In July we’ve made a coup. We’ve reduced the price of our 10-user, 25-user and 50-user licenses to $10.

Excerpt from the Atlassian Marketplace (click for details)

The pricing debate

There is much debate on the pricing of downloadable software. Low prices introduce the risk of signaling lower quality, although we offer the same polished product for entreprise and starter tiers. The way Atlassian usually circumvents the “low quality signal” is to offer the first month for free. There is also a phenomenon known as “anchoring”: Showing the product next to higher priced items alters the mindset of the customers. In our situation, it is true that customers who need 51 users ($698) will be envious of those with 49 users ($10), despite $698 being probably the reasonable, long-term sustainable price of the product.

However, not all customers start with the table above. Most of them discover the product through the in-app browser named UPM, where only the price of their instance is listed. They don’t compare to other tiers, but to other products. With $10 licenses, we ensure it’s a no-brainer to acquire our product.

Our revenue

We’ve simply noticed that customers with less than 50 users represented a thin slice of our former revenue breakdown, despite bringing more sales in quantity:

Many sales at $198 weigh little compared to entreprise sales

The share for 10-to-50-user licenses is so small that we’ve decided to forfeit it. We hope to drive adoption up for little sales. We think we’re ready to generate awareness of the product through word-of-mouth and convert those clients in a few years when they upgrade their instance.

This is an experiment. In the worst case scenario, customers will be anchored at $10 (as unreasonable as it would be), to such a degree that the price for higher tiers will sound unfair to them. Therefore we reserve the right to come back to a normal pricing, which means:

• Hurry up if you intend to buy the product,
• Talk about it, so it generates sales and we consider this experiment successful and transform it into our business model. Here’s a Tweet you can forward: https://twitter.com/playsql/status/635794894121005056

What is the right price for an Atlassian Marketplace product?

$10 is clearly under our sustainable price. We want to provide a sustainable service, with permanent positions to provide support and regular new features. If we assume good sales on the Atlassian Marketplace, with 25% revenue share for Atlassian, we estimate the minimum price of a product is $4 per user per year, and this is consistent with the averages:

• On the Marketplace for Confluence, the average license is $4.24/user,
• On the Marketplace for Confluence, the 10 top products are sold $8.30/user in average, and up to $24/user.
• As a comparison, Google Docs for Business costs $70 per year per user and includes 5 services.

Below that, the author needs to publish several products in parallel and perform consulting operations in addition. Here’s what a $4 per user per year license would look like:

Back-of-the-enveloppe calculation for the minimum price of a product with good sales on the Atlassian Marketplace, if renewals were 100% of the initial price.

The table above can’t match the reality because:

• Sales aren’t ideal. They require advertising and communication. Renewals are only 50% of the initial purchase.
• There’s a big problem with one-off sales, which are non-recurring by default.
• Price can’t be strictly proportional to the number of users. Mass instances need a discount.
• To drive adoption, the lower tier must be cheap.

Most vendors on the Atlassian Marketplace provide consulting solutions on top of their add-ons, or outsource the development in low-cost countries. We don’t have those opportunities. In France where Play SQL is developed, we need to generate $95k per year and per employee. On the upside, we’re a small company so we benefit form tax rebates, our entrerpise sales keep us alive, and in the low season we work as consultants. So, yes, we’ll keep going as long as we generate traction!