5 mistakes that kept my business stuck at $0

- Speaker A tells that pricing is marketing and it can make or break your startup. He shares the five pricing mistakes he made that kept his startup from growing. - Subscriptions raise objections in customers' minds, so it lowers the conversion rate. A one-time payment product has a 10% churn rate and makes $10,000 in one month. - A business owner should always have a price anchor to help customers understand what the product is worth. A price encore is a marketing strategy that consists in creating an initial price so that customers can compare with the actual price. - As a solopreneur, he has to make some tradeoffs and removing free plans is one of them. Mistake number four is to look up front on the landing page and offer free credits. - Speaker A tells the audience to always try to price a little higher than they think it's worth. The reason is that customers will value the product more and they will get more out of it.

I have a little trick. When I visit a website, I go straight to the pricing section and within seconds, I know exactly what the product does and if it's worth my time. Because pricing is marketing and it can make or break your startup. When I studied the journey, I was not really sure how to price my product. So I followed traditional business advices, but none of them really worked and I was stuck at zero dollar for a month. I built 24 tiny businesses and tried all sorts of unconventional pricing methods. And that's how I ended up making a million dollars as a solo developer. So in this video, I'm gonna share the five pricing mistakes I made that kept my startup from growing. And we're gonna start with the spiciest one subscription. Yep, your software probably don't need a subscription model. Now everybody is saying that we should charge subscription because that's how we make passive income. That's how we earn money when we sleep. But then forget one thing. People hate subscriptions. As a customer, when I see dollar nine per month, I know it's not just dollar nine, it's dollar 108 per year. And it piles up with my Netflix, Spotify and Wi Fi subscriptions. And sometimes I just want to try the product. So I have to set up a reminder to cancel the subscription to make sure I'm not charged for a service I don't use. Subscriptions raises objections in your customers mind, and confused customers don't buy, so it lowers your conversion rate. I would argue that it is as hard as selling a $10 a month subscription than it is to sell a $100.01 time payment product. Let's take a quick example. Okay? Let's say we have two products. One is a subscription product that costs $10 a month and that has a 10% churn rate. So every month, 10% of the customers will churn, which means they will cancel the subscriptions. And let's say we have a one time payment product that costs $100 upfront and of course, no recurring cost after. Now, let's say that instantly we get hundred customers for both of those products. After one month, you make $1,000 with a subscription product, and you'll make $10,000 with a one time payment product. And until the end, you'll make zero extra revenue. Now, for the subscription products, on the second month you'll make $900 because you had the 10% churn rate, and it will have another 10% of this $900. So $810 on month three, and by the end of the year, you would make 7176 us dollar. And if you want to make $10,000 as for the one time payment product, you would have had to wait for four years until you get the same amount of money. So do you want $10,000 right now or $10,000 spread across the next four years? Your product probably doesn't need recurring payments. A lifetime deal. Access is a great competitive advantage against all the big software guns like calendly or type four. Now it raises the concern of yes, but what if people overuse my product and I end up losing money? There are two cases. First, there are the negligible costs, costs where it's so cheap that you would have your users to use the product for like 300 days every single day in order to lose money. I'm talking about bandwidth, I'm talking about emails. Well actually let me show you a little example. Okay, so this is the web traffic on all of the products I built, and that is about 200,000 page views in the last two. So that's roughly half a million page views a month. Now if I go to Vercel for the same billing cycle, this is about 266gb of data transfer. That's roughly the bandwidth. Now if we look at Vercel pricing, I am on the pro plan, so normally I get 1 tb included. But for this example, let's pretend that I'll pay fifteen cents per gigabyte transferred. So we're going to do $0.15 times 266gb and we're going to do times 2.5. So we round this to like a month of data. That means I would spend $100 a month with Vercel, one of the most expensive hosting platform out there, in order to serve half of a million page views. This is definitely negligible. Let's take another example. Let's go to my emails. I'm sending email for all my businesses, for people to sign up for reminders, and I'm even selling email inside of my products. I send around 150 to 200 emails per day. And this is the bill I got from Mailgen last month. Actually 4800 emails sent per month. This cost $5. This is an absolutely negligible cost. And unless my customers would use the product for 300 days every single day, I would never lose money on those costs. And then there are the more expensive costs. So that could be ads for marketing, or that could be GPU, OpenAI or database cost for your software. In that case you can offer a credit based system. For instance, you could have an image generation platform where people can create photos of themselves using AI and you could charge $10 for like 100 photos. That way you get rid of the subscription headache from the customer's mind and you're sure that your customer never overused your product. If no one pays for your one time payment product, no one will pay for a subscription. But if no one pays for your subscription product, maybe some people will pay for a one time payment version of your product. So shoot large at first and then refine later. You can always add subscription down the road when your product starts to get traction. Now im not saying that subscriptions are useless and should be ignored. One of my good friends Dan said that recurring value equals recurring payments. Usually subscriptions are great for b two B product, but remember they come at a cost and its worth exploring a one time payment or a credits alternative. Mistake number two, not anchoring your price when you buy a coffee based on where you are in the world or where you buy the coffee, you would expect to spend somewhere between one dollar to five dollars. But now when you're buying a software to generate blog articles with AI, it's kind of hard to know what it's worth. So as a business owner, when you have only one pricing plan on your landing page, you make your customer thoughtful because they have nothing to compare with. That's when the price Encore comes in. A price encore is a marketing strategy that consists in creating an initial price so that customers can compare with the actual price you had in mind, and it will make this price more reasonable by comparison. Let me show you a quick example of how I do price anchoring for all of my products. Okay, first, let's start with an example of Zenvoice. It's a little tool I build for people to avoid paying the stripe invoicing fee of 0.4%. And so in the pricing section, I have this price, which is the one I wanted to go for $69. I'm not sure why I wanted to price it that way, but that's what I had in mind when I got started. Then I needed a price for people to compare with an encore price and so I created this price here, which gives you access to very similar feature, except that with the more expensive plan you get the unlimited stripe accounts feature and you only got one stripe account with this plan. So this one in comparison looks cheaper and more reasonable. Let's take another example of indie page. It's a little link in bio tool for people to showcase their projects, their portfolio, and I wanted to go with lifetime deals. I never wanted to charge any subscription here. So this is the price I had in mind from the beginning. You pay $45 and you have says the product for a lifetime. Now, again, what's the worth of this? What is the worth of a LinkedIn bio tool? That's why I added this like one year pass plan. It has the exact same features, but the difference is that after one year, the pass is removed and you don't have access to the product, which makes the lifetime deal plan reasonable and cheaper in comparison. So try to always have a price anchor to help your customers understand what your product is worth. And you can even decline your price in three categories, good, better, and best. It usually works pretty well, but just avoid having more than three prices, because then it becomes a burden in your customers mind. Now, let's talk about mistakes number three. This is one of my first startup. 150,000 visitors and $6,000 in revenue. Unless you're watching this video in 2050. You remember how Facebook started a free app that free users loved and spread the word so that everybody knows about it and it's going viral and they started monetization years down the road with ads grow first, monetize later. That's a good story. But as a solopreneur, the journey is a little different. I value freedom over unicorns. I won't raise money, so I won't raise a team of marketers and growth hackers. I operate with fewer resources, so I have to make some tradeoffs. And removing free plans is one of them. Let me show you the math behind that. Okay, let's start with the goal first, and let's say we want to make $3,000 per month, and we have a product with a free plan and a premium plan at $5 per month. Now, as a general rule of thumb, 3% of people upgrade from free to plan. This is a standard in the software industry. That means if you want to make $3,000, you will need 600 premium users, which means you would need 20,000 users to sign up for your product because of the 3% conversion rate. And to get 20,000 signups on a product, we can safely assume you have a 15% conversion rate. So 15% of people will create an account and start a free plan, which means you would need 133,000 visitors to get $3,000 a month. I don't know, how about you? But that sounds insane. Removing free plan is removing pain. As a developer, I used to struggle to ask for money, but here is what happened after I removed free plans from all of my products. First, I got better users, users who are skin in the game. They provided their credit card so they are giving me real feedback and I build better products. Second, I got more motivation. There is something magical about making money on the Internet. It's exciting and it helped me focus on the work. And third, I saved money. Most of the user base were made of free users, so its only costing something after removing the free user base. There is no cost associated with that. So consider ditching your free plans and add a paywall upfront and that way youll become profitable faster. Mistake number four, free trials the problem with free trials is that people dont commit. They can use your entire product for free for a couple days and that results in a huge drop in conversion rate. After a couple days life got busy, they went on a holiday and they dont come back because they didnt commit in first place. Now you might be wondering, yeah but I want people to be able to try the product to know if its worth it. There are three ways to fix that. The first one is to look up front on your landing page. Usually if your landing page copy is not triggering an emotional reaction and there is not a clear demo of your software, that means you going over a little camera and explaining demoing how the software works. Customers dont know what they are buying, so you can make a better landing page. Explain clearly what your product does, demo all the features and that could remove the need for a free trial. Second, you can offer free credits. You let people use your software for a limited number of actions and not a duration. For instance, you could offer them to generate three images at no cost with your AI software generation tool. Or they can send ten emails at no cost. But make sure it's tied to an action, something that they could perform so that after using your software for a couple of minutes they will face a paywall and they know exactly what they're paying for. You want them to commit when they are right now, here on your landing page, not days down the road. And alternative number three, you can still try free trials, but reduce the length from 30 days to seven days and ask for a credit card upfront. An email is not a commitment, a credit cardinal and final mistake. Pricing to chip I see lots of developers getting started who price like $10 to use their products. Chip is expensive. In the long run, the value is what your product is worth, its usefulness, how much time people say with it, and perceived value is how much a customer thinks your product is worth. And it's influenced by factors like design, and especially pricing. When you price too cheap, you signal that your product does not have value. So as a rule of thumb, always try to price a little higher than you think it's worth. If you charge one time payments, avoid anything below $19 if you're charging subscriptions, avoid anything below $5 per month. And I noticed a side effect of pricing a little higher is that customers will value the product more and they will get most out of it. Think about udemy, where you can buy this course for like $10 to learn the entire JavaScript world. Or you can have this like premium $200 course made by a creator that you love. This is the course you want to go for, because spending $200 on this course will make you value the course more, and you will likely get more out of it. And if you don't know how to price at all, probably someone has already figured it out for you. So look at your competitors and try to price in a similar now, these, these mistakes I made, it's tailored for me and for the tiny 24 businesses I build. It's also what I've seen from lots of solo developers building in public on Twitter. But it's flexible. That means you can come up with your own rules, and I hope you prove me wrong. And before we close this video, I want to just mention that I am not affiliated with any of the products that you saw in this video. I don't take any sponsorship on this channel, and in fact, I could not care less about the tech stack I use as long as it's helping me move fast. Until the next video, I hope you just ship it.