Chris Lema has been writing some amazing posts about WordPress plugin pricing (WordPress Plugin Prices Are Too Low and More Thoughts on Pricing), and he has inspired others to write about the subject as well (Great Conversation On The Topic Of Plugin Prices and Setting Your WordPress Plugin Prices).

Update: Carl, my boss and owner of rocketgenius, gives his thoughts on the pricing models available in a comment on Chris Lema’s blog – Read it by clicking here.

Today, I wanted to give my two cents on the issue as I feel I have an interesting perspective.

My History

When I first started using WordPress ten years ago, there were no premium plugins or themes. The idea was almost heresy. How could you create a paid thing for a free system, and a community that loved free?

After premium themes started rolling out, the whole GPL battle happened, and then again, and I think one more time before the theme developers released their premium themes under the GPL license, and we all moved on.

I participated in creating a premium theme as well, WPUnlimited. The truth of that situation was that I was more of an integrate this xhtml/css with WordPress guy and a figurehead than the total developer of the theme, but that’s a story for another day.

The theme did reasonably well, but in the end, it didn’t make great money. I remember hearing that it paid for its development and marketing costs, and made a bit of profit. The management at Bloggy Network quickly lost interest in having just one premium theme, and moved on from the WPUnlimited project to try to create a theme marketplace.

Gravity Forms Customer

When Gravity Forms first came out, I was surprised at its pricing, but quickly purchased a license. They let people know that their lifetime licenses would be a limited time thing, and was really to get a starting install base.

I had seen a demonstration of it at WordCamp Chicago and was really impressed and became a quick fan of Gravity Forms, promoting it wherever I could.

What people don’t realize when they look at Gravity Forms today is that there is now over three years of development from half a dozen developers that has gone into this plugin and its add-ons.

A super conservative estimate would be three developers, for three years, doing four hours a day, five days a week, for forty weeks a year. That comes out to over seven thousand developer hours put into Gravity Forms. Even if you were to pay them a dollar per hour, Gravity Forms would cost you over $7000 to own.

If you were to build Gravity Forms, as it exists today, using developers from third world countries, I still believe it would cost you more than a thousand dollars to create.

So to gain access to something with that much development time behind it for $39 to $199, it definitely has value.

I know that when I work with clients, I either have a cost line put in for the software separately, or include it in my per hour rate. On every project I work on with WordPress, I include Gravity Forms. It saves me time, even if all the site needs is a simple contact form.

On average, it takes me around two hours to program a high quality contact form using PHP. I charge $50/hr for development on a freelance project, so you instantly have a cost higher than the first two license levels of Gravity Forms, just for a simple contact form on a single site. Imagine having to code similar, but different contact forms on dozens of sites? It can add up quite quickly in terms of development time.

Gravity Forms Employee

Everything below is just based on my experience. I have no numbers or facts to back up anything here. All of the numbers are fake, and have no basis in reality. I’m just trying to make a point.

rocketgenius has nearly a dozen people on staff. All but three of us are developers. We have one designer, one full time support, and me, a mix of everything and anything the company needs.

The cost of keeping that many people employed is large. They have a modest office off the beaten track, not anywhere near downtown, where most of the staff are situated. That is a cost to the company. We use various third party services for support, sending renewal e-mails, coordinating development, and interacting with each other. That is a cost to the company.

There are many key things to running a business beyond just hiring some developers that people don’t really think about. If I had to guess, (and all I can do is guess because I’m not privy to any inside information relating to finances) I would say that it probably requires the team to sell over 1,000 licenses of Gravity Forms per month to keep things moving forward.

Yes, there are millions of WordPress users out there, but how many are willing to pay for a plugin?

Let’s just take some fun numbers – WordPress.com lists 66 million WordPress blogs. Let’s say that ten percent are willing to pay for a WordPress plugin, so let’s round that to 7 million. We have to compete with all of the other premium WordPress plugins out there, including ones that compete directly with Gravity Forms’ features. Let’s say one percent are going to select Gravity Forms, or a total of around 70,000 licenses.

That means we would have a market lifetime of around six years (1,000 licenses per month for 70 months) if WordPress didn’t grow, and our costs didn’t go up.

Thanks to the yearly renewal model, we need far less than that to sustain and grow a successful business. In this example, we would only need 12,000 paying customers per year through renewals or new purchases to keep the lights on, improve Gravity Forms, and supporting the product.

Above this, we are able to make new add-ons, improve support, and grow the company. This benefits customers, especially at the upper end with the developer license, since they continually get new add-ons.

Again, I want to note that these numbers are all completely hypothetical. It could be that we require 2,000 license sales per month or 200. I don’t have ANY access to this information and I’m just using some common sense to prove a point.

Coming up with a minimum sustainable customer number to run your business is important.

Lifetime versus Subscription

There are plugins selling lifetime licenses that will run out of interested buyers over a period of time, and they’ll lack any way to take fans of their software and turn them into a continuing revenue source. They also require constant infusion of new customers to maintain their bottom line, where subscription offers allow companies to predict income so that they can allocate expenses.

Companies with a lifetime purchasing model will need to come up with new products, increase the purchasing cost of their software, or market heavily to the new people joining the WordPress community so that their business survives.

Which would you rather? Requiring 70,000 customers to survive for six years in business, or 12,000 through renewals and new purchases?

How would you support 70,000 customers? How would you attract 70,000 customers? Why would you care what they do with your product after they’ve spent their money? I think if you are going to sell lifetime licenses, you should make sure not to sell lifetime support…

I also want to note that Gravity Forms on-time renewals are discounted heavily, with 25% off for Personal License holders, and 50% off for Business or Development license holders. So, in your second year of holding a Developer license, it is $99.50 versus $199 and you still gain access to all of the same features, support and new add-ons as we release them.

There are some cool new add-ons coming out this year! I can’t wait for people to try them!

Buying Pieces or Packages

When coming up with a pricing system, there are usually two options: pieces or packages. There are advantages to each system, but my experience at rocketgenius is that packages work really well.

When doing support for a user, I only need to know what license level they have to know what add-ons they have access to, and this makes it easy to provide suggestions and troubleshoot their issues, especially since we only have three license levels.

Packages also take the onus off of the purchaser. They don’t need to figure out more than: how many sites do I want to install this on, and does it sound like I need any of these add-ons? For the most part, they don’t need to research each of the add-ons and figure out what they do before they purchase. They don’t feel overwhelmed by options, and the pricing, to be honest, is reasonable at each package level.

I will say that I think the naming of our packages is wrong, and probably leads people to purchase the wrong plan, but that, again is something to discuss in a different blog post.

If you pulled apart Gravity Forms, you would have to come up with pricing for each of the add-ons. Let’s say you let a person buy Gravity Forms core for $39, as it is today.

Then, let’s take the fourteen add-ons and price them out to be an average of $15 each. Most users might save a bunch of money using this system. On average, I would guess most users are probably only using two or three add-ons on their Gravity Forms install. So their purchase price would be $69 or $74.

The difficult part here is that some add-ons, like our payment gateway add-ons require ten times the support time of our Mailchimp add-on. So let’s say that the Paypal add-on, for example, is $50, and our MailChimp add-on is $10. These two add-ons are now $60, or $99 when purchased with the core of Gravity Forms.

That’s still cheaper than if they had to purchase the developer license. But for someone looking to purchase every add-on to use on a variety of sites, the average purchase cost for them will go up. It would be easy to see how something compared to the Developer license would be well over two hundred dollars. Even at an average of $15 per add-on, the total would be $210 for all fourteen add-ons, plus Gravity Forms core for a grand total of $249, or a $50 price increase over the current developer license.

Let’s say that previous user who bought the Paypal Standard add-on and the Mailchimp add-on now realizes that they want to switch to Authorize.net or from Paypal Standard to Paypal Pro, what happens then? Do they buy those payment gateways as well? Are they are worth $50 a piece too? To get all three payment gateways, they’ll pay $150 (payment gateway add-ons) + $39 (core) + $10 (Mailchimp) or a total of $199. Is this still a good deal? They have lost out on access to ten other add-ons compared to today’s Developer license.

While not every user will use every add-on, the pricing doesn’t just reflect what the user is purchasing, but the cost to the company in terms of support. It takes more time and resources to support someone installing Gravity Forms on hundreds of sites, and using different add-ons. It takes more time to lead businesses through tutorials on how to build the forms they want. The support cost is built into the licenses more than the add-on costs.

Of course, our packaged licensing also pays for continual development of all of these add-ons as new versions of Gravity Forms and WordPress are released, we have to update almost all of these to keep up.

If you were able to purchase each add-on and only two dozen people ever purchased the Quiz add-on, would we stop development of this add-on? What would be the cut off point for this? Why would we experiment and create add-ons that could provide benefit for “smaller” groups? The development cost to business value wouldn’t exist. What about the signature add-on? It is mostly used by organizations like law firms. Would we increase its price to $50 so that the small number of purchasers paid for its continued development, or would we retire that add-on as well?

Having these add-ons packaged in with the Developer license means that we can continue to update add-ons that aren’t as popular, but fit the need of a small sub-set of Gravity Forms users.

Also, as a Developer license holder, you currently gain access to new add-ons automatically as we create and release them. You don’t have to come back and do another transaction if you want access to the new features. You just click on “install add-on” and away you go. If we priced per add-on, your yearly cost could increase as we release new add-ons.

Going to say it one more time, I have no idea how many people use any of our add-ons or what it costs to continually develop and support them. I’m just making common sense guesses to make a point.

Conclusion

I want to make some quick points to wrap this up for those that don’t want to read all of this, or those that need a reminder of what they read:

• Hundreds of thousands of dollars of development can go into a single premium theme or plugin.
• It is likely easier to get 12,000 subscription customers than 70,000 one-time customers
• Packages are great for add-ons that help smaller groups gain useful features
• Per add-on cost would likely be higher because some add-ons require more support
• Gravity Forms developer license holders get all new add-ons as they are released
• Gravity Forms has new add-ons coming out this year
• Pricing is difficult when you think about support, marketing, staffing and business costs

I hope you enjoyed my post on this, and again, please check the start of this article for links to other great posts on this subject.