Startup to Last How to price and position your second product
In this episode, we discuss how to think about positioning, packaging, and pricing a second product when you have an existing customer base. Here are some of the takeaways:
- Be clear about the primary reason you want to add a second product.
- This will impact how you package and price the product.
- Is this the right thing for the business and for your customers?
- Or is this about you and what makes you happy?
- Is your goal to expand customer acquisition?
- It might make sense to package the product on a stand-alone basis.
- If you take a stand-alone product approach, recognize that it may be more work.
- Positioning will be harder.
- You may have to build additional infrastructure.
- It also might make sense to give it away for free.
- It might make sense to package the product on a stand-alone basis.
- Is your goal is to retain more customers?
- It might make sense to include the second product with current pricing.
- Is you goal is to increase revenue per customer?
- It might make sense to offer the second product as an add-on.
- If you decide to take an add-on approach, recognize that it may be harder to maximize the price.
- An add-on probably shouldn’t be 100%+ of the base price.
- You’re probably looking more like a 50% up-sell opportunity.
- If you decide to take an add-on approach, recognize that it may be harder to maximize the price.
- Or it might make sense to package the second product as part of a second, higher tier of pricing.
- It might make sense to offer the second product as an add-on.
- Are you just bored and wanting to build something to satisfy a personal craving?
- It might make more sense to do the product as a side thing.
What else would you add to this list?
Context
Tyler: To the deep dive topic here. So this is an issue I'm thinking about right now and it's basically pricing a second product. I have a first product... Let me get a little context on what we've got right now. So like I said, we're 10 years old about. Our product has always been $10 per user per month. I know a lot of people would say that's too low or whatever, but we're pretty entrenched in the lower tier of the market at this point. And we've grown to 22 thousand paying users. So we've got a pretty big customer base, at least relative to what we used to. The plan from day one was build a suite of products. Our name is actually Less Annoying Software, not Less Annoying CRM. That's just the first thing. But we expected probably a year or two in launch that second thing and a year turns into 10.
Ben: Turns out every 10 years you get a new something.
Tyler: Yeah, exactly.
Ben: Something less annoying.
Tyler: By the time I retire we'll have four products.
Ben: Okay.
Tyler: But yeah, I think we're finally at a point where our dev team's big enough. We can peel a few people, maybe two people off and launch something new. When I say a new product, I think the idea is it would be within the same app. So one login, one billing system. But it's like, do you want the CRM or do you want both of these things? Or maybe the other thing standalone, depending. Most likely, we surveyed our customers, did a little customer research. I think the thing that's low hanging fruit to get our current customers to buy something else is an appointment scheduler. So a Calendly type of thing. And then we could grow... We have a lot of ideas beyond just appointment scheduling, but kind of starting there and building it out. So what I'm interested in talking about is A, general structures for, it's one thing to price one product, but when you have this idea that I want to sell two things to the same group of people, the right structure for that. I'm less interested in the number but more the, is it a bundle thing, is it a la carte? What if we had a third product? Kind of general structure stuff to this. And then a few things that have kind of been on my mind to consider here is should we be prioritizing getting our current customer base to upgrade versus treating this as a channel for getting new customers? Should people be able to buy this new product on its own? Obviously all else being equal, it'd be nice, but is it worth the effort versus just upselling our current people? And then should we be thinking about a third product or should we basically just say, it took us 10 years to get to our second one, it would be stupid to base any decisions we make right now around the idea of a third one coming out. So, that's a lot. But those are some different things to chew on here.
Ben: Is this product done, like you're already committed to this decision? This is a thing that's happening?
Tyler: No it's not. We've done a fair amount of validating it with customers. We have not built anything yet. I should say, one thing, that not all CRMs have this, we have a fully functional calendar with all of the functionality you get from Google or Outlook or something. So we're in a good position to build calendar related tools, but we haven't actually started this second product, no.
Ben: What's the motivation behind adding another product?
Why are you building a second product?
Tyler: A couple. One is the unit economics of the business could get better. You could say just raise the price on the existing product. That would certainly work from a... If a private equity firm bought us, that's what they would do and it would work. We have certain other interests and I take a lot of pride in serving the low tier of the market that a lot of other SaaS companies don't care about. So I want to be able to improve our margins without raising prices and that's one way to do it I think. Another thing is I do think that our customers... I don't know, I feel like software goes in cycles between everything being bundled together and then everything unbundling and being a bunch of different tools that integrate together. And we're in a very unbundled phase right now and I think a lot of value could be provided by going back to bundling here for our customers who are not tech savvy and really just want one clean experience. But that's a fair question. Do you think that maybe we should back up even more?
Ben: Oh, I mean, I don't know. Maybe. You did say you don't want to raise the prices, but if you roll out a new feature and say this new feature costs extra money, you haven't exactly raised the price, but you kind of have. You're... Yeah.
Tyler: Yeah. The standard I was hoping to hold myself to here is basically, if there are standalone products that sell just this thing, I can call it a different product, but if it's like this is clearly dependent on the CRM, that would be included in what we already offer. So for example, if we add our... Yeah, go ahead. Sorry.
Rick: Oh sorry. I interrupted you.
Tyler: I was just going to say if we add a little more reporting to how our pipeline reports work, I wouldn't charge more for that. But if we say, "Well, now there's an email client built in," I think it's pretty justifiable to say that's a different thing.
Rick: Do you have a way you're leaning right now in terms of, without us talking about today. If you had to make a decision today, what would you roll ou...