April 18, 2019

Finally going to start charging!

I spent two years working on a startup while I was in college that went nowhere and never made me any money. I've been working on Premium Poker Tools for almost two years and it hasn't made me any money. But I have gotten some pretty good feedback from users, and I think I'm ready to start charging! Which means that $$$ could, possibly, be on the horizon. So I'm pretty excited right now.

In this post I want to talk about how I'm approaching the decisions, how I'm feeling about it, and also look to get feedback and discuss it with the Indie Hackers community.

Post too long?

This post is long. I believe the topic is complex and important enough for a thorough analysis, but I also know that other peoples' time is valuable, so I tried to make it skimmable by using headings well. You should be able to skip around to headings that are interesting to you, and skip over the ones that aren't, and comment accordingly. Please don't worry if your comment ends up ignoring something that you skipped over, I totally won't be annoyed and I want as much feedback as I can get.

Context

Before diving into the meat of the post, I'd like to give you guys some context of where I'm at. Premium Poker Tools is an app that poker players use to study. For example, it'll tell you that if you have ace-five suited and you're against pocket jacks, you'll win about 1/3 of the time.

There are other apps out there that do stuff like this, and they are very popular amongst poker players. My app has some unique features that take things a step further, and I like to think that it is more user friendly. Actually, it's not just that - I've spent time talking to users and they all say my app is better. Not that much better, but better. A handful have encouraged me to start charging. One even pushed me to accept a donation from him. Furthermore, the existing apps are all sorta old and not currently under development anymore, whereas I am constantly improving my product, so I see room to continue to develop a stronger competitive advantage. These apps sell for somewhere between $25-100.

Despite all of that optimistic-sounding stuff, after almost two years of working on this, I only have about 300 users/month right now and am making no money. Maybe it's not as bad as it sounds though, because I haven't spent much effort acquiring users, it's mostly been product development (yes, this may have been a mistake). To acquire users, I've tried posting in two poker forums - the poker subreddit, and a popular poker forum called TwoPlusTwo. The only other thing I've really done is share links to my app in these poker forums (see A Marketing Strategy That Hasn't Worked. Yet.), and telling people I meet in person about the app.

My theory for why I haven't gotten users is that it boils down to brand and user acquisition channels. My main competitor is something called Flopzilla. Flopzilla is just a household name in the poker community. It's the default thing that people go to when they want to do the things my app does. So when people want to get poker software, the default is to download Flopzilla. In fact, that's what everyone tells them to do. "Flopzilla" has almost become synonymous with "poker software for range analysis". Expanding on this idea, poker coaches and books and blogs all use Flopzilla to analyze hands, and tell their students/users to download it. Whereas with my app, you'd only really know about it if you happened to stumble upon it on Reddit, or if you really spent time Googling around to explore different poker software out there.

My plan moving forward is to 1) start charing $4.99/month, and 2) work on user acquisition (in addition to more product development, of course). For user acquisition, I think I'm going to have to work with these poker authors/coaches/bloggers. At least in the beginning. And I think I'm going to have to incentivize them by doing some sort of revenue share or something.

The above paragraph is really the tl;dr of this post. Now I'd like to do a deeper dive and analyze these thoughts. But before I do, I want to talk about education and research.

Pareto research

There's a lot of things that I think I get wrong, in business, life, whatever. But one thing that I think I get right is something I'll call "pareto reserach". I'll explain with an example.

I just got a dog recently. I've never had a dog before, and don't really know anything about owning one. So what do I do? Wing it? No. I spent a few hours researching it. (Actually, I spent more than a few hours because I'm a little obsessive.) And it was well worth it. For example, I learned that you have to brush your dogs teeth! Who would have thought? Most dog owners I know don't do this, but dogs can get dental diseases just like humans can. In retrospect, this is obvious. Their mouths and immune systems aren't magically optimal things that make diseases impossible. And dental disease isn't confined to the mouth. It affects the overall health of the dog. It can lead to things like cardiovascular disease.

To zoom out and make this point more generally, what I'm trying to say is that when you know nothing about a topic, a little bit of research will go a long way. A very, very, very long way. It's a small investment for a large reward. We have the internet. A database of all of the worlds information at our fingertips, basically. That's amazing. Why wouldn't we take advantage of that? Why opt to just wing it. I see no reason to.

So, to bring this full circle back to my app and where I'm at right now, I don't really know too much about sales and pricing and all of that. So, I spent the past 2-3 days learning as much as I can about it. Special thanks to patio11 for being awesome; also Price Intelligently, the Stripe Atlas Guides, and Harvard Business Review. I'm tempted to spend even more time because that's just my nature, but I know I should keep things moving. I can always learn more in the future and iterate. I feel that I've reached a decent point in terms of educating myself. I no longer feel totally lost. I think I know the basics well enough.

Decision points

The way I see this, is that I have various decision points. So that's how I'm going to break this post up.

How to monetize

One decision point I see is how I'm going to monetize. Charging? Ads? Donations? Affiliate marketing? Platform for poker coach listings? Look to sell to a bigger company? Googling around for monetization strategies leads me to articles like "25 monetization models for SaaS companies". 25?!

Side note: man, there are just so many options. It makes me feel uneasy, because it's hard to make an optimal decision with so many options. It's like choosing a college (something I way overanalyzed) - there are so many schools out there, how do you know which one is the right one for you. You'd have to research them all, but informing yourself like that would take forever. I think the proper response to this sort of situation is pretty obvious: you have to find the right balance between moving fast and making an informed decision. If you make a perfectly informed decision, it'd take wayyyy too long. But if you make an immediate decision, you won't be informed enough. There is a good middle ground somewhere in between, and that's what I have to do. The logical part of me feels comfortable with this, but there is a part of me that feels uneasy about not being a perfectionist.

Ads

I've never been a fan of ads as a business model. I'm a fanboy of Cal Newport, who writes books like Digital Minimalism and knocks the big social media companies for getting people addicted to their digital devices. With ads, your incentive is to squeeze as much as your users attention as possible, which isn't the same thing as actually offering them value, and making their life better. That doesn't sit well with me.

Plus, from a more selfish and financial point of view, I see a lot of problems. You really need to have a lot of users to make advertising viable, and I'm not sure that my market is quite big enough for that. Something like Facebook has tons of users, but the users probably don't like the product enough to be willing to pay for it. I think I'm the opposite. Facebook is kind of high on quantity and low on quality, and I think I'm more high on quality and low on quantity.

And speaking of Facebook, my impression is that them along with Google and the likes are really monopolizing the advertising market. If you are a business and want to sell ads, Google and Facebook are great options because they allow you to target so well and are such household names. Another thing is how popular AdBlock is becoming, and my users are probably more the type to tech savvy enough to use AdBlock.

Additionally, I'm not sure how I'd get tons of users, enough to justify going with ad revenue. I think I'm going to have to work closely with poker coaches and bloggers to get users, and I suspect I'm going to have to offer them revenue-share or something. How am I supposed to do that with ads? Maybe it's possible, but it's much less straightforward.

So, with all of that said, ads don't seem like a good idea for me.

Donations

A friend mentioned donations as a possible way for me to monetize, plus I saw it come up in my Googling as an option. That doesn't really make sense to me though. My goal is to maximize revenue. Donations can't possibly be better at that than charging, right?

Affiliate marketing

I could make the app free and have links like "sign up for WSOP.com", and when users click the link, WSOP.com gives me a cut. That just doesn't seem optimal though. 1) I don't sense that the quantity of users I'd get would be enough to justify it, let alone the clickthrough rates. 2) It doesn't have to be free for me to do this. Why not make money by charging users in addition to affiliate stuff? I guess in theory the answer could be that being free gives me more users and those extra users make me more money in affiliate stuff than I would be making by charging people, but that really doesn't seem plausible.

Platform for poker coaches to list their services

One idea I like is to have a listing of poker coaches. So if John Doe is a poker coach, he could pay me to have his name listed. And if you're a user of the app who wants a coach, you could browse the listings. Seems pretty straightforward. Make sense.

But the thing is, I also don't see this as mutually exclusive with charging. I can do both.

Sell to a bigger company

Er, I guess I could go that route, but a) I don't really want to, and b) even if I did, I'd be doing so at a point where I don't have a lot of leverage. If my end-goal is to sell to a bigger company, why not get some users and make some money, so that when I do go to them, I'll have more leverage, and can sell at a higher price.

Charging

Charging users to use the app seems like it's very appropriate. Other apps in the space have proved that users are willing to pay. I've received good feedback from users, saying both that my app is better than competitors, and that they would be willing to pay for mine. I'm trying to be thorough and explore alternatives, but it seems to me that this really is the approach that makes the most sense.

Subscription or one time payment

Let's assume that I am going to charge. Do I do a subscription, or a one time fee? All of my competitors have a one time fee. But subscriptions seem like a much better approach.

My main reason for thinking this is that the lifetime value of a customer seems wayyyy higher for subscriptions. Like I said earlier, competitors charge something in the range of $25-100 for similar apps. If I charge $5/month and a user stays for five years, that's $300 LTV. I feel like $5/month is very plausible, whereas charging $300 when you can get something in the same ballpark for $25 is not reasonable at all. So, yeah, I see this as a huge, huge upside. And my research into this points to the upside being true. Lots of people recommend subscriptions over one time fees for SaaS businesses, and they mention the higher LTV and users comfort paying smaller monthly fees. That said, skimming through some Reddit stuff, there are some highly upvoted comments of people saying that they don't want to pay a monthly fee. Seems worth noting, but not enough to move the needle towards one time fees being better.

There are other benefits to subscriptions. It's easier to retain than to acquire customers, but I think that point is similar to saying that the upside of LTV is higher. Revenue is more predictable, but to me that isn't too important; I have enough savings to last another two years or so, and I don't have a payroll.

One of the big advantages to subscriptions that I see is that I could have tiers. I guess it's possible to have tiers with one time payments as well, but it seems much more straightforward with subscriptions. There's also the advantage that subscriptions provide a low barrier to entry for customers. Pay $100 for an app and don't like it? Sucks for you. Pay $5/month for an app and don't like it? You're only out $5.

So yeah, subscriptions definitely seem like they make sense. I don't feel 100% confident in that, but I feel confident enough where I sense that it isn't worth my time to spend more time researching it. (I do feel that it is very much worth my time discussing it with you guys though!) And I can always iterate on this later.

Monthly, periodically, or annual subscription

If I am going to go for a subscription, I have to decide whether to go monthly, periodically, or annually.

Monthly seems like it makes the most sense to me. The big reason why is because it seems like it has the most upside in terms of LTV. I get the impression that people are much more willing to spend $5/month than $50/year, yet the former makes more money than the latter. Googling around, others seem to say the same thing.

Monthly also provides that low barrier to entry for users, where they can cancel after a month if they don't like it. On that note, when I google for what other people have to say about this, I think that is the biggest conversation topic. Monthly has the low barrier to entry, but it also risks having your users churn out, whereas annual locks them in and gives you that better cash flow.

My impression is that the benefits of monthly outweigh the costs. I like the upside it provides, and I like that it gives users that low barrier to entry, especially because I am a newcomer in the space, not a household name. I also kinda think that I want to know if my users are churning. Less money in my pocket, yes, but it's valuable feedback. And I really am still looking for product validation.

I learned about another interesting benefit of monthly in this thought provoking HBR article called Pricing and the Psychology of Consumption. The idea is that with monthly, your users are more likely to use your product, and thus more likely to continue the subscription. Think about gym memberships. If you're billed every month, you think "oh shit, I'm paying $30 to the gym this month, I better go". But if you're billed annually, you pay once at the beginning of the year and then you forget about it. So I like the benefit of it nudging users to use the app more so that they don't drop out, and I also want them using the app because it makes it more likely that they give me feedback and share it with their friends.

All of that said, I again don't feel 100% confident at all that monthly is best. I do feel like I'm at the point where I don't need to spend more time reading finance literature and can move forward (again, I still want to discuss it with you guys). But I could see users really hating it, but that's ok, I could always adjust to that in the future.

Oh, I almost forgot - one issue with monthly is that Stripe charges per transaction, so with monthly I will be paying more in these transactional fees. It's a downside for sure, but my impression is that the couple percentage points that it eats away at my margin doesn't outweigh the benefits of monthly.

Choosing a price

This, to me, seems like the hardest part. Let's say I want to charge monthly. What price do I charge?

I feel like it should be at least $5. I sense that if someone is willing to pay $2/month or $3/month, they'll also be willing to pay $5. I don't think I'd lose too many users by going from $2.50/month to $5/month. And the math works out such that even if I lost 49% of my users by bumping up the price, it'd be profitable. (Aside: as a poker player, I use this sort of thinking all the time! Say I have a great hand and want to get value from my opponent. Do I bet $50 into the $100 pot, or $100? By betting $100, it only needs to work 50% of the time as the $50 bet to break even.)

So I feel like I really should be charging at least $5/month. But what about more? What about, say, $10/month? That... seems a bit high to me. I feel like that starts to venture in to the territory of feeling pain in your wallet. Five bucks? No big deal. $10? Eh, now we're starting to talk.

What about something like $6/month or $7/month? Eh. I feel like a non-even number like that also starts to make people think. Whereas $5 is "five bucks".

This is, of course, really damn unscientific. Very much guesstimating. The book I read from Price Intelligently strongly recommends doing user interviews and surveys and stuff. Makes sense. I know that's very flawed because what people say is very different from what people do, so I also think it'd be good to actually test different prices. So those are things I plan on doing, but I sense that it'd be good for me to just get started somewhere, and actually validate that people are willing to pay for this, so starting off at $5/month seems like a good thing. Another advantage of that is that the more users I have the better, because it means more feedback for me and more word of mouth.

My biggest hesitation is that "charge more" seems to be pretty damn popular advice. Maybe I should follow it! My gut says $5/month - maybe I should actually recognize that my intuition is likely to be wrong, and bump it up! I'm tempted to, but starting off I feel more comfortable charging less and increasing it in the future. Plus, the "charge more" advice seems like it is way more applicable for B2B than B2C. I'm unclear on how applicable it is for B2C though. Anyone want to enlighten me?

$4.99 or $5

I did some research in to this, and the $X.99 thing actually seems legit. I've always thought that it was stupid and that people just round up, but empirically, it seems to work. And in retrospect, it makes sense. All of the top companies do it, and they aren't stupid.

I do have some - I don't know, ethical? - issues with it. Seems kinda manipulative and sketchy. But at the end of the day, it isn't hurting anyone. In fact, I think it's helping people. If you're someone who plays poker, you absolutely should invest a trivial amount of money for software that will make you a better player and pays for itself, so if going from $5 to $4.99 convinces someone to make the purchase, I think I'm helping them. Anyways, I don't think that whatever gripes I have with it is worth leaving money on the table.

User acquisition and working with affiliates

I actually feel relatively good about $4.99/month, despite my lengthy discussion. I feel more confused about how to acquire users, and how to go about working with poker coaches(slash bloggers, slash writers... I'm just going to call them poker coaches from now on).

So, I feel like working with these poker coaches is ultimately going to be a huge part of my marketing. My impression is that people find and buy poker software because some poker coach tells them to. Maybe they read it in a book, or a blog, or hear it on a YouTube video, or podcast, or they literally have a coach who tells them to go get some software. The other thing is just word of mouth. Like, if you're watching a YouTube video of a poker coach analyzing a hand, and you see them using Flopzilla, you think, "hm, I should go get that software too". Or if you read a book and see screenshots from Flopzilla.

But, er, I'm not sure that this makes the most sense. What if I can acquire a lot of users myself? Why give those poker coaches a big share of my revenue unnecessarily?

I mean, I'm pessimistic that I'll really be able to do this. At least not yet. Maybe in six months when I have a stronger competitive advantage. But, here's the question - is it worth a try? Should I spend one, two, three months experimenting to see what happens?

What is the advantage to doing that? Suppose I get some users. Suppose I get lots of users. I'm imagining myself at that point, and I feel like I'll still have the question, "yeah, but I probably can be getting more users if I worked with poker coaches". So I guess what I need to do is figure out if they're providing enough value. Maybe it'd be good to establish a baseline of how many users I get without them, and then see how much they add. That's always tricky because it's not a controlled experiment, lots of confounding variables, but it's still something. I just feel pretty confident that working with the poker coaches is what I'm going to end up doing, so why not get started now. Why waste time. I guess it's a matter of how confident I am.

I'd love to get your guys' thoughts on this.

Oh, also, other ways to acquire users. There are these blog posts like "Best Poker Software in 2019" that I really need to get on. I'm going to reach out to them, but I have a feeling that they are only including stuff that pays them with affiliate stuff, so I'd like to have an answer to that first. I also just want to spend time acquiring users "by hand". Reaching out to people on poker forums, and following up with people I meet in real life. That seems to be the way to do things early on. Oh, and also making more educational YouTube videos and perhaps blog posts.

Refer a friend

Similar question - should I have a refer a friend thing, where you get some money or X months free if you refer a friend? I feel like the answer to this has to be the same as the answer to the affiliate thing with poker coaches, and I sense that the answer is "yes".

Wrapping up

So yeah, this is where I'm at. I feel like I've got a solid handle on things, but at the same time definitely would benefit from advice and discussion. So please comment and let me know what you guys think! I plan on spending the next week or so thinking this stuff through and getting user accounts and Stripe integrations set up.

Side note: I can't wait to look back on this post five years from now or whatever. It's always fun to see my former self's thought process.

  1. 1

    Thanks for sharing your journey this far and congrats on starting to charge for your SAAS!

    I noticed you analyzed monthly vs annual subscriptions. Quarterly plans might be an interesting experiment to run since it cuts some of your trade-offs in half. The downside with monthly is also that users are constantly being reminded with a receipt each month of something else they are paying for but may not be using day-to-day. For some SAASes this is fine as the value is realized on a continual basis, but for other apps maybe that is not the case. Example: I pay for an annual plex pass which is about $80, but if I was to pay the monthly price of 9.99 each month I may just be tempted to cancel since I am only really getting the value out of the plex pass when I am traveling. Just an idea to think about as it might be something that can help with churn.

    As for user acquisition, I would suggest thinking about content marketing earlier in your marketing endeavors as this can pay dividends as your audience grows. You can look up some of the main long tail keywords your users are currently looking to find some of the other major competitors and start targeting those keywords with relevant tutorials how they can achieve the same thing on your platform but with better features...

    Just thinking out loud here :) I am running a similar platform but in the stock market and see a lot of similarities in your audience. Happy to chat more if you want to bounce ideas.

    1. 1

      Thanks for the response!

      That's a good point about the downsides to monthly, I wasn't thinking about that. However, I don't think it would apply to me, because poker players do (slash should!) study pretty periodically.

      Quarterly or something in between monthly and annually is intriguing, but I suspect that people would be much more willing to pay at a monthly price, eg. $5/month vs. $15/quarter.

      Content marketing is definitely something I'm pursuing. I recently created a Premium Poker Tools YouTube channel that I'm putting educational content on, and I think I may start blogging too.

      Yeah, I'd love to chat further and bounce some ideas around. I'd love to hear about and discuss what you're working on too. My email is [email protected] - hit me up and we'll arrange a time to talk.