The single best advice Patio11 has given is "charge more". Seriously. It's been one of the scariest thing to do in the beginning, but I've now 4X'd my pricing (from 3 figures to 4 figures a month!) and the customers got 10X better, complain less, I work less and earn more. Please! If you read this, double your prices today. See what happens in the next 3-4 weeks.
Here's a fun stat: a few years ago, I surveyed some of my fund's portfolio companies and asked, "for a similar level of product/service, how much higher or lower are your prices compared to your initial pricing?"
Out of a dozen replies, about 10% were pricing their product lower, 30% were pricing the same but taking higher margins, and 60% companies were charging 2.5x-6x more than they used to. Median was around 3.5x. So the majority of companies had marked up their prices severalfold, and only one company had lowered their prices.
Did you happen to get a timeline from those companies on their price increases? I'd be curious to see if there were any common milestones for when the companies decided to increase prices.
In a few cases, I've taken the strategy of increasing prices over time as I've solidified and polished my offering. Discounting the product initially to gain enough usage stats to rough out edges, develop an internal support knowledgebase, and suss out unexpected use cases and user segments early on. I'm not sure if those products would have been as successful if I had charged more out of the gate and cut my teeth on those higher-paying individuals.
On the flipside of that I've seen patio11 specifically tell the tarsnap guy to charge more, while his product already costs $0.25/GB while GCP Cloud Storage Nearline and S3 Infrequent Access are $0.01/GB (and falling each year). When I was recently looking at backup solutions I immediately discounted tarsnap due to the pricing.
That doesn't mean it's the wrong pricing, just that you're maybe not the customer they want. A business loses some customers at any pricing level, it's just a question of whether the incremental revenue from the remaining customers makes up for it.
When you charge a penny extra, that's all incremental margin from the customers you keep, but for the customers you lose, some of lost revenue is balanced by not having the costs associated with supporting them any more.
Pushing the most price sensitive customers out the door isn't that bad, because they're also likely to be the least loyal down the road, and maybe the highest maintenance relative to their spend.
Sure, that's a good point especially considering he's a one-man show so it probably makes sense to keep the user base as ruthlessly small as possible just for support reasons alone.
It does make me curious though who the target customer is - somebody who's comfortable setting up a Unix CLI tool for their backups (creating a cron job etc.), yet who wants to cede bucket ownership to a 3rd party and pay a 25x markup for the pleasure? I personally don't mind having to click "Create Bucket" in the AWS console if I get to pay $3/mo instead of $75/mo on my 300GB of data. shrugs
But Tarsnap is much more than that -- it deduplicates, it encrypts, it has settings for restricting network, memory, and CPU usage, it caches and checkpoints, etc. I'm happy to pay the premium for the robustness I get from it.
And let’s not forget and Tarsnap is still dirt cheap even then, because Colin refuses to charge more. I’d happily pay something reasonable for my backing needs, like a $30 or $50 monthly minimum on tiny sets; instead, I pay I don’t know, something like $10 every year or two.
What you're saying is that it's dirt cheap if you have a small amount of data. On the other hand, if for whatever reason you need to back up, say, 1TB worth of video files, it's extraordinarily expensive.
I think it's just the wrong pricing model to have a flat rate per gigabyte. A flat rate looks simple, but far from being transparent or 'honest', it's essentially arbitrary in this case. Other than backend storage, Tarsnap's main non-fixed cost is Colin's time providing support - but that scales mainly with the number of customers, barely at all with the amount of data they're using. Thus, heavy data users are effectively subsidizing light data users, who pay far less than their 'fair share' of costs.
> it's dirt cheap X. On the other hand, for Y, it's extraordinarily expensive.
This may be intentional. Not every service tries to provide an optimal solution for every use case.
> it's just the wrong pricing model to have a flat rate per gigabyte.
I have no axe to grind (I'm not associated with tarsnap in any way, I'm not even a user though I have considered it) but some of the discussion here makes people sound somewhat entitled: "I want X, and I don't want to pay more then $Y for it, and any service charging more is silly/bad/ripoff".
Stating that something ins't the best choice (or even a good choice) in some (or many) circumstances is fine, but "it is wrong for me so I don't see how anyone can think that it is right" is an irritating stance.
The pricing model seems to work for plenty of users, enough that it works for the service as it has been successfully running for some time. If you think he is missing out on a huge amount of money from the users who are put off, why not start your own service priced to be attractive to that userbase, and take the profit you see that service as giving away.
> providing support - but that scales mainly with the number of customers, barely at all with the amount of data
Sometimes having lots of small customers works better than having a few large ones, even if you have a few large ones and lots of small ones. With large customers you are sometimes beholden to their whims at the expense of the smaller majority (or they expect you to be beholden to their whims and get difficult if you refuse!).
> but far from being transparent or 'honest', it's essentially arbitrary
Being arbitrary in no way precludes being transparent or honest.
> heavy data users are effectively subsidizing light data users
Only if they don't go elsewhere, which they are perfectly free to do. tarsnap is not in a monopoly position such that people are effectively forced to use it.
(I'm not intending to pick on you specifically, there are other comments I could have responded similarly to, but this post just happened to be the one that tipped the balance on my rant reflex!)
Glad you're happy with it. I went with BorgBackup which I'm also happy with. AFAIK it also does dedupe, encrypt, checkpointing, and can throttle upload speed (don't know about the rest).
One of the things I value about Tarsnap is that I can set a permission which does not allow data to be deleted. That is, if a hacker somehow gains access to my server, she cannot delete all the existing backups.
More generally, I suspect you are underestimating the number of people who tick one or more of these boxes: (a) Impressed by Colin's security chops and the security focus of Tarsnap such as its Bug Bounty program; (b) Have never heard of BorgBackup; (c) Value customer support; (d) Are worried that an open-source project would not be maintained and prefer a vendor whose livelihood depends on the product (d) Have experience with Tarsnap on previous projects; (e) Only need to store 20 Gb and for whom saving $5 per month is unimportant; (f) Have revenue in the millions and for whom $75 per month is a rounding error.
Even if there were no such people and Tarsnap's new user growth was zero, it might still make sense for Colin to triple the price of Tarsnap in order to maximise the income from existing users.
> ... I can set a permission which does not allow data to be deleted. That is, if a hacker somehow gains access to my server, she cannot delete all the existing backups.
With GCP/AWS, you can copy and paste a bucket ACL that only allows PUT operations, and enable versioning to ensure nothing can ever be deleted by overwrites.
With tarsnap there is one person who can delete all your existing backups - Colin, because he owns the bucket. And he will for sure within 7 days of your account falling below a $0 balance.[1]
That might be a feature in case you got killed in a car accident and you want some secret to be buried forever. But for me, I'm archiving my family photos/videos and I'd rather AWS keep charging my account and keep my data alive until my estate can sort out my digital data, which could take months.
> it might still make sense for Colin to triple the price of Tarsnap in order to maximise the income from existing users
And there's the rub. I don't like the idea of somebody holding my data hostage. I'll gladly contribute to a Patreon if an open source developer needs recurring support.
Those are good reasons to choose BorgBackup over Tarsnap, but they aren't related to your original claim about pricing. There are two questions here:
1. What are the benefits and market size of Tarsnap compared to other backup solutions like BorgBackup + GCP?
2. Would Tarsnap make more profit it it raised its prices?
We seem to be arguing about question 1, but Patrick's advice to Colin is about question 2. Earlier you pointed out that Tarsnap is 25 times more expensive than GCP which indicates that Tarsnap's target market is not very price-sensitive. If Tarsnap doubled its prices for new customers would the rate of new signups really drop by more than 50%?
To be fair, GCP/AWS also don't have unlimited grace periods if you fail to pay. At some point everyone deletes. That's why you should always have two backups with different providers using different credit cards. A blocked credit card has led to failed businesses in the past.
Right, didn't mean to imply they didn't. But the differences are that Tarsnap is pre-pay[1], while AWS/GCP automatically debit your card.
How many people have several months, or a year, of runway on their Tarsnap account balance? Meanwhile, there have been cases of people being dead for years[2] with their auto-pay agreements keeping everything humming along while they rot. Keep in mind that recurring payment agreements often aren't cancelled when a credit card number or expiration date changes.[3]
Finally, AWS will give you about five months of unpaid bills before they suspend your account and delete your data.[4] I would assume GCP has a similar policy.
Yes, but I can pay $50 once for Arq Backup, which will let me do this with any (= cheapest) data store - currently Backblaze B2, paying cca $5/mo for 500 GB from all computers at home.
If that customer exists - they sound like a great customer. $75 a month might be too expensive for your needs, but it's certainly not a ton of money if someone believes that product is the right fit for them.
You're paying $0.01 to give your GB to Amazon and $0.24 to make it impossible for Amazon to give it to anyone else. If you don't care about Amazon giving your data to anyone else, then you don't have to pay the premium for Tarsnap.
There are plenty of data sets for which that is reasonable. There are plenty of data sets, perhaps not at your shop, where $0.24 laughs in the general direction of the value of a gigabyte. I previously used Tarsnap at a HIPAA-regulated SaaS app. The fines for unplanned disclosure are measured per-record not per gigabyte; my rough guesstimate on proration is $12 million / GB but what's an order of magnitude or three between friends.
"What are you really paying for?" is a great question to ask for any product or service. An even greater one to answer if you are the one marketing said product or service.
But it doesn't cost $0.24 to make it impossible for Amazon to give it to anyone else. I'm using BorgBackup to encrypt my data, and it appears to use the same AES-256 and HMAC-SHA256 algorithms as tarsnap. There are a plethora of open source backup software that will encrypt your data and not charge you monthly for it.
I wish I were at a place in my life where the difference between $3/mo and $75/mo ($36/year vs $900/year) is a non-issue, but unfortunately I'm not. So for now my family photos and videos will have to be securely stored with the (probably) slightly sub-par designs of the open source software I'm using.
So after all that, we're back to "you are not the right customer". The key to business is to charge an amount that gets the customers you want. Ironically, cheaper customers are almost always more work, fullstop let alone per dollar.
This is actually classic patio11 paradigm shift. The point is that nobody (who actually makes business decisions) gives a shit about the per GB cost of backups.
The shift that Tarsnap needs to look at is this: how much is the company willing to pay to never lose this data X probability of data loss without Tarsnap. And then subject that number to a ceiling of hiring competent (this is very important work) developers to replicate Tarsnap.
Take that amount that companies would be willing to pay, and then divide by the actual size of the data. A company with 1TB of super valuable data will likely be willing to pay at least $X000 a year to have it safeguarded, which is really $X per month per GB.
You aren't getting anything resembling Tarsnap's security from S3 or GCP. If you don't care about security (and for some data sets, you totally don't!), you're right, it doesn't make sense to use Tarsnap.
I'm not rsyncing plaintext data to S3/GCP, I'm using BorgBackup to encrypt and dedupe it. I don't know if the encryption is comparable between the two (they both appear to use AES-256 and HMAC-SHA256), but I imagine tarsnap's is slightly more clever?
what do they offer at that higher cost that their target market wants? or is their target market simply the ignorant-to-storage-costs-CIOs/IT-departments?
I did support for networking equipment for a while. It was a similar thing.
If you supported the lower performance edge equipment you got more customers looking for cheap crap, trying to make it do things it absolutely shouldn't, and the customers contacting you were paid less and not that capable of helping you help them... and man were they frustrated.
Higher end data center stuff, routers for big enterprises, you got customers who spent more because they knew what they wanted, knew the product, their company had actual change control, and they were being paid more so they tended to know their stuff and were easier to work with. Granted there was pressure on the high end, but it was more professional pressure.
In a market I used to run a startup in, $1000 was a very common point in our industry at which individuals with purchasing authority and a credit card (i.e: the people we wanted to convince to hit Buy Now) needed to go up to the next level for expenditure approval.
$999 (or in this case $995) meant they could whack it on their card and not go through approvals process etc.
Obviously this price point will vary with industry and time, so suss it out in your industry (if it is applicable at all).
Completely agree with this, $5 can be the difference between a middle manager swiping a credit card and a tough conversation with a GM and procurement (ever had to procure AdWords before?)
And, although in these days of Stripe & PayPal, etc, it's not such a big deal, the ability to take credit cards for bills is the difference between being paid immediately vs. waiting 6-9 months for the invoice to be paid because you're not an Approved Supplier and Purchasing needs to get a waiver to pay you.
Most of the purchase departments need one plus additional level approval for say 500, 1000 limits. So if you keep pricing at 999, the department purchasing your product need to go through one level less approval, hence chances of you as a vendor getting paid earlier is better.
Maybe sometimes. Purchasing cards sometimes have limits per line item, and you want to be able to slide under it as strictly less than comparison.
500 limit? $499
1000 limit? $995
While this could sound sketchy, business absolutely love it. If that monthly charge is $1000 or $1001, now I need another level of approval and signatures.
I don't think there is a logical answer to this question. Why is everything priced either 1 cent or 5 cents below round numbers (9.99 or 9.95 or 3.99 ...)? Human brain is weird I guess. It would be better logically if things are priced whole numbers (including tax) like 10, 50, 100. We don't have to worry about pennies and it will probably be easy for accounting purposes too.
One additional motivation is a historical approach to reduce losses due to employee theft. In a cash economy "rounder" numbers would make it easier for employees to take payment without having to ring up the transaction on the till. For example if a magazine was offered at a price of $5 the employee could simply ask for the $5 from the shopper who is more likely to have a $5 bill on hand, the exchange of goods for cash could then take place with the employee pocketing the money and the customer walking away having happily made he purchase (not necessarily aware of the employee's malfeasance). If the goods purchased are not nice round numbers, there is more of a likelihood that the customer will be more invested in the transaction being run up in order to get their change from the transaction.
The same psychological pricing cues also apply to businesses. After all - there's people making the purchase decisions and they're affected by this as much as anyone.
The single best advice Patio11 has given is "charge more".
It's certainly good advice in the right context, but it does very much depend on that context. For a B2C business, particularly one involving discretionary spending on something your customers enjoy rather than something they need, even a slight price rise can also backfire horribly, and equally a significant reduction can result in disproportionate user growth and retention and ultimately much better returns.
As far as I can tell, the best thing you can do in that sort of environment is test in your own particular situation, study your data, and be very careful about making dramatic changes that you will find difficult to wind back if they don't pay off.
It does seem like if your SaaS product is truly "just for fun" and does not save anyone time or make or save anyone money, or teach a skill, or otherwise help the user be more productive, then you are right. What is an example?
Almost anything recreational and subscription-based seems to fit -- Netflix, for example -- unless we're arguing that this sort of thing isn't really a SaaS and different economics apply. Even if content-centric services are excluded, presumably all the recreational apps with some sort of tracking component would still qualify.
I agree, if you have a consumer product and are trying to get a place in the customer’s monthly budget for entertainment/recreation, a different set of rules probably apply. These cases probably aren’t as central to what is thought of as “SaaS.”
One thing I enjoy about charging more is the retention rate, it might be counter intuitive, but if you have a product worth keeping people will pay for it. Those customers will likely stay on longer, wont complain (as you pointed out), etc.
When you go for the lower price point, you're getting people less in your niche and thus want more bang for their buck, or really want a different product entirely.
This. I once ran a SaaS for $7/mo. Churn rate was horrible. People never stayed longer than 3mo. Now I do something with a 4 figure / mo price tag and people stick around for 7/mo on avg. it’s totally counterintuitive
that's true but also it depends on the customer
is it b2b or b2c, something for 7$ could be something trivial, like a premium package for a note taking app, but something like a 1000$ is probably a b2b that the company needs.
If pricing was as simple as "charge more” then business would be so much easier. You really want to charge the price that maximises your net present value. This is not a easy number to calculate as there are so many moving parts.
I have often wondered if there was a business in just feature copying a well known SAAS business and selling at exactly 50% the price. The selling pitch would be "identical product, but half the cost because we don’t have the massive SV overheads." I have seen quite a few examples of this in practice, but none where it is blatantly stated.
I think you missing the point. As you say there is no way to know for sure what the ‘correct’ price is for your product. One customer may be willing to pay $X and another $5X for the same features, but you need to find the number that maximises your profits across your whole customer base. As such most companies effectively just pluck a number out of the air and see what works.
Patio11’s argument is that most companies are charging a safe number that works, however that number is too low. By charging more, yes you will scare away some customers, but the customers who are concerned about price aren’t the customers you want.
In your case, say you cloned something like SendGrid and charged half the price. Their big customers like Airbnb or Uber effectively don’t care how much an email costs to send, they just want to guarantee that it is sent. So if you manage to score a customer like that, you are leaving a lot of money on the table.
On the other hand, the customers that do care about price are likely going to be lower quality, maybe they are sending bulk newsletters which if marked as spam will damage your company (as your IPs will end up on blacklists) - meaning more work, and more cost, cleaning up their mess.
Yes there is a way of knowing what is the correct price and it is the one that maximises your NPV. The fact that many times companies charge too little does not change the fact that there is an optimal price. It is not found by just increasing your prices. You need to treat pricing like the hard problem it is.
I tend to think the mantra of charging more has gotten a little too popular and I suspect that many companies are now charging too much.
The big customers like Airbnb and Uber very much care how much it costs to send emails. The most price sensitive customers are the largest and they will try to screw you down on price much harder than smaller customers. When you are sending a billion emails the price per email is much more important than if you are sending a hundred.
Taking your example, there is no reason to think that charging less would result in more spammers using your service provided that you maintained equivalent quality controls. Spammers are probably the least price sensitive mass email customers as they are professionals who are most concerned about deliverability and ROI.
> You really want to charge the price that maximises your net present value.
This goes both ways. You can definitely also increase net present value by pricing higher as long as value > price. Even better would be to create segmented/dynamic pricing that would maximize value capture up and down the demand curve.
If the market pricing is apparently so inefficient that a lot of potential value on the high end isn’t being captured (in economics speak we call this the consumer surplus), then this means there is also potential for arbitrage on the high end. Clone any service and charge 4X!
Yes that is certainly another approach to take. Same service at 4x the cost so it must be better.
Probably a more useful approach to take is for the original service to do this - set up your own competitors and see where the customers go. This approach is pretty common in the non-SAAS world.
Why only charge 50% though? You only need to lower the prices to the point where the alternative is less desirable. That being said the point about getting lower quality customers remains.
In my personal experience, I once chose a host for a game server for my friend group because it was by far the cheapest option. However, one day with only a couple hours warning the host shut down. I didn't even have a chance to download a backup. Had I been running a for-profit server, my entire business would have vanished overnight and choosing the cheapest option would have shot me in the foot. Often paying more is worth the guarantee that stuff you depend on won't vanish overnight.
50% was just an example, but it has a nice round number about it that makes a compelling pitch. The key to making this idea work is to have much lower costs so that quality of the service doesn't suffer.
Totally agree. I run a little side business where I sell digital study guides, and when I initially started I had my prices set in the sub $5 range. A while back I decided to play with my pricing a bit and see how creating a tiered pricing system would affect sales. I went from a flat fee to a $10/$15/$20 tiered system (for the same product) and sales tripled within a month.
At some point though, you have to make a decision on what type of customer/client relationship you want. I'd wager in many cases you get more customers at a lower price point. If so, then it is more of a 1:many relationship. If you have significantly fewer, I consider them to be more like a "client" in the sense that you likely have a more personal relationship with them.
The way to develop and manage those relationships would likely be very different, and that has implications throughout a company including support, marketing, sales, etc.
Anecdotally at teachable (course creation saas, listed paid plans are 39/mo-299/mo) , we’ve grandfathered people into lower pricing and offered a couple weeks to get in on the lower price when we raised prices, which was a nice forcing function that drove a lot of upgrades.
We did and and we'll always grandfather pricing. Rewards and keeps your earliest adopters (and likely best cheer leaders) happy, whilst focus remains on delivering value to attract new Customers.
I always wonder how to handle existing customers with such raise. Have you just sent a mailing and started charging double price from their CC the following month?
I ask first. If they say "no", I just let them stick with the old price. I may then ask again in 6 months and see if I get a different answer. I also sometime just cancel the billing and let them continue to use the service with the understanding that there will be no support. You gotta experiment.
It's not just SaaS. All technical work should cost more. Does that translate to higher costs for goods? Yep. Is that a problem? Nope (though it will mean inflation obviously).
Keep doubling until you're down to just one customer, then pull back and double your customers until you charge nothing. Graph that out and write an article on Medium about bell curves.
