x!
- This tier has a LOT of value going for it.
The highly simplistic version of this is you want to have tiers, typically three. At a basic level, you then crudely match the tiers to the different levels of value realised. To start with this might give you quite low levels between the tiers – 1x, 1.5x, and 2.5x, for example.
Over time you might be ale to add more value and help your customers realise more value. That’d let you get to the SaaS gold standard tier difference level of 1x, 2.5x, and 5x.
You then try and push your customers through the tiers. Can you put a higher value feature in one of the tiers? Or, can you offer other premium elements such as more sites, or faster support?
What is interesting is the assumption that tiers should be based on different levels o usage, and number of sites a licence can be used on. Relatively few other web-based industries are so uniform in pricing this way. The alternatives include paying by usage, by number of users, by results (ie a % of sales), or any others. Typically the answer is because WordPress products tend to be self hosted these kinds of usage limits would be arbitrary. That’s probably true in most cases, but is it true in yours? In WordPress we all tend to copy each other, and often the reason other people don’t do something is because nobody has been the first to try it, rather than because it’s a bad idea.
Practical tips for WordPress products
What are some of the quirks of the WordPress space? As we work exclusively with WordPress businesses, this is something we can answer.
Below are some general rules we’ve learned from our Marketing Audit and Strategy work, depending on the kind of products you sell. These aren’t going to always be true, but they do generally work out for our clients.
- Plugin with add-ons should do bundles.
You will probably find it more profitable to only sell through bundles, and not sell add-ons individually. This generally lets you segment the add-ons by the value they bring to the customer most effectively. It also generally gets a higher AOV than having the addons sold individually.
- Freemium products need conversions (like, a lot).
Focus on getting as many conversions as possible. Most freemium products convert a very small % of free users to paying customers, and a lot of freemium products find paying customers come from a totally different marketing channel. If you have freemium then, make it count.
- Independent but complementary products should be bundled too.
You should also bundle these. You can offer a discount versus buying them individually, and in exchange, you’ll get a higher AOV.
- You should probably do annual pricing.
There are high-profile exceptions to this, but it is true that most WordPress products get the best results from listing their pricing annually, rather than monthly. Most WordPress products aren’t “SaaS-like” enough for monthly pricing, where the customer is going to have to evaluate every single month if they are or are not getting good value from your product, to work.
- A lifetime license may well be a good idea.
Lifetime licenses may have a bad reputation in the WordPress space because of our collective memories. WordPress products used to offer lifetime licenses which were priced like 1-year licenses, but this was an unsustainable model. The likes of WooThemes were amongst the first to realise and switch to an annual renewals model, but the general backlash from this from customers (read the comments on this post!) and unsustainable nature of the original lifetime licenses means that most now steer clear.
Priced properly and for products that don’t have significant ongoing costs, though, lifetime licenses are a great idea. You’ll need to look at your average renewal rate to see your average lifetime customer value. For most WordPress plugins the renewal rate is around 50%, so lifetime value is 2x the purchase price. This should be your absolute minimum for lifetime value. We’ve found 2.5x is a good starting point.
Capture new market segments
The benefits of a good pricing strategy don’t stop there! Having good pricing lets you profitably capture other market segments at sale times. Black Friday is the biggest sale event for most WordPress products, and the businesses which do best are the ones with the best pricing. Here’s the relevant section from my post on Black Friday for WordPress products:
Jack Arturo… [from WP Fusion shared] some more specifics on the success:
“We were able to effectively pick up price-sensitive potential customers who wouldn’t have otherwise purchased. Our prices are quite high and a 30% discount is a pretty good deal.”
A key takeaway from Jack’s success is that you can’t take Black Friday in isolation. To be “successful”, any discount has to be in context. WP Fusion is expensive (it starts at $250/year), but it provides a huge amount of value. By doing a modest once-a-year discount, Jack is able to pick up on price-sensitive customers whilst maintaining the integrity of the pricing the rest of the year.Risk and reward at Black Friday
Next steps for your pricing strategy
Pricing strategy is the most underrated marketing channel for WordPress products. I hope this article has given you some practical steps for how to experiment with and improve your pricing and overall pricing strategy.
If you want a professional look at this, we’re uniquely placed to help: our Marketing Audit and Strategy work looks at pricing – and an awful lot more. The pricing section alone often pays for the work, though. Find out more, or get in touch here.
I’m more than happy to answer any questions or respond to feedback in the comments, so do let me know your thoughts.