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Making Mistakes with Tacos: Product Pricing FAIL

http://0.gravatar.com/avatar/ad516503a11cd5ca435acc9bb6523536?s=68 Blake Bos wrote this on September 9, 2016

Taco failView Source

At HeyTaco! we’re working towards developing a pricing strategy that fits the realities of our customers’ lives. Right now there are over 1,800 teams with HeyTaco! installed, with an average team size of around 70 people. We don’t have many teams greater than 300 and a lot are below 70, and when they start using it no one wants to pay a big fee up front.

Our current pricing at the time was tier based and prospective customers frequently got confused by it and weren’t ready to pay if they didn’t know how HeyTaco! worked. We wanted something that was clearer and lowered the barrier to trying out HeyTaco! for the first time.

Tiered pricing

So we looked at what other people were charging at those fixed levels to small businesses because we needed to find the price point that was affordable to anyone. It looked like it was somewhere between $30-40 per month.

Then we changed our pricing to a new set amount for any teams up to 1,000 people, we were going to disrupt the marketplace for engagement software! This pricing was super simple, everyone pays the same amount!

Fixed pricing

Time for a reality check
Thankfully, we stumbled across Gail Goodman’s excellent talk. Gail is wicked smart, and when you watch her talk, it can be a gut check you need to get to her level. She made me feel sloppy, we were not operating at a Gail level.

After watching her speech, our 2 mistakes became pretty obvious.

Mistake #1: Not checking our business economics

Before we even thought about changing our pricing, we should have modeled out the economics given our current growth rates. This grand plan of ours would have had the effect of scaring the living daylights out of our investor, and it would also force us to capture the majority of the market in a short time to stay in business.

Capturing the majority of a market in a short time is not realistic when you’re just starting out. Do things that don't scaleAnd if you can only be successful by doing that, it’s going to hyper focus you on marketing at too early of a stage. You will live or die by how fast you can scale.

HeyTaco! is 7-months old now, and he needs some tender loving care. We’ll continue to focus our marketing efforts on building an audience, but we should mostly be focused on improving customer outcomes. To do that we need to spend the bulk of our time iterating on HeyTaco!.

If the only way we can survive is by focusing on stratospheric growth, the product experience will suffer, and we won’t retain our customers.

Mistake #2: Get advice from someone who’s done this before

This mistake we made could have been mitigated by simply asking our investor for their critique.  They most likely would have poked holes in this quickly concocted strategy, and we would have went back to the drawing board. In fact, just knowing we would have to run it by them probably would have shown us this pricing wasn’t realistic.

Listen to Stan Lee
Starting your own company requires discipline, you can do whatever you want whenever you want. But like Stan Lee said in his first Spiderman story, “WITH GREAT POWER THERE MUST ALSO COME–GREAT RESPONSIBILITY.”

We needed to slow down, we should have been doing the work to think through our business economics. That’s the responsible thing to do, it’s something successful companies like Constant Contact did when they got started and continue to do.

Back to the drawing board
The nice thing about being a small 2-person business is that you can correct a mistake with minimal effect. 33 people saw our new pricing, that’s a manageable mistake we can correct with some hands on customer service.

So we’ve decided on a new pricing plan. One we think is simple and fair, has equitable economics for both us and our customers, and reduces zombie revenue. We’ll be releasing it soon, and can’t wait to tell you the story behind it.

New pricing

If you ever have any questions, please comment below or email us at [email protected]; we’d love to hear from you.