Money February 20, 2020

nomadlist pricing analysis

nscode

I'm curious about nomadlist pricing strategy.

nomadlist currently charges 99$ for lifetime access.

In May 2018 Pieter charged "$30/mo, $99/y or $149 flat fee" based on that post: https://www.indiehackers.com/forum/has-nomadlist-always-been-behind-a-paid-wall-b502001242

I looked into the open stats at https://nomadlist.com/open and it's easy to see that from May 18' until beginning of 2019 the revenue went down by more than 50%. Was that the time where he switched to a flat fee? Is this the reason it's one time fee now?

When should an indie hacker decide to go on a one time fee instead of recurring payments?

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    1. I've almost always had lifetime payment. Actually that's what I started with:

    The first payments I charged for Nomad List was for the Slack group, back then called #nomads. I started with I think $5 in 2014, and then $10, and then $25, then $50, then $65 for a long time. Meanwhile I built out the site and then started offering members-only features like a profile where you can save your trips. Then I renamed #nomads to just the Nomad List chat and it all became one big membership of features for nomads.

    1. The reason that I like to offer lifetime memberships is that I get seriously annoyed with subscribing to recurring services myself, which I then stop using but get auto-billed for because I forget to end the subscription.

    That means offering recurring gets most companies a lot of angry customers that have their card being auto renewed/billed. My secret theory is that a large % of the revenue from the SaaS/recurring industry is based on auto-renewals of people not actually using the software/app/website. For this reason I a) offer lifetime memberships, b) always automatic refund by default if people cancel within the warranty period (usually 7 or 14 days).

    1. Now about economics: is a lifetime membership a bad idea for revenue? No, I don't think so. From what I gather from my users: most people try nomading for a few months, then quit, and a certain % come back later.

    That means that the average LTV of a customer is usually about 3 months. That's 3x $30/mo = $90. So offering lifetime for $99 gives me $9 more than I would get from an average customer. Also sometimes lifetime is $199 and sometimes $149, resulting in even higher net difference from the LTV. That means it makes pure economic sense to offer it. @Blake_Emigro is right in this thread:

    "100% of his customers will churn over time, so maybe he calculated the LTV based on the average months until churn, and set a price according to that"

    inb4: "the product isn't good enough for people stay longer >3 months", I think it is good enough but I think it has to do with nomading being a temporary activity for most people.

    1. As you did in the post, I don't think you can directly relate revenue going up and down to specific changes.

    Markets go through cycles, there was a giant hype for nomads/remote work in 2014, synced with Nomad List launching. A lot of people tried nomading in 2015, many/some didn't like it, wrote about it and I think therefore a giant dip in 2016. Then it started rising again in 2017.

    As @shl wrote:

    "The market you’re in will determine most of your growth." - @shl

    An example of that for my other site, Remote OK:
    https://twitter.com/levelsio/status/1131782951341924353?s=20

    1. I tweak pricing a lot. If sales go down, I lower the price, if sales go up, I increase the price. I don't use any A/B testing and most of my pricing is based on feeling. If price gets too high (in my case, for example $250/year), I get too few sign ups (like 50/mo) and since Nomad List is a community site, you want a healthy amount of new people coming in to cover the regular churn of people quitting nomading after a few months/years. My pricing thus is based on the general market conditions, the number of sign ups I get, how active the community/chat is, what type of sign ups I get (the lower the price, the more spammers/crazy ppl I get). So it's more of an art than a science for me.

    2. Someone here wrote:

    "By charging lifetime fees, he made a lot of money up front, but at the expense of long term and sustained growth and and income stream for future innovation - leaving him exposed on multiple fronts (to competition, to stagnating product features, to loss of potential users due to pricing strategy that doesn't promote growth)."

    a) Not a single Nomad List competitor took off yet, there's been endless amounts of clones, almost every month a new one is launched, they don't get traffic and don't make revenue
    b) Nomad List features haven't stagnated, the opposite is true, I've kept developing new features and made the site better over the last 5 years. If it stagnated, a competitor would have taken off
    c) I've never had so many people sign up as in the last few months, see nomadlist.com/open and scroll down to signups
    d) I understand where they're coming from, the idea is that when customers don't pay recurringly, you'll somehow run out of customers at some point. But as long as new people get born and they start nomading, I'll have a continuous flow of new customers.

    I've kept revenue roughly around $20k-$30k/mo, which I think is a quite reasonable amount for a company targeting nomads in B2C. Especially comparing it to other non-funded companies doing the same, actually I don't know any making good revenue with high profit margins like me.

    At least now you have a reply from the horse's mouth, me :D

    1. 3

      Great insights, thanks! I enjoyed your book and will give it a plug, https://makebook.io/

    2. 1
      1. I also don't like recurring charges. Why not implement a pay 30$ for 30 days access, then renew if you want to? Wouldn't this give more flexibility to the users?
      2. About playing with the pricing "If sales go down, I lower the price, if sales go up, I increase the price.", how proved is this to work? Current users care/complain seeing these changes? (when it goes against them).

      Also, cool to have a response from you, hope more founders will do the same.

      1. 1
        1. Because the $30 is below the LTV of $30/mo * 3 months average, so that'd be bad economics, but I do like the idea because it'd make customers happier, so I'll consider it
        2. Nope, people are aware I tweak prices, and some will wait until I lower the price to sign up
  2. 8

    For a smart guy Pieter has weird pricing strategies. He saw that the quality of his users and data was dropping when he relaxed the fees and got more users and didn't have a strong paywall so then he raised his fees, but along with the riff-raff he also alienated a lot of users and growth (There are lots of high quality users, whose willingness to pay is simply lower than his asking because he didn't have price discrimination built in to align with the different levels of value that people derive from his products.)

    By charging lifetime fees, he made a lot of money up front, but at the expense of long term and sustained growth and and income stream for future innovation - leaving him exposed on multiple fronts (to competition, to stagnating product features, to loss of potential users due to pricing strategy that doesn't promote growth). There is a reason a lot of companies changed to the subscription model because they realize that in an environment with open market dynamics and competition, they need to provide and support continuously improving dynamic products that require updates and refinement over time. In order to support that, its infrastructure and keep a growing and engaged user base you need a long term and sustainable monetization strategy.

    A lot of the strategic decisions Pieter made might largely be the result of the lifestyle that he wants to live - he likes to travel, he likes to work in small teams or solo, he may not want to start a serious large company and organization and scale his product to be something that would require a huge team, dedicated infrastructure and a huge commitment on his part.

    From a big picture point of view, a discussion I had earlier on sales, price discrimination, Willingness to pay (WTP) and pricing strategy might be interesting to mention here:

    If someone is the solicitor (for example asking someone else to try out a service they are offering), it makes sense to provide an inducement for the end user to try it so as to stimulate consumption (idea being that once they try it and realize its value, they will buy at full price next time, or stimulate others to do so. Kind of like influencers getting a product for free to try, with the idea being that they will drive organic sales).

    If someone is the buyer asking for a discount - they are acknowledging that the product provides value to them, their willingness to pay is just lower then the sellers asking. In this case the seller should run a basic analysis on his revenue stream according to different individuals willingness to pay for a product, and if they can implement some sort of price discrimination which can segregate different customers according to their willingness to pay (WTP) (think coupons and discount codes. Example: a product costs $20, one customers WTP is $100 and they wont bother searching for coupon codes etc, another is $50 they are willing to spend time to look for coupons and join programs to get a better deal, as they wont buy at $100. It makes sense to satisfy both customers, but if one wants to maximize their revenue, each customer should be optimized to pay the maximum value they derive from the product $100 for customer A and $50 from customer B).

    Price discrimination is an important concept and it gets a bad rep because people really misunderstand how and why its important. Its NOT about ripping people off, its about aligning PRICING with the VALUE that people derive from your product and offering options of different services in order to satisfy a larger market and deliver more VALUE to MORE end users which will also result in maximizing the producers revenue and provide incentive and enable them to produce even MORE value to MORE people.

    There is a difficulty in gathering reliable data on peoples WTP and strategies on how to implement price descrimination, so in a sense, when someone is asking for a discount and what features they are willing to pay for, they are providing the creator with valuable feedback on pricing structure, which can be used to drive larger picture decision regarding pricing strategy and price discrimination. So it really does make sense to have some sort of tool to identify what peoples maximum willingness to pay is (clearly with no ambiguity - not just say so, but demonstrate they are willing to pay that price), even if the creator is not willing to sell at that price, because it really is a clear indicator of the value that consumers are deriving from that product (which can be sometimes surprising and incredibly hard to predict).

    What is a bad strategy is to have an ad-hoc pricing strategy without a method in place. Its just not scalable and alienates users if they think they are not getting the best deal (People don't like being charged differently for the same thing - the fact that coupons work is an outlier, but socially acceptable because they are available to everyone, it just discriminates based on a persons free time to manage them - people with a higher WTP can spend their time more productively doing something else rather than sorting coupons). The best strategies often have consistent and straight forward pricing that maximizes revenue with limited/no price discrimination on fungible products, and then make derivative products offering varying degrees value to the end user as a form of price discrimination (Think normal tesla vs. Performance Tesla - the difference is largely in software upgrades rather then the hardware costs and it is tied to the user NOT the car, which is a form of price discrimination that is thankfully socially acceptable and helps the company maximize revenue and fund future development.)

  3. 6

    I'm totally guessing, but three things come to my mind;

    1. direct clones of his products are built, so a lifetime access fee would give the customer some incentive to just stick with his product(s) once they've paid
    2. 100% of his customers will churn over time, so maybe he calculated the LTV based on the average months until churn, and set a price according to that
    3. it's a price that enough customers can afford to offset whatever expenses he has and still provides the income he wants versus the effort it takes
    1. 1

      Nice explanations!