Oh, hi, you're back! Thanks for joining us this week. And yes, more than one of us is contributing to today's topic: pricing your Shopify app. This is part 1 of 2 on the topic. Part 2 will be continued in next week's issue.
We have a special guest who contributed to today's issue's annual plans portion of the pricing discussion. He's a Shopifriend for many of us in the ecosystem and heads up marketing at Smile.io….ladies and gentlemen; please welcome Tim Peckover.
Tim was a part of The App Collective a couple of years ago, and you'll likely see him again. I plan on bringing back many OG App Collective people in future issues. Who would you like to see make a return?
What To Expect: Today's newsletter breaks down
A comparison feature in the Shopify app store
Different pricing experiments you can try with your Shopify app
A Shopify app spotlight
Comparing Shopify apps
Shopify rolled out a new comparison feature for Shopify apps in the App Store. Merchants can compare qualities such as:
whether or not it's built for Shopify
the pricing plans
languages supported
highlights that make the app great
what support is available
reviews ratings and how many reviews each app has
Below is a short video walking through how to simulate this feature directly from the app search page via a mobile device.
Critical thinking Q&A
Q: What do you think? Will this be useful for merchants to make decisions on their purchases? Or will it give them more reasons to install all 3 options and increase churn for the apps that don't make the cut? The install button bypasses the app listing page, so will it count as an install, or do we need to set up separate tracking for that button, too?
A: I suspect this feature is more useful for Shopify apps in understanding their competitive advantages/disadvantages to sharpen up their weaknesses. I'm not positive the feature is intuitive enough for merchants to know how to use it and if the information in the comparison will inform them enough to make a decision at a glance like that.
Shopify is so good about that A.B.T. (Always. Be. Testing.) life. Sometimes, I would love to see the data on how these new experiments go! 🤔
⭐ RESPECT ⭐
Pricing experiments
As I write this, Shopify magically sent an email encouraging me to join their annual pricing plan for my candy shop! I mean….FIRST OF ALL, are they doing some voodoo TikTok listening? And second of all, do you think this is a sign to model your masters? Maybe. Let's find out.
Tim Peckover discusses annual pricing plans
Let's get right into it! Annual plans: Good? Bad? I hate to do this to you, but the answer is the cliche, ambiguous marketing: "It depends…" But I won't leave you hanging with that 😂 Let's talk about what it depends on so you can figure out if having billing options other than just monthly will be helpful for your app growth.
Why I know…anything…
I'll back things up quickly to give some context as to why I know anything, and why you should put any stock in my words: Like Deb said, I head up marketing at Smile, where I've been for nearly 6 years. I started solely on the content side, then as a solo marketer. I have now built the marketing team up to a handful of incredibly talented team members.
Our merchant base at Smile has grown over 4x under my watch, having crossed the 100,000 merchants with live Smile programs mark in early 2022.
We've also dramatically changed our pricing model and ideal merchant profile a handful of times in the past 5 years, so I've seen many flavors of pricing structures and go-to-market strategies.
Where is the value?
Back to annual plans. There is one critical question you need to ask yourself before diving too deep into whether or not you should consider annual pricing:
Why do I want to introduce annual pricing?
It seems like an obvious "to make more money," right?
But an annual plan should only be designed to give you slightly more revenue beyond your typical merchant LTV.
Let's see how it works
Hypothetical example time 💭
Let's say you charge $25/m for your app, and a typical merchant stays subscribed to your app for 6 months and then churns. So your average merchant LTV would be $25 * 6 = $150
Adding an annual plan should only be trying to increase that LTV incrementally. (Side note: incrementally is my least favorite marketing buzzword of 2024, but it describes what we're talking about perfectly)
So you might think, ok a yearly plan of my $25/m app should be just under what it would cost monthly for the year ($300), so let's price annually at $280 and print some money 🎉
But merchants typically only see your app provide $150 worth of value before they leave. Your app's current perceived value is only half what you want them to get locked into. Most merchants would scoff at that yearly price.
So what do you do?
Decide how you want to impact your LTV.
If you want 30% more LTV, add 30% to your current LTV and make that the yearly price. In our example, we would set the annual price at $195.
Yes, that's a 35% discount for yearly pricing, but you're getting $45 more (on average) from every merchant that moves to annual pricing.
They are much more likely to lock in and will be much happier even if they do churn after the first year is up.
It is complicated
I've painted this like it's straightforward, but there are lots of curveballs.
What if your average merchant stays around for more than 1 year?
(then make 2 times the cost of the annual plan incrementally more than the LTV)
What if merchants rarely stay for more than a month or two?
(Then you likely have some product/onboarding/success work to do before you think about a pricing change)
Three things to remember
1. Always experiment.
What you set your monthly or yearly price at today doesn't have to be what you set your price at a month from now. But you should let experiments run long enough to make sure changes are statistically significant and not just a fluke.
2. Know your data
You know your merchants, and your data knows them even better. You can only do this work or annual rollout with a firm grasp of your merchant metrics (LTV, Churn rates, etc.)
3. HAVE FUN.
It's easy to get caught in the weeds, but there's a reason we are all working in this space. We love commerce. We love helping merchants succeed. And we love how Shopify helps it happen ✨
-Tim
🎤 Mic Drop 🎤
Wowie, how do I even continue after that? Thank you for your contribution to this week's newsletter, Tim. 👏 Should we ask him to come back?
Alright, well, I'll try to keep that momentum rollin'. Deb again, let's get into the discussion about the pros and cons of free pricing plans. Should Shopify apps offer them? And if so, when and why?!
Free pricing plans
If you asked me 2 years ago if your Shopify app should offer a free plan, I would, without hesitation, say with conviction, "YES!"
Today, the answer is a little different. Let's get into it.
Let's shoot straight: Free plans were a solid strategy to stay in line with the Shopify ranking system back in the day. There, I said it. 😅 Shopify favored apps that offered a free plan as a part of the pricing tier structure and rewarded those apps with better category rankings. Allegedly. 😉
There can be a reward system for free plans between merchant and apps, too.
The benefit
Offering a free plan is a low-barrier entry strategy to get installs in higher volumes, which often leads to more opportunities for reviews. Since sometimes smaller stores on the free plans struggle with onboarding, they might contact support for help, and if they receive outstanding service, they will leave 5-star reviews. This is essentially the ecosystem working in pure harmony.
The problem
Depending on how the free plan is structured, apps rarely convert the free plans to paid plans, even if it seems far-fetched for stores to want to continue with the drawbacks. The idea of getting smaller merchants or free plan users to graduate to paid plans can often feel like moving a mountain with a pickup truck. That sounds a bit dramatic but it’s true.
For example, I once worked with an upsell app that offered an upsell on 1 product that had a watermark on the offers. You would expect the merchant to be deterred from having the watermark on their product pages or checkout and want to upgrade to a paid plan. It doesn’t always work the way you’d hope it would, and the fact of the matter is if they are making money, they don’t actually care about the things you think they might.
The other issue is that free plans forget to uninstall apps they aren’t using. Once in a while, Shopify will batch uninstall apps that are no longer active. This impacts your churn numbers which can sometimes look like a rollercoaster.
So depending on your goals or where you are in the lifecycle of your app's growth will ultimately determine if having a free plan makes sense for your business.
When do free plans make sense?
There are a couple of occasions when free plans make complete sense to implement.
Brand spanking new apps: When new apps go-to-market, the strategy is often to open the floodgates and get as many users in as possible. This is truly a quantity-over-quality play. In this strategy, apps should offer full features to everyone installing the app or limit the usage or features ever so slightly. The goal is to get as much feedback from new customers as possible. App developers offering free plans in the early stages should strive to develop solid relationships with new users to encourage a give-and-take relationship. By offering users an amazing app that will help their business operations grow or become more efficient at no cost, they will likely in return, give the app honest feedback to make improvements on the feature set. They might be excited to review the app for new users to see on the App Store listing which will help new apps with their first 50-100 reviews. New apps will learn, grow, and develop in those early stages of launching. Consider this time period another phase in development.
Development stores: The developer wants to install the app to configure it for the store they are building. Make it easy for them to do so by offering a free plan with limitations and ensure it's only for development stores. It will satisfy the free plan to help with rankings (allegedly), and apps will not have to answer customer service requests for granting developers free access anyway.
Now, go ahead and ask. I know you want to. Why didn't I include usage-based in the free plan considerations? You know, the one where you give them limited usage, so they inevitably cross that threshold and need to upgrade to the paid plan.
I'm so glad you asked!
Because merchants will merchant, people will people. And they will sometimes find a way to game the system. This is not a one-size-fits-all all, and I'm sure some of you will come for me, telling me these wonderful stories about your graduates. We love this for you. Keep doing what you're doing if it's working. ✨
But sometimes, it’s more work than it’s worth for the app developer. I'll give you an example of a merchant gaming the usage to remain on the free plan that happened a few months ago.
An app had a free plan. The merchant had been using it for some time and didn't realize the free plan had been removed. They used up the amount available in the free plan and uninstalled it with plans to reinstall to restart the usage cap under the free plan again. But it backfired for both them and the app. When the merchant couldn't get away with their plan, they got angry and gave the app a 1-star review. It was a lose-lose scenario for the app as well as the merchant.
My takeaway: Merchants on free plans generally rely heavily on customer service resources and will rarely upgrade to a paid plan. They can be the first to complain and leave bad reviews. Free plan users contribute to churn numbers in a variety of ways that aren’t helpful to the app.
If an app no longer needs the learnings from the go-to-market strategy, it's time to remove the bandaid and only offer paid plans. Perception is sometimes reality. Apps should offer the pricing options for the stores they want to be ideal customers. We will talk about that more next week. We will discuss how to price your app and when you should raise or drop prices.
Shopify app spotlight
Ablestar Bulk Product Editor is one of those apps that rarely end up on your average tech stack discussed on X. But after speaking with Daniel, the CEO, I learned that it's used by brands we all love and use frequently. You know, brands like Nike, Guess, AllBirds, Ted Baker, and Nomad to name a few.
This app is considered a more 'behind the scenes' app as merchants can automate the process of bulk editing hundreds or thousands of products at scale. It's perfect for Shopify stores who want to run flash sales on the fly and have a way to quickly revert to pricing, product descriptions, etc., with a simple undo button after the sale ends. Think of the myriad of sales merchants are running during BFCM and how they need to swiftly move between these sales week to week with accuracy and efficiency. And unlike other apps in the category, you don't have to use a spreadsheet to edit products, though you can if you want to.
We’ll be continuing the pricing convo in next week’s email. Let me know if you want me to invite Tim to come back to continue the convo next week.
Until next week,
Deb