5-second summary
- Creating a pricing model that is consistent, transparent, and easy for customers to understand can help take the friction out of purchasing decisions.
- For startups, gaining users is more important that maximizing revenue per user.
- It’s better err on the side of pricing too low. You can always increase prices later.
- If you must increase prices for current customers, give them plenty of notice first.
This article is part of our series on using the flywheel model to grow your business. Check out the complete collection here.
Pricing is one of the most critical strategic maneuvers for any business. For that reason, it can also be one of the most contentious areas for your teams. Finance, marketing, sales partners… there are countless stakeholders you need buy-in from, and no shortage of discussion along the way.
When I look at Atlassian’s always-evolving pricing strategy, it’s clear that the way we’ve sidestepped many headaches is by leading with the most important teammate in mind: the customer.
When Mike and Scott launched Jira in 2002, they charged $800 for an unlimited-use license. They had no market analysis, no customer-demand data, and no fancy consulting firms to help them come up with the price. They simply wanted Jira to be affordable for every potential customer.
In fact, when writing this article, I asked Mike how they came up with the $800 figure. His response: “No idea. Absolute stone-cold punt. In fact, we immediately gave the first few customers 25% off because we thought $800 was too expensive.”
Well then! It’s safe to say that pricing in Atlassian’s early days was less of a science than a gut feeling. But while our pricing decisions have certainly gotten a tad more complex since then, our principles really haven’t.
Over time, we’ve built some guiding philosophies on how to price products fairly while growing our business. Here’s the approach we’ve taken, from our start-up days through today.
1. Make it easy
As the team started selling more and more Jira licenses, there were a few business constraints that logically drove those early pricing decisions. Being an Australian startup offering IT tools in 2002 meant having very little access to capital to grow the business. Very little capital, in turn, meant Atlassian was unable to invest in many standard go-to-market functions like sales.
To remedy this, we adopted a self-serve model that relied on one key principle: make things easy for customers. For example:
- Make it easy to start: Jira was available online for everyone to try for free.
- Make it easy to buy: All pricing and purchasing information was available online, and the entire purchase experience was self-serve.
- Make it easy to afford: Jira was affordable for any team and easily justified within a department’s existing budget.
The result of the above is that teams began adopting Jira while avoiding many hurdles standing between teams and new technology at the time. There were no RFPs, contract negotiations, proof of concepts, or competitive bakeoffs. Customers went online, purchased a license themselves, and unknowingly taught Atlassian a valuable pricing principle.
2. Price for volume
The key to building a flywheel is to always optimize for volume. The more happy customers you have, the more they tell other people about your products and, thus, you get more customers. In the early days, having more people using your products always beats maximizing revenue from those customers.
Even today, with ever-changing markets and competitors, we continue to focus on ensuring that the value our products provide is orders of magnitude greater than the prices we charge. Continuing to price for high volume is a critical reason why our new-customer numbers have grown year-on-year every year since we’ve been in business.
Once Jira was up and running, Mike and Scott did something that went against the advice given to most startups; they launched a second product called Confluence. It’s up for debate as to whether it was some incredible insight that the greatest software companies in the world are all multi-product companies, or whether Mike and Scott simply realized that there was a problem around documentation that they could solve. Regardless of how the decision was made, the launch of Confluence immediately transformed Atlassian into a multi-product company. But how to price this new offering?
3. Be consistent
Naturally, customers will compare the prices of new products from a company to the products they already own. It’s only when you deviate from your current pricing model in size, unit, you-name-it, that you create blockers to business. Part of Atlassian’s “land and expand” strategy has been that all our products are priced as similarly as possible.
This may go somewhat against the conventional thinking of pricing for the maximum revenue within your product’s market, but it does align with how your customers are already used to thinking about (and budgeting for) your products. By pricing Confluence similarly to Jira, for instance, we saved our customers and ourselves enormous energy. We didn’t have to educate them again on new total costs or tier-based structures, because they’d already bought from us. And, therefore, they were more likely to again.
That’s not to say you won’t introduce new pricing plans as you grow with new buyers or enter into new markets. Obviously, as Atlassian matured from two products to over a dozen within a wider marketplace, we’ve allowed for more flexibility across our overall pricing model, e.g., agent-based pricing for Jira Service Management. However, any new pricing scheme that represents a different approach from our historical model requires a high burden of proof that the potential outcome greatly outweighs the additional confusion we introduce to our customers.
4. Give everyone the best price
Want to know how much Jira costs? Look right here. Confluence is here. In fact, all of our product pricing is available on our website.
This approach may not sound too revolutionary until you go visit any of the top enterprise software companies’ sites and try finding their pricing info. Even the few that divulge pricing will probably immediately guarantee a lower one if you get on the phone now and talk to a sales rep TODAY! While common practice, this ambiguity in pricing goes directly against one of Atlassian’s core values: “don’t f&$% the customer.”
The only way you can guarantee you’re treating your customers fairly is by treating them all the same. Thus, discounts and one-off pricing negotiations are absent within Atlassian’s business. Once you charge one customer less than the rest, you are f&$%ing your customer base.
Second, as soon as customers know they will get a better price if they call and negotiate, they will do exactly that. This introduces another unnecessary step in the purchase decision that requires headcount, is expensive, and slows down your business.
If you’re starting a company, it’s worth saying no to this whole world now by making pricing transparent and non-negotiable. If you’re an established company with a full-fledged sales team already used to negotiating on a daily basis, it will be more difficult to take that power away from them, but still worth it. Any dollar going towards pricing conversations is one less going towards building better products.
5. Simple > flexible
Pricing is an incredible lever due to the relatively infinite number of options available to your organization. In my experience, pricing strategies tend to have their own version of entropy. Unchecked, your pricing strategy will end up in chaos.
As soon as your first product launches, you’ll probably start thinking about a second one, then add-ons, then premium features, and then eventually… how the heck do you keep up with pricing this complex, growing portfolio?
Should customers have endless flexibility in choosing which services to purchase and how much to pay for each? If your business relies on a relatively small number of large and complex transactions, then you can absolutely afford this type of flexibility with your customers. However, for a high-volume flywheel with a non-traditional sales model like Atlassian, the answer is simplicity.
After a decade of adding complexity into our pricing portfolio, we settled on an editions-based approach to pricing our products. We believe that offering four separate editions of our products, and applying that approach consistently across them, provides the appropriate balance of simplicity in offerings while also enabling a degree of choice for our customers. These editions are:
- Free → Provides the core set of features limited by the number of users a company can add.
- Standard → Same set of core features for teams with greater than 10 users.
- Premium → Enables a set of advanced features for organizations with more complex use cases.
- Enterprise → Provides additional scale, security, and sophisticated administration features.
Whether a customer selects the free or enterprise option, they’ll have access to the core features of the product. Giving customers more value than they’re asking (or paying for) might seem counterintuitive, but in the long run, it’s this simplicity that keeps products easy to sell online. When you’re optimizing for volume, always aim for a simple and low-touch approach.
6. Make entry inexpensive
It’s impossible to know whether you priced a new product correctly until it’s in the market. And if you’re going to be wrong in the beginning, it’s better to be wrong by being too cheap than too expensive.
For example, remember that low starting price of $800 for Jira? Well, what if I told you we actually went lower? When the 2008 recession struck and businesses buckled, Atlassian wanted to help in a small way by effectively giving away our licenses. The plan was that customers could pay ten dollars for ten users and we then would donate the proceeds of those sales to charities. We called these plans our “starter plans.” It was supposed to be a temporary promotion – until it transformed our business.
Immediately, thousands of new customers adopted these starter plans. We started attracting an entirely new cohort of customers for whom even $800 was too expensive. And while the bulk of these customers were small companies, we also saw teams within large companies adopting these starter plans. With this one change, we massively grew our customer base, opening the door for even more expansion by adding users and offering more products to those customers.
While the starter license program was effective, in March of 2020, we did one better. We eliminated the $10 requirement and now made the first 10 users for our products absolutely free. The result was that nearly overnight we saw the number of signups of our products triple, resulting in a massive acceleration of our overall paid customer base.
7. Beware of price increases
As you and your customers continue to grow together, there will also probably come a time where price increases are warranted – if not vital – to continue driving value as you both scale. The reality is that all software companies, at least enterprise software companies, eventually rely on this practice. Some do it in small increments over a long period of time. Some do it in a more drastic fashion, like tripling their price overnight. Some throw away their business model and come up with a different one.
Whatever you do, know that raising prices can create a one-time spike in growth. In order to maintain that growth in the following year, you either need to find another growth strategy or, as many companies do, raise prices again.
If you look at Atlassian’s history, we’ve applied a variety of approaches to price changes. We implemented small increases for a few years in a row. We tripled prices overnight. And we’ve changed pricing models entirely to better adapt a product to a specific market. The key to every one of these decisions relied on two factors: how it would impact our growth over multiple years, and how we would apply these changes to our existing customer base.
Regardless of a customer’s size, Atlassian gives lots of advance notice to help businesses stay afloat anytime there’s a change in prices. In fact, for those who haven’t budgeted for changes, we allow the chance to renew early at their current rate for up to two years – which means a lot of extra time to potentially adjust budgets as needed. Keeping this in mind is key to retaining customers when prices change.
Price increases are never enjoyable, but providing ample runway can at least make them manageable.
8. Trust your gut, not the spreadsheet
On top of all the internal counsel mentioned above, you’ll also collect plenty of external advice on price as you grow from startup to industry leader. Believe me, Atlassian has heard its share from pricing firms and consultants along the way. All have provided us with fancy multivariate analyses, tons of good data, and resources with lots of prestigious logos. Many provided us with the conviction we needed to make some of our biggest changes.
But remember: no one knows your business as well as you.
More importantly, it is you and your company that must explain these changes to your customers. When it comes time to make that call, don’t lead with the numbers. Lead with what you can confidently and personally explain to your customers.
Don’t f@$% the customer
Price can be more than an indicator of your product’s value. It can also indicate your company’s values. Fees that are high or sudden or hidden tell a customer they’re not respected as an equal partner – which means they probably won’t be your partner much longer.
From our early renewals to transparent prices to lower costs in market downturns, the one constant is that we value our customers first and foremost. After all, this whole pricing journey started with a guesstimate on what seemed reasonable and inexpensive for everyone. Nothing was written in stone – just a stone-cold punt towards fairness.
Hungry for more? Check out the other articles in this series.
Thanks to Jeremy Grace for his contributions to this post.