For the past year I’ve presented a talk entitled “Make Them Care” to conferences across the US and Europe. The purpose of the talk is to get developers thinking about how to market and sell their products, create a sustainable business, and to earn a livelihood writing software. I open the talk with a detailed discussion about the size of the potential audience for a software product — likely much smaller than most developers realize. This opener is meant as a wake-up call for a small business person who erroneously believe their products are aimed at millions.
Then today, Allen Pike discussed his company’s plans for a future product — MicDrop, a podcasting production studio for professionals — which he was abandoning due to a “…market [that] is just too small to sustain a great app.” Allen is preaching the same message I was in my talk: pay attention to the size of your market and only build what this market will support financially.
Professionals use your software to make money. If you can find a way for them to do their job faster or better, they will pay nearly any price.
In his post, he mentions several alternative pricing schemes but only discusses, in detail, selling the app for $200. Now, Allen is a smart cookie and an even nicer person, so I wanted to present him with a few alternatives that I see for his market and politely make the case there exists a sustainable market for his app. He just needs to be willing to think beyond the mainstream. After all, I know a thing or two about selling an app for $200.
Option 1: Triple the Price
Allen’s math for a $200 price point isn’t that far from a sustainable business:
“The best estimates I could get said there were 500 to 1,000 active sponsored podcasters out there… realistically there’s maybe $20-50k to be made in the pro market.”
In fact, he’s only a few multipliers off. If he could sell MicDrop for $400 or $600 he could easily be in business. Sell for $1000 and he’d have room for growth.
“Okay, crazy person” I can hear you saying. “Selling an app for $200 isn’t easy, how am I supposed to sell one for $600?” If your customers are truly professionals — meaning their livelihood depends on it — then you should have zero trouble getting them to pay $600 or even $1000 for it. Photoshop, Autocad, and Google’s SketchUp, are examples of software that cost thousands.
Professionals use your software to make money. If you can find a way for them to do their job faster or better, they will pay nearly any price. Did you purchase the maximum spec for your last computer or did you buy the cheapest you could find? Professionals always trade money for productivity. The real trick is building a product that makes them faster and better. Solve that problem and you can name your price.
The pot gets sweeter when you realize that the prosumer market always wants to use the same gear as the professionals. You’ll see this often in the podcast market with microphones and audio interfaces. The market is gear heavy and already equates price with quality.
Sidebar: Charging hundreds on your product also has an unexpected side benefit: users become more engaged with your product. They’ll file more bugs and more feedback requests, because they’re invested in your product. Don’t be afraid of this — be excited.
Sure, you’ll get a lot of anger and have to issue many refunds if the software doesn’t do everything a particular customer wants. If you take that feedback and add features your demanding audience is looking for, you’ll ship a better product. In return, that audience will market for you. Charging more leads to stronger customer engagement.
Option 2a: Subscription
Allen said he explored subscription pricing, but didn’t offer much detail so I can only guess to his exploration. Reading tea leaves a bit, I’d guess he was looking at $10-$20/month as a flat subscription fee. That works out to around $200/year, which is what Allen discussed for his flat rate pricing. And at that price, I agree subscription pricing wouldn’t be sustainable. But we’re talking about an app for professionals — how many of them charge as little $10-$20/month? (Hint: only one comes to mind and we talk about them down the page)
Creative Cloud is $50/month for 20+ applications, while AutoCad is $3000/year for a single app. Both of these are per seat which means only a single user. For a double-ender, you’d need at least two seats for each podcast. A podcast like Rene Ritchie’s excellent iMore Show would require three to four seats — sometimes more. With subscription pricing, you can offer bundles or multi-seat deals. There is a lot of flexibility that can easily get the price to $50 or $100/month for these larger shows.
Where it really gets interesting is when you consider guest interviews. Arguably, guests are the biggest hassle for podcasters and the scenario most likely to cause error and confusion. With subscription pricing, the show can absorb the cost of the software for the guest. This contrasts static pricing where guests are now asked to fork over $200+ just to appear on the show. You could offer built-in guest passes that expire after one recording. Those guest passes could be bundled into a subscription (a certain number per month) or could be purchased ad-hoc for shows that only occasionally have guests.
Either way, the purpose of subscription pricing is to monetize each end of the recording. Bigger shows pay more, for greater (and arguably more complicated) use of the product. This integration of your sales curve is vital to sustainable pricing and economics of a niche, professional tool. And again, these podcasters are making money using your product. Even at $100/month, it’s a no brainer for small to medium size podcasts.
Subscription Bonus: With guest passes, a podcast can put a more professional front on their show. Instead of “call me an hour ahead of recording so we can figure everything out”, their guest will receive an email with instructions to download a tool and everything is taken care of. That experience for a podcaster’s guest is worth good money and it requires less time commitment from the guest, allowing podcasts to get busier guests more readily. Subscriptions make it simple and convenient to distribute to a guest that might use your product only once or twice.
Option 2b: Percent of Gross
I told you we would come back to $20/month subscriptions because there is one company that is ahead of the curve on pricing subscription software. Epic’s Unreal game engine is the premier game development software for professional game studios. And starting last year, anyone can get access to their software (previously $100,000+ per license) for a measly $20/month, plus 5% gross sales. On the surface, this seems insane and unsustainable considering the hundreds of man-years that go into its development.
Epic isn’t crazy, they just remembered the cardinal rule of professional tool building: your customers use your product to make money. So instead of charging a massive up-front fee, they encourage customers to explore their toolset and build whatever they want. If you make a hit game, Epic makes their money. This approach is proving effective for Epic, particularly in next-gen consoles where it’s been difficult for indie game developers to make inroads.
It’s similar to a freemium model in spirit, but instead of preying on your customer, you share in their success. This approach allows two things: (1) you can offer an entry-level price to encourage enthusiasts; (2) as they get better and gain sponsors, you get paid for your software making them better.
$10/month plus 5% of advertisements and sponsor revenue is a simple way to become sustainable. Allen could even mix it up and offer the software for $50 up front, plus a back-end of 5%. The beauty of this approach is that it gets the elusive prosumer market that Allen is after, but also scales with the professionals who are making real money using your tool.
Appendix A: Call for Pricing
This isn’t an option for every customer — perhaps merely an addendum to the percent of gross or subscription option. If a large broadcaster, such as NPR or Clear Channel, starts using your software to produce their podcasts, they won’t want to pay a per-seat subscription fee or even a percentage of their gross advertising due to the scale of their operations. For these larger customers, I’d let them negotiate a yearly contract fee for use of your software. One of these contracts alone could make a sustainable business for most small indie shops.
Put an email address or phone number in your store for interested parties to contact you. There, they can negotiate a flat yearly (or one-time) fee for continued, unlimited use of your software for their own purposes. 5% of their gross advertising could easily stretch into seven-figures, making a $300,000 - $400,000 rate a very good deal. It’s also a good deal for you, since you make your hay with one sale.
Dropping the Mic
I speak from experience, both selling products for $200 and building products for clients who sell them. At MartianCraft we provide guidance for customers on how to make a sustainable income from their product before they invest serious money on our services to build it. We’ve seen every business plan you can imagine and then some you can’t. I have a good idea for what works and what doesn’t.
When I read Allen’s post I saw some great research and thinking, but I felt like there were options he hadn’t considered that could make MicDrop a sustainable business. If not Allen, someone will crack into the podcast market and make the next Photoshop or Autocad for producing podcasts. Maybe it’s you and you’re reading this right now.
If it is and you need some help, you know where to find us. We’d love to help.