Reflection on a price increase

On December 14, 2016, my team and I pushed a significant change to our Easy Digital Downloads products: we increased the price on all extensions by 50-250%. Yes, you read that right: up to a 250% price increase on certain plugins. This change was done for a number of reasons, which I will get into shortly, and has resulted in a very interesting last three months. Since I have always been very open with my company’s financials, I would like to now share some reflections on the change that we made and to also share some of the aftermath of the change.

The backstory

Since the beginning of Easy Digital Downloads, and I imagine many products, customer support has always been our biggest challenge. Taking care of customers is hands down the most difficult job in the company. It is ripe with challenging problems to solve, long hours, relentless flows of new tickets, on-going conversations that spread not only over days but even weeks and months. Providing good and, when possible, great customer support is, to put it simply, exhausting.

There have been many times over the last 5-7 years where I thought to myself I’m sick of this; I just can’t keep taking care of these people, maybe I should quit. I have had those thoughts and every member of my team has had those thoughts. On one particular evening back in November, I was sitting on my couch doing my best to work through a not-abnormally sized support queue, and it hit me: this has to stop. This wasn’t the first time I (and many other members of the team) had spent insane hours working through support queues, nor was it the 50th time. Working late to help finish support requests is an every single day occurrence. It literally never stops. This time, however, I had had enough (fifty times too many) and decided it was finally time to take drastic measures to reduce support. I hopped into our Slack channel and told my team this and within a few minutes we’d made a decision: it was time to increase prices. It was past time, actually, but late is always better than never.

When a company is faced with an over burdensome support load, there are a number of ways that most companies look to address it:

Fix the bugs that cause problems to happen that then result in support tickets
Improve UX so customers better understand how to achieve certain results
Write more and better documentation
Hire more support team members
Move team members from non-support roles to support roles
Outsource support
Release fewer updates
Release more updates
Remove problematic features / products

All of these methods are 100% viable and our team has implemented all of them. There is, however, another method that people tend to gloss over or ignore, and it is perhaps one of the most effective of them all.

To lower your support load, all you need to do is have fewer customers.

It may seem like the opposite of what most companies want, after all customers are the people that make it possible for companies to pay their bills and their team members. Without customers, companies cease to exist.

The real answer to lowering support burdens is to have fewer but more valuable customers.

On that evening in November, my team and I decided it was time to try and drastically reduce our support burdens by dramatically raising prices, thus reducing the number of customers while simultaneously increasing the average value of customers. Theoretically this would allow us to keep our revenue about the same (which was just barely covering our monthly expenses) or, if all goes well, raise our revenue and lower the total number of support tickets we received each month.

That was the hope anyway.

The change

We threw a lot of numbers back and forth while discussing the possible changes we’d make to pricing. In the end we had several goals:

Raise the average customer value
Lower the number of customers, thus lowering the number of support requests
Keep overall revenue steady or raise it

Due to the sheer number of plugins sold through easydigitaldownloads.com, there were a lot of different price points. We sold plugins as low as $6 and as high as $149. Our primary plugins were priced at $29, $49, and $82, and just one was priced at $149.

As a general rule, we came up with the following guidelines on picking new plugin prices:

Plugins that power fundamental aspects of a store, such as licensing, multi-vendor marketplaces, subscriptions, etc, would be priced at the top tier of $199. These were previously priced between $82 and $149.
Plugins that are priced at $49 (mostly payment gateways) would be increased to $89.
Plugins priced at $29 (email marketing plugins and some other miscellaneous plugins) would be increased to $49.
Plugins priced between $12 and $19 would be increased to $29. This was determined to be the lowest price point we’d offer.
Bundles, such as the Core Extensions Bundle and the Digital Marketplace Bundle, would be increased according to the new value of the plugins included in the bundle.

In some cases, this resulted in plugins having $10 added to their price tag, and in others the increase was as much as $117.

The results

There are a number of statistics we can look at to help gauge the effectiveness of our price increase and we’ll go over those shortly, but there’s a non-scientific metric I want to look at first.

Team happiness and morale.

I do not need a psychology degree to tell you that the price increase has significantly affected the happiness and day-to-day mood of the team. For more than 12 months, our team has been faced with the problem that is Easy Digital Downloads. Yes, I mean that: the problem that is Easy Digital Downloads. You see, EDD is seen around the WordPress community as this great plugin that is wildly successful and a model to look up to in the commercial plugin ecosystem. While this is a reputation that we take great pride in, the honest truth of the matter is our team has struggled with EDD for months because in many ways it has felt like a sinking ship. We’ve seen stagnated revenue growth (even declines), higher-than-ever maintenance costs, relentless support queues, and a whole series of other challenges that our other two primary projects (RCP and AffWP) simply do not have. In comparison to EDD, those projects are cake walks.

The price increase has been enormously successful in making the team feel good, and the importance of that should never be ignored.

Support tickets

One of the primary results we needed to see in order for this change to be successful was a significant decrease in support tickets. It has now been three months since the price increase, so how’ve we done?

New tickets submitted: down 0.2%
Total tickets handled: down 43%
Total customers interacted with: down 35%
Conversations per day: down 42%

The total number of tickets submitted barely changed, but the other three statistics are incredibly significant. A 42% decrease in the number of tickets handled each day. That means EDD handled 10-15 fewer tickets every day, which translates to a considerable less amount of time spent working on tickets for our team. We have an average handling time of 5 min and 49 seconds per ticket, meaning we have removed one to one-and-a-half hours of support work per day by increasing prices.

Assume, for a moment, that we pay $25 per hour for support technicians. Removing 1.5 hours per day equates to approximately $37.50 in savings each day, or, when extrapolated out, approximately $13,687 per year in reduced support costs (if assuming zero volume change).

Revenue and sales

Along with a decrease in support burdens, we hoped the price increase would also provide a much needed boost to our monthly revenue. As mentioned in my 2016 in review post, Easy Digital Downloads operated at a loss for much of 2016, so increasing our revenue was an important measure on the success of the price increase. If we managed to decrease support and increase revenue, we’d consider it a home run.

To gauge the effect the price increase had on revenue, I decided to compare three different time periods:

January to February, 2016
August to September, 2016
January to February, 2017

These time periods are good representatives of our average revenue as they do not include any special promotional sale periods and they allow us to compare similar periods from before and after the price adjustments.

The summaries below provide a good overview of the revenue statistics for each of the time periods used for this comparison.

January to February, 2016:

Sales (including free): 3,861
Refunds processed: 106 – $8,765.40
NET revenue: $100,530.39
Average order value: $28.31
New paying customers: 664
Average value for new paying customers: $131.30

August to September, 2016:

Sales (including free): 3,930
Refunds processed: 74 – $4,454.95
NET revenue: $100,262.55
Average order value: $26.65
New paying customers: 565
Average value for new paying customers: $116.57

January to February, 2017:

Sales (including free): 3,009
Refunds processed: 65 – $7,530
NET revenue: $114,376.70
Average order value: $40.57
New paying customers: 373
Average value for new paying customers: $154.95

There are a few primary changes I’d like to highlight here. First, notice that the NET revenue increased by ~$14,000 in 2017 compared to the two 2016 time periods. With that NET increase, however, the total sale count decreased significantly, by more than 800 in fact. This also resulted in our average order value increasing from $28.31-26.65 to $40.57.

The total amounts refunded also possibly suggest that higher value customers are less likely to request a refund, perhaps because they do more ample research before committing than lower value customers.

This change also caused our average customer value (for brand new customers) to jump up to $154.95 from $131.30 and $116.57.

We are only part of the way through March, but the numbers are already looking even better than January and February. This is partly due to the promotional sale we ran for the end of winter, 2017. We shall see if the remainder of March and April hold up with the trend so far.

The price change has also had an interesting effect on commissions amounts that we pay to 3rd party vendors. In 2016, we paid an average of $16,000 per month to 3rd party extension authors. For February and January, this average has dropped to a little over $12,000 per month. While this is not an overly positive change for most extension vendors, it is a change that we see as an overall positive change for our company. This change primarily happened because of a decrease in the total sales, though it is also due in part to us reducing the number of 3rd party products we sell through the site. We have repeatedly learned just how difficult running a multi-vendor marketplace is and, as a company, we’ve determined that is not something included in our long term goals so we have continually worked to reduce the number of 3rd party vendors we directly work with. I hope to share more on various changes we’ve made over the years that have affected vendor commissions soon.

When combining the increase in revenue with the decrease in support burdens, this price change has so far appeared to be incredibly positive for us. It is a single move that might just be one of the most important changes we have ever made.

Customer response

Gauging the success of a price change based on customer reactions provides some really interesting insights. Using customer satisfaction as a metric, however, is something you must be careful with. In much the same way that star ratings tend to highlight the most unhappy and, oftentimes, unreasonable customers, the customer reactions to price changes typically show those customers that are the most unhappy. It’s unfortunately rare to hear from the happy customers or those that support your price change.

Within hours of pushing the price change live, we received our first reaction from a customer that who been considering a purchase during the time we were updating the prices:

Can you please confirm what is going on? How price jumped to the sky in a matter of seconds, I’m client of you and want to include multi-vendor option, it is even an effort to invest those 91 USD.

That reaction is fully reasonable, especially if he’d already added the items to the cart (our system could not account for already-in-cart items).

The second reaction we received:

Did the price of the Recurring Payments plugin really increase from $83.00 to $199.00 since January?? This was an unpleasant surprise. :/

Technically this was true, though with a brief explanation from Sean, her reaction completely turned around:

Awesome. Thanks for the explanation. I’ll look forward to exploring the features.

This customer did end up completing her purchase and has not contacted us since.

So within a few hours, we’d had two negative reactions but one of them turned into a positive experience for both parties. Over the next few weeks, we continued to receive emails from customers reacting to the price change. Many customers, interestingly, asked if the price increase was some kind of error.

Is there an error on your website or did your price in the last week just over double in cost? I was looking at making a purchase when I just did a refresh and saw the huge price increase.

We knew we’d get a decent amount of  flack for our price increase, especially as we chose not to alert customers (new or old) of the price increase before it happened. Whether this was the right choice or not, it was one we made intentionally. We felt there was a good chance that publicly mentioning our price increase before it happened would simply provide a place for people to pile negativity on us, and it would create a permanent record of that negativity for others to stumble upon. Doing it silently was like ripping the bandaid off in one fell swoop. It’s done, it hurts, but then it’s forgotten a short time later.

I still don’t know if doing it silently was the right choice, but there were numerous customers that were irate because of that particular decision. One person’s response was perhaps the most difficult to stomach. They started out perfectly reasonably:

I am in the process of renewing my plugin licenses again, everything looks good but I noticed that you’re now charging $199.00 (139.30 discounted) for Software Licensing? What is up with that?

I paid like $42 last year and certainly can’t afford to shell out $140 or more every year for a plugin. Not to mention the additional $40 every year for the other EDD plugins I’m using…

Please, tell me that a 200% price increase is some kind of mistake..

To that I gave a calm, collected, though perhaps too generic response, which really did not go over well, as can be seen by his reply:

Wow, so calm and collected.

Well, regardless of what YOU think about it:

1) It’s a 350% price increase (!!!)

2) It’s called gouging the customer

3) It’s called betraying all those people who got on board for 350% less, thinking that, even if the price increases, it will remain an affordable deal despite the annual renewals

4) You should grandfather existing customers at the original price instead of screwing them over

5) I expected much more from you, Pippin.

6) Maybe it’s time to create a similar competing plugin, sounds like it’s a very lucrative market, and would be much less expensive than getting screwed for a 350% price jack.

7) You won’t get away with it

8) It was a horrible decision

9) Even if I do renew this year, I’ll be looking for a complete replacement of the very overpriced EDD plugin suite that I have to keep paying for, over and over and over and over again.

10) Raising prices by 5%, 10%, or even 25% is reasonable. 350% is just greedy.

11) Do your current customers get 350% more value? Nope. They get the same old thing, only YOU benefit.

12) This list will be the outline of my next blog post

13) A textbook example of a bad move, how not to raise prices, and how to screw over your customers.

Seriously unbelievable move. I was all on board with you guys. Not anymore.

350% price jack = unbelievable gouging of your “valued” customers.

I could go on and on, but I’ll save it for the post.

I have had a fair share of people throw derogatory remarks my way, but this one was a bit different. This felt incredibly personal because it came from a person I’ve respected and looked up to for a long time. In fact, this response came from one of the very first people I looked up to in the WordPress community. Having them express their extreme displeasure at my decision to raise prices and method with which we chose to implement the change was painful.

It should be noted that we did grand father in all customers that had an active subscription (one that automatically renews). The only affected customers were those with manual renewals and new customers.

When you get these kind of reactions, it’s important to keep a fact in mind: companies do not need to justify their prices.

Perhaps the most telling thing from all of the reactions we received was just how horribly undervalued Easy Digital Downloads (and similar platforms) are in many customers’ minds. Here we had a customer that was seriously unhappy about paying $140 per year for plugins that provided the functionality they needed to operate their own store. Previously this customer had paid just $42 per year to run their store with EDD.

I’ve had friends, colleagues, and advisors tell me our prices have been too low for years, and I couldn’t agree more. It is absolutely crazy that we’re more accustomed as a society to pay $5 for a latte from Starbucks, which we will consume in a matter of minutes, than we are to pay $12-$20 per month for platforms that allow us to operate our businesses. We are accustomed to paying $80-$100 per year for subscriptions to Netflix and Hulu but we react with revulsion and disgust when a company asks for $150 per year to provide software that businesses literally rely on to bring in their own revenue. In the United States (where the customer above lives), we’re used to paying $50-$100 per month for cable TV subscriptions, but we expect software to be provided for so much less.

As a world, we are better at paying for things that rot (figuratively and literally) our insides than we are paying for things that help us provide for the health and wellbeing of our families and employees.

This disparity in pricing expectations is asinine. Unfortunately, huge companies like Apple and Google have perhaps single handedly helped to create this through the rock-bottom prices of their respective app stores. Between the 1980s and early 2000s, it was common for video games, which take hundreds of hours to create, to cost $40-$50. This price was normal and expected. Once the app stores rolled around, however, expected prices dropped so low that companies now get practically eviscerated if they try and charge just $10 for a full length game in the Android or iOS app stores.

Quote from a review of Super Mario Run:

With a £7.99 price tag, Super Mario Run certainly isn’t cheap, but it’s easily one of the best smartphone games around.

Isn’t cheap? Seriously? It’s roughly the cost of just two lattes or one-three pints from many pubs, both of which are gone within a matter of minutes.

It’s high past time software providers charge appropriately based on the value they provide. If we cannot even ask for a decent price, how can we possibly continue to build platforms that power the web and the world around us?

My final reply to the angry customer was lengthy and has served as a good sounding board as I worked through this reflection post. I ended with:

Perhaps our definition of “appropriate” is different, but the last time I checked, EDD provides me (with the ability to run my stores) far more value than any monthly TV subscription or coffee service. Would I pay $500-$1500 per year to operate the stores that provide for my family and employees?

Absolutely.

Perhaps it was my explanation of why we chose to increase prices so severely or perhaps it was the price disparities provided that convinced this customer, but they did end up sticking with us.

Thanks Pippin.

This makes sense, I understand where you are coming from.

I went ahead and upgraded. The renewal discount always is appreciated.

Thanks for the great response. Enjoyed it.

Going forward

At this point, we are very happy with how the price change has worked out for us and Easy Digital Downloads. We were happy enough, in fact, that we decided to implement a similar price increase on Restrict Content Pro and AffiliateWP, which went live on March 1, 2017, just a few weeks ago. We did end up making some adjustments to how we rolled out those price changes and so far the changes appear to have worked well. It is too early to tell just how effective they will be, but we are confident that it will prove to have been the right choice in 3-6 months.

Do you have thoughts or reactions? I’d love to engage with you in the comments.

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