I've always hated it because it makes the assumption that everyone is at the same position in the class hierarchy - I'm poor, the last time I drank a coffee shop coffee was something like 8 years ago and even then it was bought for me by my psychologist, your 'cup of coffee a day' price just sounds extravagant to me.
You are unlikely to be a customer of a paid-for commenting service as the alternative is free.
PS. I don't get the downvotes. Someone who says they won't spend $5 on a coffee because they are poor would be willing to pay for commenting feature on their website?! Something that they could get for free?
If an owner of the business cannot afford or won't frivolously spend $5/day on a coffee, he or she won't spend money on a SaaS feature that he or she can get for free. Even if he would, to get $500/mo the SaaS would need to find one hundred of such owners.
If SaaS is to price its service at $100/mo, then people for whom extra $5.00/day is a big deal won't be looking at this service at all, won't be contacting the owner about implementing yet another feature, etc. To get to $500/mo revenue, SaaS would need to find 5 owners.
To doing business? Doesn't seem absurd at all. Do you think business should just land in your lap for free without having to spend anything for it? That what seems absurd to me.
"business" is just one mode of industrial production, even in a marketplace. So, essential for business, perhaps, but hardly essential in a general sense.
So this isn't really against the idea, only against using coffee in the analogy.
One of the underlying principles, "Present costs as small pieces, and rewards as a large sum" is important, but there are many other relevant approaches, e.g. free trial, money-back guarantee, etc., etc. Effective marketing usually combines approaches. Analogizing to other small costs can NOT be the whole pricing strategy.
Pretty much nobody buys a cup of coffee every day. If people who think they do or might actually did, then places wouldn't sell those "bottomless" cups.
Also, what's a "coffee shop coffee"? Does that mean a place that charges more than $2 for a large?
It's funny because I've often had the opposite thought. Cafes should sell subscriptions. The margin on a single cup of coffee is humongous because there's so much overhead in running a cafe and such variable demand. That seems like a perfect business case for a subscription model.
Right, but then you don't really have a coffee shop anymore.
I disagree with the posters above who say there's a 90% markup on the coffee. What you're buying at Starbucks isn't a coffee, but a coffee plus the right to sit at a table and use the wifi for an hour or two. And as OP points out, at the moment, this is pay-per-use: when I need a place to sit down for a bit, whether in my own city or some other city, or when I need a table to sit and chat with someone that's not in either of our homes, I buy the right to take a seat for $4. They even give me a cup of coffee to go along with it.
Making it a subscription would completely change the way I related to such a business. I mean yeah, I wouldn't have to drink coffee just to sit down. But I'd be thinking each month -- am I getting a good value out of this subscription? I'd be sitting a lot more in the shop than I normally would; which would mean more regular income for the owner, but less space for random people in a strange town who want to have a nice place to sit for an hour.
$4 for a one-off, no commitment, pay-as-you-go service with instant gratification (buy the coffee, take a seat) seems like a pretty nice deal to me; and it makes cities nicer places to be than if you had to have a subscription.
> I disagree with the posters above who say there's a 90% markup on the coffee.
That's how accounting works. The 90% markup is on the coffee, and if you sell enough coffee you can cover the overhead of the cafe. I.e. there's margin and there's net income.
Out here Starbucks has been building/opening a ton of new places lately, some of which are replacing old ones. The new ones are strictly outdoor seating.
That's mostly because competition increased, hence margin per cup had to increase.
A 90% markup on a product (even when taken away) is exceptional. Yea a subscription model could make sense, many local coffee shops struggle and end up closing doors after a while.
I rather propose reducing the margin, have more people consume such Beverage out instead of home made, or worse: the vending machine at the office. But disrupting the market pricing practices is very difficult of course. I would like that, a cup of coffee without commitment, for a fifth of the current retail price, that's still a 50% markup.
As a coffee shop owner, I would also like that: My counter visited by 10 times more customers, seeing happy faces for coffee at great, in fact adequate, value.
In many instances I would argue relationships in the B2B sale are more important than price. I have both lost and won many deals because of only the relationship.
Just recently a fairly large one we lost had a fantastic ROI, about a 10% ramp time to the competition, and even had the CTO's buy in. But we lost and found out it was bc the VP was neighbors to the other sales rep and he convinced the CTO not to buy from us. From what I can gather from the other folks that were championing for me was mostly untrue FUD was used by this VP, all in an effort to help his buddy. Their cost was supposedly ~30% higher and I usually stomp that product to the ground - because of business cases.
The competition for that feature is free comments via Facebook so anyone who does not want to spend money has that ability. The other set of "competitors" is accessed for free via open source software that one can install.
As soon as the person signs up a first client, he or she would have to provide the service for some period of time. Just shutting it down won't be an option. Any and all businesses are a pain in the ass to operate.
Say that in order for this "business" to be viable in the eyes of the person running it ( not profitable, just viable ) it would need to eick out $500/mo in revenue.
To do that at $5.00/mo he would need to get 100 customers. That's a very tall order because the competition is free and price sensitive customers are going to go to a free service (facebook) or they are going to go to whatever service that shows up that will underprice the OP.
There's however another group of potential customers. They are people who for some reason need a problem of commenting solved and are willing to pay for it. Not a lot. But a some reasonable amount of money. What's reasonable? Well, a dinner for 2 in major cities is the USA is going to run you about $120. People who go out in those cities 4-10 times a month are the same people who have a daily Starbucks/La Colombe/Joe's Coffee/Pete's Coffee habit. They could make the coffee at home for $0.25 a cup just like they could make a dinner at home for $3/per person. Instead they choose to spend money not on the cheapest option but on option that simply solves their problem. They demonstrate it by buying Starbucks coffee and going out to dinner twice or three times a week.
It is much easier to find 5 of people who spend $100/mo on Starbucks who need to have commenting problem solved and convince them to spend $100/mo on it than to find 100 people who would spend $5/mo who think that spending $100/mo on solving their problem is too much. Why? Because the second group has already demonstrated that $100/mo is an expense they are willing to take.
I fully agree with the notion (go for a more premium market - even though I'm sure you could have a long discussion what's the right market and price point here, e.g. $100 seems a bit much for a lot of the "professional blogger" market), but I'm not sure framing a business expense in terms of daily coffee is a good comparison to communicate its value.
Are your customers likely to be the kind of people that go out multiple times a month in expensive cities?
Some of your customers are small outfits (single person, or side-project of multiple people), a group of people where I'd expect "daily expensive coffee" is seen as more frivolous then spending the same on a sensible business expense.
And larger businesses don't think in those terms at all when budgeting, but much more in risk, saved employee hours, saved money spent on contractors handling the same thing, ... The "nice meal" analogy might work slightly better here, but also always has the risk of seeming out of touch for people from other regions.
> People who go out in those cities 4-10 times a month are the same people who have a daily Starbucks/La Colombe/Joe's Coffee/Pete's Coffee habit
I have a daily coffee habit precisely because it's significantly cheaper than having an eating out habit, while providing me with the same or better satisfaction.
I found it hilarious when a LA based startup compared their pricing structure to a 'nice meal' (50-100$)
Not only did it insult my definition of a 'nice meal', but also made me not want to give them any more money for 'nice meals'. A nice meal is 700 calories from healthy sources. An extravagant meal is the price they quote.
Similarly $5 is not the price of a coffee... It's about 30p.
That's exactly why targeting people to pay $5.00/mo for software as a service is a mistake. At that tier SaaS gets people who complain about $5.00 cup of coffee.
Even in big cities I have trouble spending more than this on a single meal. If I'm covering a date or sharing a bottle with the table that changes obviously, but unless you're going to a suit and tie or otherwise haute kind of place then $50 is absurd.
I used to see older relatives post photos of very fancy meals they ate, and I thought they were being irrational/foolish. Then I had kids and realized that if you only eat out with your spouse (and no kids) 2-3 times per year, spending that much is not so crazy. If you have a babysitter, that will easily run $50, and it seems odd to spend more on that than the food/experience at the restaurant.
But to be clear, when people refer to a "nice meal" costing $50-100, they're talking about an evening of being waited upon, not just the food. What you're paying for is service, ambiance, and restaurant location (overlooking a beach? at the top of a skyscraper?). It's not crazy for someone to decide to choose to indulge by buying nice food bundled with a relaxing experience, compared with buying nice food separate from a relaxing experience (going on vacation, going to a sporting event, having a massage).
But for the record, I agree that $50-100 is an extravagant meal. I think they chose the euphemism "nice" to make it sound like the tradeoff was for something not so extraordinary.
To me, the coffee price comparison makes your service sound like it's a frivolous and unimportant purchase.
You're better pointing out how much it will cost a business in time and money to solve a problem themselves and compare that to the cost of your product. If you're selling too cheap, the problem probably isn't big enough or important enough.
The "cup of coffee" analogy always struck me as though it was asking, "Hey, wouldn't you be willing to pay twice as much for your coffee as you do now?" And, well, no. It also misses the mark for anyone who says, "I'm not paying $100 a month for coffee, that's rediculous, I'll make my own.
Now for those who actually do buy their coffee daily, it still assumes Also,it still asdumes a sort of laziness in personal budgeting. If you keep a personal budget and diligently track luxury extras like buying coffee at many x the price if making your own, and a the other little things, then you're going to be very aware and deliberate about incurring additional expenses of that sort. And so if you position your value-proposition in terms of "only a cup of coffee" instead of the value-add of the service itself, then you're automatically poorly targeting your message to the entire population of people that keep careful budgets.
I'm pretty sure there was an article on here just recently about how people who spend money even on dumb things don't do it because they don't budget, but because it provides other particulars of happiness. It stated that human life is complicated and min maxing life financially differs from person to person. So while they may spend $200 on coffee, but may also bike to work daily. Or they just flat out enjoy it and trade money for that enjoyment.
However, the Lionshare of consumers are not rationalizing their purchases like people such as myself often do (I know that comes off as incredibly pretentious, I'm just using myself as an example). I've gotten worse with my money (or better) intentionally so as not to be too cheap and give off the feeling that I'm tight. Normally I'd be that way, but people dislike those kinds of people...like a lot.
Overall just think of it as people paying a tax for something to further continue. It's a tax you don't have to pay, but can freely do so if you choose.
You can spend lots of money on dumb things and still budget. But a person who diligently budgets their money will not spend money on dumb things at the expense of debt, lack of proper long term financial planning, etc. Dumb things can fit into a careful budget.
Plus what kinda cup-of-coffee are we talking here? A pack of coffee costs me ~$7 and will last me at least a few dozen cups! Even if I count a generous amount of creamer, that's $3-4 a bottle and should be good for at least a dozen cups of coffee (again, really generous with that creamer lol).
If I'm out of town I'll grab a cup at mcdonalds or something. The regular cofee maxes out around $1.59. Or I could go fancy and get a medium caramel macchioto for $3.25 or so.
So you're telling me I can get their software for $0.50-$3.25 a month? Not bad! :D
On the other hand, most SaaS founders, especially in B2B, are inclined to charge too little for their service. So the coffee analogy can wake you up that $5/mo or $10/mo is an almost ridiculously low price for a piece of software that solves any sort of problem.
It's worth pondering why SaaS founders are so inclined toward underpricing. I think this is because SaaS founders, especially if they are developers, tend to be really frugal in their SaaS and PaaS spending. For example, they'll use things like their DigitalOcean Droplet cost or their GitHub Pro subscription as a point of comparison. They'll think, "Those services are so valuable, and so cheap, so why would anyone buy my thing for more? I certainly wouldn't."
But what they tend to forget or ignore is that, especially in B2B, it's not your buyer's wallet or money at stake. It's your buyer's (or your buyer's department's) allocated budget. And budget allocations for businesses in mid-market and enterprise are always measured in thousands of dollars, and sometimes in millions.
All they care about is spending the money wisely -- that is, appropriately trading money for revenue, for cost reduction, for time savings, for company cultural impact, or, ideally, for all of the above. At that point, pricing too low can be counterproductive: many enterprises will, consciously or subconsciously, worry that your pricing being that low means you are a counterparty risk and thus not even worth hiring as a vendor.
In the B2C space or in the "B2B tools for individual employees" space, to understand your pricing power requires understanding your buyer demographics. If you are selling productivity software to executives, they will think in terms cost relative to their time and the time of their assistants and subordinates. If you are selling hosting software to entrepreneurs, they will want low starting pricing but be OK with pricing that scales quickly with growth. If you are selling a video streaming or premium content service to consumers, they will anchor you against Netflix, Disney+, Hulu, and cable. Selecting your price is a very important part of your strategy and how your service is perceived. Picking the lowest price you can afford at reasonable margins, which is a kind of obvious default, is often a terrible strategy.
When I lived in NYC, a local coffee-place-slash-home-design-store offered a subscription, whereby if you used it almost every day, you'd be getting significant discount on your artisanal latte. I think they went on to try and create some kind of loyalty rewards app, but for a while, this concept was real. https://www.10best.com/destinations/new-york/new-york/articl...
I hated this assumption too, but for different reasons.
First, the price for a plain old cup of coffee at Starbucks differs from region to region, but it usually normalizes at around $1.80 (taxes included). Refills are $0.52. While, yes, Starbucks’s coffee-based offerings (like lattes) are more expensive, coffee from Starbucks is quite cheap and VERY consistent (and cheaper than at a mom and pop coffee shop).
Second, there is more value from that cup of Starbucks coffee than the coffee itself: the space, the music, the Wi-Fi, etc. Products that make this comparison usually don’t offer the same value proposition.
> First, the price for a plain old cup of coffee at Starbucks differs from region to region, but it usually normalizes at around $1.80 (taxes included). Refills are $0.52.
That sounds really cheap, or what's a 'plain old cup of coffee' - does Starbucks sell filter coffee over there?
Yeah, around me you can get simple drip coffee from Starbucks for about 1/2 to 1/3 the cost of an espresso based drink. Last I was there, I think the biggest drip cup they offered was around $2.30 and the smallest was about $1.50. It's been about 3 years since I actually got a drip coffee from Starbucks so the prices might be slightly higher now.
The crazy part, speaking from So-Cal, is that daily black coffee drinkers at Starbucks can even save a few cents on top of that if they buy one of the monthly refillable tumblers. I think you only get one free refill per day but I've been to a lot of places that don't care enough to refuse me another refill so mileage may vary.
> While, yes, Starbucks’s coffee-based offerings (like lattes) are more expensive, coffee from Starbucks is quite cheap and VERY consistent
That’s because Starbucks is not a in a coffee shop business but in a coffee based sweet deserts business. You wouldn’t compare Coca-cola to espresso or filter coffee, so why put Starbucks in coffee category?
Of course this author has to virtue signal about how _he_ would never buy a Starbucks coffee
> First off, I would personally never buy a cup of coffee at Starbucks. But I understand why some people would.
He'll only take his Arch Linux Pinebook (ok, I just assumed that) into his "local roaster"
> The cup-of-coffee-fallacy becomes much more obvious when it comes to subscription services. I might buy a cup of coffee from my local roaster, and would happily buy many cups, some beans, and snacks on a regular basis.
Just get an espresso machine (the real ones, no capsules) and a bean grinder. Coffee from freshly-ground beans tastes way better than Starbucks, is still $.03 per cup and takes only a few seconds to make with an electric grinder.
Moka pots work too and are cheaper (though espresso machines are real cheap at least here in Europe) but the coffee isn't as creamy and it takes a few minutes to boil (even though it needs no attention). With a large moka pot it's easier to make large quantities though (but I hate stale coffee so I favor espresso machines). Still better than drip.
If you're really into coffee get a superautomatic machine. Best coffee I've ever had, instant and with zero effort.
"A few seconds to make" is a slight exaggeration no? I had such a grinder/Gaggia set-up and it took time and effort. Producing good espresso at home without very expensive automated machines, is a commitment.
There's a lot of fiddly cleaning involved - the grinder has to be cleaned meticulously after use as do the various bits of the espresso machine. The finely ground coffee is very sensitive to static so tends to jump/attach itself to white t-shirts and plastic kitchenware - more cleaning. All this cleaning is required even if you just want to make one espresso - otherwise later uses will have a nasty taint.
There's a lot of experimentation required to produce a decent espresso with crema from such a set-up. Depending on the beans, their age, the weather, etc., the fineness for grinding and how tightly you packed the portafilter would vary. On good days I was getting 3 out of 4 but that still meant 1 in 4 (or more) were dreck.
That wasn't my experience. The grinder and espresso machines I used just needed rinsing between cups and a quick scrub at the end, plus cleaning the water tank once a week (depending on water quality, tap water is gross).
Moka pots are a pain to clean though, but you can buy a huge one to produce a large quantity.
Honestly, I drip-brew a pot a day for the caffeine ... and coffee flavor. Fresh grind is better, and the Espresso/French press/etc stuff often tastes better. But day after day, year after year? too much fuss. When you need a transfusion, ASAP is the best way.
As a fan of epsresso I a absolutely agree with that fact that you should consider your own grinder and machine, but mostly for the massive increase in quality, certainly not saved costs. Even with second hand gear you are easily looking at an investment of 600 euro upwards. And as often, the sky is the limit. With the 0.3€ per coffee you mention, that's the equivalent of 2000 drinks, or 5 years of usage.
Also fresh high quality beans often result in costs per coffee a lot higher than your number. While I would encourage people to get into espresso as an hobby, I wouldn't recommend it to save on Starbucks cost.
> fresh high quality beans often result in costs per coffee a lot higher than your number.
Don't buy high quality beans.
IMHO the end result is influenced mostly by preparation and water quality. I'd had to double blind it, but I've had store brand and expensive beans and the difference is negligible.
Note: I'm in Europe. Market differences might apply.
Interesting. I get 28 oz of fair trade organic beans from Trader Joes for $15. I then make one-off 12oz "big mug" espressos using a full packed tin of 0.25oz of ground coffee, which seems is 13.4 cents of very high quality beans. Cost of water is 0. Cost of electricity, less than 1 cent.
The most important thing I found was not to use municipal water. Bean quality is far less important than water quality. Great beans and city water is undrinkable. Lousy beans and good water is tolerable in a pinch.
Article misses the fallacy of the comparison. If I buy a cup of coffee, I get my end of the bargain immediately* and no further commitment on my part is needed. For most saas offerings though, I’m basically committing to a regular payment in perpetuity. Usually if I stop paying, I not only lose the immediate benefits, but also whatever I have put into the app in the time I used it. Even if it is just storage, if I cancel it, I have to find a way to replace the storage and the access to the storage from my devices.
Committing to a monthly payment is usually not the same as buying X coffees for a month.
*or close to immediately if it is one of those annoying poor over places
I think the article did discuss your point, "But [with a cup of coffee] nowhere am I asked to 'subscribe' to anything. I buy it, enjoy it, and that’s it. I’m not committed to buy another cup ever again."
Maybe you wanted him to emphasize that particular aspect more.
I actually do 'subscribe to coffee' though; I get beans delivered by https://pactcoffee.com (UK only I think).
I can't recall the keyword for this in the realm of economics, but it's a weird thing to compare 'good value' across sectors. I do it quite often, wonder why I think X is such a rip-off when I won't even blink at Y - perhaps for that reason I've never had a problem with coffee-currencied pricing.
At least for consumables (coffee, groceries, SaaS in the sense that even if you don't consume a quota you consume a timeframe) I think there is value to be had in comparing their relative value, but only secondarily to comparison against something of the same type of course.
Most people can afford a thing for price x easily. Had they never balked at price x, they would pay 20 times x and that is entirely different number.
Meaning, it is not just about comparing value of goods. It is much more about keeping strategy that is easy to remember and execute, but allows you to keep savings.
This article frames the cup-of-coffee pricing comparison as: "$100/mo is less than a cup of coffee every day". But I most frequently see the comparison as: "$5/mo means giving up just a cup of coffee once a month".
In this formulation, I think it's a pretty reasonable comparison, since a prospective user doesn't have to sacrifice much (just a semi-luxury item, one day a month) in order to use your service. The author's criticisms don't seem to hold as much purchase (no pun intended) in this context.
I'd be curious to know if others think of cup-of-coffee pricing as $5/mo or $5/day. The only context where I can remember hearing per-day pricing is life insurance or supporting a child in a developing country.
If you spend this much in coffee shops, I highly recommend you try the Cash app, from Square. If you turn on the "coffee shop boost", you get $1 off of every purchase made at a coffee shop. There's a 30-minute recharge period required between purchases, and a $1.50 minimum purchase.
The sign up process is a little bit of a hassle, but for anyone buying multiple cups a day, it's probably worth it.
If you sign up via an invite code, you get $5 free (and your referrer does too). For anyone who wants it, my referral code is: https://cash.app/app/HSMSVXP, or you can just sign up at http://cash.app.
note: I do not work for the company — I just find this perk to be very handy!
I like coffee, but I've not bought even a 4€ cup of coffee in a few months. Actually I don't visit coffee shops a lot, I much prefer drink my coffee at home (or at work, where it's free)...
Also if they argued that 7€ would be just 2 beers per month... maybe I'd still take 2 beers over some ridiculous SaaS. TLDR: I don't like subscriptions.
If you really don’t like subscriptions, then people who are considering how to pitch their SaaS services probably shouldn’t put too much weight on your opinion...
Not to be rude — just pointing out that feedback from someone who is highly unlikely to purchase a type of product is less relevant.
For the record, I also don’t like subscriptions, and I probably put too much weight on my distaste when pricing my startup's products.
Yeah, but currently everyone seems to focus just on those few customers who like subscriptions. Nobody caters to the guys who don't like subscriptions. (Or maybe just nobody blogs about it)
Is it just a few customers who like subscriptions? I'm not sure this is the case. I know my startup has an iOS app with one-time IAPs, but we see way more usage of our Chrome extension, which is a subscription.
I have resisted the push to make or app subscription-based, since I personally would never buy an app with a subscription. But perhaps I'm out of step with the "kids these days"? I also have zero subscriptions to Chrome extensions, and we have plenty of customers there...
- my standard cup of coffee is not 5$. It’s a free perk on the job, coffee I drink at home and buy in bulk so I don’t think in terms of cups, or a 2€ expresso I buy to sit in some warm place waiting for someone or to use the toilets.
In particular for the last instance, it’s a cost I won’t skip because I bought some service online at the same price. I’d pay the 5$ service in top of my coffee.
- coffee I really want to pay for at 5~10€/$ is extremely good and comes from a specialized place that invests a lot in making good coffee and providing a place to enjoy it. It’s of tremendous value and not something I get from random starting services. TBH I’d value it more than a third backup of my photos through dropbox for instance.
Daily coffee comes with addiction (light), so even if you are used to the 5$coffee every day, you surely won't give it up for one day. It would be one uncomfortable day of crawing your coffee.
5$ per month is more what I think. Or per year, or sometimes even one time fee. Like buying a mobile app for the price of a cup of coffee. I see it as, I can just skip the next cup of coffee and I've already recouped the money.
$5 is far above the price of a cup of plain coffee in 100.0% of the world, rounding to the nearest 0.1%.
I agree though that the 0.001% ultra elitists who are destroying the world like to brag that they routinely spend this amount on one cup of plain coffee. When the revolution comes, these people will be the first against the wall and no one that is human will shed a tear at their loss.
An "X" every day reminds me of the guy who set out to eat McDonald's food every day. There's usually a large difference between doing something whenever you feel like it and literally doing it every day for eternity.
You can make a lot of money simply by selling the right to a cup of coffee every day in advance. A cup of coffee every day is equivalent to the price of a luxury car, from the point of view of a modern capitalist, and figuring out a way to charge people accordingly is a straightforward arbitrage.
Coffee is cheap. Anytime you go to a coffee shop and purchase coffee, you’re paying for everything that isn’t coffee: lease, labor, worker’s comp, milk, sugar, taxes, syrup, whipped cream, cups, lids, sleeves, straws, equipment maintenance, etc.
That's not really what the article is about. Getting coffee is low risk. Apps are high risk. There are so many garbage apps that aren't worth a single cent and choosing the right one is very difficult.
The cup-of-coffee pricing does make sense. It's not for everyone, there are folks who drink coffee at least 5x a week by paying for it. Those sort of statements are targeted to them. However the fundamental flaw is that in that thinking is with software, someone might just show up and offer free software, we don't see the same with coffee. What makes B2C software hard to sell today is the free apps. Consumer's are now price sensitive to useful apps and most companies think they can make it with ads.
The author misunderstands people. Nobody is doing the math or spending effort to otherwise rationalize spending decisions this way. It's an emotional plea - and we're all dumb so it works. Same reason all retailers are always having a 'sale'. We really are that stupid.
One more thing: things seems cheaper when priced over smaller intervals. For some reason, 50 cents per day sounds cheaper than $15 per month which sounds cheaper than $180 per year.
I don't know why. It's a bit like how everything ends in .99. even when you know it's being used on you, it still works.
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[ 25.1 ms ] story [ 156 ms ] threadYou aren't their target demographic.
People that do spend money on a cup of fast coffee would realize it's fine for their budget, and associate whatever offer with something affordable.
PS. I don't get the downvotes. Someone who says they won't spend $5 on a coffee because they are poor would be willing to pay for commenting feature on their website?! Something that they could get for free?
If SaaS is to price its service at $100/mo, then people for whom extra $5.00/day is a big deal won't be looking at this service at all, won't be contacting the owner about implementing yet another feature, etc. To get to $500/mo revenue, SaaS would need to find 5 owners.
So this isn't really against the idea, only against using coffee in the analogy.
One of the underlying principles, "Present costs as small pieces, and rewards as a large sum" is important, but there are many other relevant approaches, e.g. free trial, money-back guarantee, etc., etc. Effective marketing usually combines approaches. Analogizing to other small costs can NOT be the whole pricing strategy.
Also, what's a "coffee shop coffee"? Does that mean a place that charges more than $2 for a large?
I disagree with the posters above who say there's a 90% markup on the coffee. What you're buying at Starbucks isn't a coffee, but a coffee plus the right to sit at a table and use the wifi for an hour or two. And as OP points out, at the moment, this is pay-per-use: when I need a place to sit down for a bit, whether in my own city or some other city, or when I need a table to sit and chat with someone that's not in either of our homes, I buy the right to take a seat for $4. They even give me a cup of coffee to go along with it.
Making it a subscription would completely change the way I related to such a business. I mean yeah, I wouldn't have to drink coffee just to sit down. But I'd be thinking each month -- am I getting a good value out of this subscription? I'd be sitting a lot more in the shop than I normally would; which would mean more regular income for the owner, but less space for random people in a strange town who want to have a nice place to sit for an hour.
$4 for a one-off, no commitment, pay-as-you-go service with instant gratification (buy the coffee, take a seat) seems like a pretty nice deal to me; and it makes cities nicer places to be than if you had to have a subscription.
That's how accounting works. The 90% markup is on the coffee, and if you sell enough coffee you can cover the overhead of the cafe. I.e. there's margin and there's net income.
A 90% markup on a product (even when taken away) is exceptional. Yea a subscription model could make sense, many local coffee shops struggle and end up closing doors after a while.
I rather propose reducing the margin, have more people consume such Beverage out instead of home made, or worse: the vending machine at the office. But disrupting the market pricing practices is very difficult of course. I would like that, a cup of coffee without commitment, for a fifth of the current retail price, that's still a 50% markup. As a coffee shop owner, I would also like that: My counter visited by 10 times more customers, seeing happy faces for coffee at great, in fact adequate, value.
Just recently a fairly large one we lost had a fantastic ROI, about a 10% ramp time to the competition, and even had the CTO's buy in. But we lost and found out it was bc the VP was neighbors to the other sales rep and he convinced the CTO not to buy from us. From what I can gather from the other folks that were championing for me was mostly untrue FUD was used by this VP, all in an effort to help his buddy. Their cost was supposedly ~30% higher and I usually stomp that product to the ground - because of business cases.
The person whom I addressed that was going to run a business selling access to a commenting feature. https://news.ycombinator.com/item?id=22209411
The competition for that feature is free comments via Facebook so anyone who does not want to spend money has that ability. The other set of "competitors" is accessed for free via open source software that one can install.
As soon as the person signs up a first client, he or she would have to provide the service for some period of time. Just shutting it down won't be an option. Any and all businesses are a pain in the ass to operate.
Say that in order for this "business" to be viable in the eyes of the person running it ( not profitable, just viable ) it would need to eick out $500/mo in revenue.
To do that at $5.00/mo he would need to get 100 customers. That's a very tall order because the competition is free and price sensitive customers are going to go to a free service (facebook) or they are going to go to whatever service that shows up that will underprice the OP.
There's however another group of potential customers. They are people who for some reason need a problem of commenting solved and are willing to pay for it. Not a lot. But a some reasonable amount of money. What's reasonable? Well, a dinner for 2 in major cities is the USA is going to run you about $120. People who go out in those cities 4-10 times a month are the same people who have a daily Starbucks/La Colombe/Joe's Coffee/Pete's Coffee habit. They could make the coffee at home for $0.25 a cup just like they could make a dinner at home for $3/per person. Instead they choose to spend money not on the cheapest option but on option that simply solves their problem. They demonstrate it by buying Starbucks coffee and going out to dinner twice or three times a week.
It is much easier to find 5 of people who spend $100/mo on Starbucks who need to have commenting problem solved and convince them to spend $100/mo on it than to find 100 people who would spend $5/mo who think that spending $100/mo on solving their problem is too much. Why? Because the second group has already demonstrated that $100/mo is an expense they are willing to take.
Are your customers likely to be the kind of people that go out multiple times a month in expensive cities?
Some of your customers are small outfits (single person, or side-project of multiple people), a group of people where I'd expect "daily expensive coffee" is seen as more frivolous then spending the same on a sensible business expense.
And larger businesses don't think in those terms at all when budgeting, but much more in risk, saved employee hours, saved money spent on contractors handling the same thing, ... The "nice meal" analogy might work slightly better here, but also always has the risk of seeming out of touch for people from other regions.
Not for the vast majority of people.
That's from 2013.
The vast majority of people are not potential customers for a small SaaS startup charging money for "it would be nice to have" service.
I have a daily coffee habit precisely because it's significantly cheaper than having an eating out habit, while providing me with the same or better satisfaction.
Not only did it insult my definition of a 'nice meal', but also made me not want to give them any more money for 'nice meals'. A nice meal is 700 calories from healthy sources. An extravagant meal is the price they quote.
Similarly $5 is not the price of a coffee... It's about 30p.
But to be clear, when people refer to a "nice meal" costing $50-100, they're talking about an evening of being waited upon, not just the food. What you're paying for is service, ambiance, and restaurant location (overlooking a beach? at the top of a skyscraper?). It's not crazy for someone to decide to choose to indulge by buying nice food bundled with a relaxing experience, compared with buying nice food separate from a relaxing experience (going on vacation, going to a sporting event, having a massage).
But for the record, I agree that $50-100 is an extravagant meal. I think they chose the euphemism "nice" to make it sound like the tradeoff was for something not so extraordinary.
You're better pointing out how much it will cost a business in time and money to solve a problem themselves and compare that to the cost of your product. If you're selling too cheap, the problem probably isn't big enough or important enough.
Now for those who actually do buy their coffee daily, it still assumes Also,it still asdumes a sort of laziness in personal budgeting. If you keep a personal budget and diligently track luxury extras like buying coffee at many x the price if making your own, and a the other little things, then you're going to be very aware and deliberate about incurring additional expenses of that sort. And so if you position your value-proposition in terms of "only a cup of coffee" instead of the value-add of the service itself, then you're automatically poorly targeting your message to the entire population of people that keep careful budgets.
However, the Lionshare of consumers are not rationalizing their purchases like people such as myself often do (I know that comes off as incredibly pretentious, I'm just using myself as an example). I've gotten worse with my money (or better) intentionally so as not to be too cheap and give off the feeling that I'm tight. Normally I'd be that way, but people dislike those kinds of people...like a lot.
Overall just think of it as people paying a tax for something to further continue. It's a tax you don't have to pay, but can freely do so if you choose.
Too much subscriptions is death by a thousand cuts.
If I'm out of town I'll grab a cup at mcdonalds or something. The regular cofee maxes out around $1.59. Or I could go fancy and get a medium caramel macchioto for $3.25 or so.
So you're telling me I can get their software for $0.50-$3.25 a month? Not bad! :D
It's worth pondering why SaaS founders are so inclined toward underpricing. I think this is because SaaS founders, especially if they are developers, tend to be really frugal in their SaaS and PaaS spending. For example, they'll use things like their DigitalOcean Droplet cost or their GitHub Pro subscription as a point of comparison. They'll think, "Those services are so valuable, and so cheap, so why would anyone buy my thing for more? I certainly wouldn't."
But what they tend to forget or ignore is that, especially in B2B, it's not your buyer's wallet or money at stake. It's your buyer's (or your buyer's department's) allocated budget. And budget allocations for businesses in mid-market and enterprise are always measured in thousands of dollars, and sometimes in millions.
All they care about is spending the money wisely -- that is, appropriately trading money for revenue, for cost reduction, for time savings, for company cultural impact, or, ideally, for all of the above. At that point, pricing too low can be counterproductive: many enterprises will, consciously or subconsciously, worry that your pricing being that low means you are a counterparty risk and thus not even worth hiring as a vendor.
In the B2C space or in the "B2B tools for individual employees" space, to understand your pricing power requires understanding your buyer demographics. If you are selling productivity software to executives, they will think in terms cost relative to their time and the time of their assistants and subordinates. If you are selling hosting software to entrepreneurs, they will want low starting pricing but be OK with pricing that scales quickly with growth. If you are selling a video streaming or premium content service to consumers, they will anchor you against Netflix, Disney+, Hulu, and cable. Selecting your price is a very important part of your strategy and how your service is perceived. Picking the lowest price you can afford at reasonable margins, which is a kind of obvious default, is often a terrible strategy.
First, the price for a plain old cup of coffee at Starbucks differs from region to region, but it usually normalizes at around $1.80 (taxes included). Refills are $0.52. While, yes, Starbucks’s coffee-based offerings (like lattes) are more expensive, coffee from Starbucks is quite cheap and VERY consistent (and cheaper than at a mom and pop coffee shop).
Second, there is more value from that cup of Starbucks coffee than the coffee itself: the space, the music, the Wi-Fi, etc. Products that make this comparison usually don’t offer the same value proposition.
That sounds really cheap, or what's a 'plain old cup of coffee' - does Starbucks sell filter coffee over there?
Starbucks accounts (free registration) get free refills.
Own-cup gets a $.10 discount.
All a bit cheaper than a local coffeeshop, where drip would be $3-3.5ish and lattes $4-4.5ish, plus typically a $1 tip.
That’s because Starbucks is not a in a coffee shop business but in a coffee based sweet deserts business. You wouldn’t compare Coca-cola to espresso or filter coffee, so why put Starbucks in coffee category?
> First off, I would personally never buy a cup of coffee at Starbucks. But I understand why some people would.
He'll only take his Arch Linux Pinebook (ok, I just assumed that) into his "local roaster"
> The cup-of-coffee-fallacy becomes much more obvious when it comes to subscription services. I might buy a cup of coffee from my local roaster, and would happily buy many cups, some beans, and snacks on a regular basis.
I know that Starbucks tastes better than my drip machine, but I don't really care. Coffee is coffee to me, java junkie that I am.
Moka pots work too and are cheaper (though espresso machines are real cheap at least here in Europe) but the coffee isn't as creamy and it takes a few minutes to boil (even though it needs no attention). With a large moka pot it's easier to make large quantities though (but I hate stale coffee so I favor espresso machines). Still better than drip.
If you're really into coffee get a superautomatic machine. Best coffee I've ever had, instant and with zero effort.
There's a lot of fiddly cleaning involved - the grinder has to be cleaned meticulously after use as do the various bits of the espresso machine. The finely ground coffee is very sensitive to static so tends to jump/attach itself to white t-shirts and plastic kitchenware - more cleaning. All this cleaning is required even if you just want to make one espresso - otherwise later uses will have a nasty taint.
There's a lot of experimentation required to produce a decent espresso with crema from such a set-up. Depending on the beans, their age, the weather, etc., the fineness for grinding and how tightly you packed the portafilter would vary. On good days I was getting 3 out of 4 but that still meant 1 in 4 (or more) were dreck.
Moka pots are a pain to clean though, but you can buy a huge one to produce a large quantity.
I'm suspicious of the espresso machines, though, as they reportedly leech cadmium into the coffee. Not something I want to drink all day.
Also fresh high quality beans often result in costs per coffee a lot higher than your number. While I would encourage people to get into espresso as an hobby, I wouldn't recommend it to save on Starbucks cost.
Don't buy high quality beans.
IMHO the end result is influenced mostly by preparation and water quality. I'd had to double blind it, but I've had store brand and expensive beans and the difference is negligible.
Note: I'm in Europe. Market differences might apply.
The most important thing I found was not to use municipal water. Bean quality is far less important than water quality. Great beans and city water is undrinkable. Lousy beans and good water is tolerable in a pinch.
Committing to a monthly payment is usually not the same as buying X coffees for a month.
*or close to immediately if it is one of those annoying poor over places
Maybe you wanted him to emphasize that particular aspect more.
I can't recall the keyword for this in the realm of economics, but it's a weird thing to compare 'good value' across sectors. I do it quite often, wonder why I think X is such a rip-off when I won't even blink at Y - perhaps for that reason I've never had a problem with coffee-currencied pricing.
At least for consumables (coffee, groceries, SaaS in the sense that even if you don't consume a quota you consume a timeframe) I think there is value to be had in comparing their relative value, but only secondarily to comparison against something of the same type of course.
Meaning, it is not just about comparing value of goods. It is much more about keeping strategy that is easy to remember and execute, but allows you to keep savings.
In this formulation, I think it's a pretty reasonable comparison, since a prospective user doesn't have to sacrifice much (just a semi-luxury item, one day a month) in order to use your service. The author's criticisms don't seem to hold as much purchase (no pun intended) in this context.
I'd be curious to know if others think of cup-of-coffee pricing as $5/mo or $5/day. The only context where I can remember hearing per-day pricing is life insurance or supporting a child in a developing country.
The sign up process is a little bit of a hassle, but for anyone buying multiple cups a day, it's probably worth it.
If you sign up via an invite code, you get $5 free (and your referrer does too). For anyone who wants it, my referral code is: https://cash.app/app/HSMSVXP, or you can just sign up at http://cash.app.
note: I do not work for the company — I just find this perk to be very handy!
I like coffee, but I've not bought even a 4€ cup of coffee in a few months. Actually I don't visit coffee shops a lot, I much prefer drink my coffee at home (or at work, where it's free)...
Also if they argued that 7€ would be just 2 beers per month... maybe I'd still take 2 beers over some ridiculous SaaS. TLDR: I don't like subscriptions.
Not to be rude — just pointing out that feedback from someone who is highly unlikely to purchase a type of product is less relevant.
For the record, I also don’t like subscriptions, and I probably put too much weight on my distaste when pricing my startup's products.
I have resisted the push to make or app subscription-based, since I personally would never buy an app with a subscription. But perhaps I'm out of step with the "kids these days"? I also have zero subscriptions to Chrome extensions, and we have plenty of customers there...
- my standard cup of coffee is not 5$. It’s a free perk on the job, coffee I drink at home and buy in bulk so I don’t think in terms of cups, or a 2€ expresso I buy to sit in some warm place waiting for someone or to use the toilets.
In particular for the last instance, it’s a cost I won’t skip because I bought some service online at the same price. I’d pay the 5$ service in top of my coffee.
- coffee I really want to pay for at 5~10€/$ is extremely good and comes from a specialized place that invests a lot in making good coffee and providing a place to enjoy it. It’s of tremendous value and not something I get from random starting services. TBH I’d value it more than a third backup of my photos through dropbox for instance.
I agree though that the 0.001% ultra elitists who are destroying the world like to brag that they routinely spend this amount on one cup of plain coffee. When the revolution comes, these people will be the first against the wall and no one that is human will shed a tear at their loss.
You can make a lot of money simply by selling the right to a cup of coffee every day in advance. A cup of coffee every day is equivalent to the price of a luxury car, from the point of view of a modern capitalist, and figuring out a way to charge people accordingly is a straightforward arbitrage.
https://en.wikipedia.org/wiki/Perpetuity
I don't know why. It's a bit like how everything ends in .99. even when you know it's being used on you, it still works.