A Developer‘s Guide to Pricing Your Side Project for Profit

Image Credit: Omid Armin on Unsplash

If you‘re a developer with a side project, chances are you‘ve thought about whether and how to charge for it. Maybe it started as a fun experiment to learn a new language or framework. But as you built something useful and saw people engaging, the thought of turning it into a real business entered your mind.

But pricing can feel intimidating, especially for programmers more passionate about code than customers. We tinker away for months without any idea what our efforts are worth in the market. When launch day finally arrives, slapping a price tag on our beloved creation feels like an awkward afterthought.

As a serial maker who‘s shipped side projects in spaces like machine learning, developer tools, and education, I‘ve experienced this struggle many times. I‘d pour my soul into an app in the dark, then set a price with little rationale besides covering my Heroku dyno.

After seeing lackluster results, I decided to study the pricing strategies of successful businesses and adapt them to my own projects. Through research and experimentation, I‘ve developed a framework for monetizing side projects that‘s helped me and other indie hackers turn our passions into profitable products.

In this post, I‘ll share that framework and key lessons learned along the way. While I‘ll focus on examples from the software world, the core concepts apply to pricing any product or service. Whether you‘re building a SaaS app, WordPress plugin, programming course, or open-source tool, thoughtful pricing can mean the difference between a money pit and a thriving side income.

Why You Should Charge From Day One

When you‘ve poured nights and weekends into a passion project, it‘s tempting to make it free (or never launch at all). Charging real money is uncomfortable. What if people complain it‘s too expensive? What if they laugh at our code…or worse, ignore it completely?

Resist that temptation. Placing a price on your product from day one, even a nominal amount, has several critical benefits:

1. It proves people value what you‘ve built. It‘s easy to get false positives by asking people if they "would" pay in the abstract. But seeing real transactions proves you‘re solving a real problem for customers. As Paul Graham advises, "charge a lot, because empirically, people who pay you a lot are much more likely to actually get value from what they‘re buying."

2. It keeps you motivated to improve the product. Working for free gets demotivating fast. Seeing even small amounts of money hit your Stripe account does wonders for morale. You feel like a "real" business owner serving paying customers, not just a hobbyist coding for imaginary users.

3. It sets expectations for the future. The longer something is free, the harder it is to paid later. People come to expect your work for no charge and feel cheated when you try to change the deal. By putting up a paywall early, even a small one, you condition users that this is a commercial product, not an open-source side project.

You don‘t need the perfect pricing model on day one. Start with a simple, fair price that pays you something for your efforts. Grandfather those early believers into a great deal, then focus on delivering them exceptional value in return. Over time, you can adjust your pricing as you learn what people are willing to pay. But by charging from the start, you build the foundation for a real business, not just an expensive hobby.

Three Common Pricing Strategies

Once you‘ve committed to charge, the next question is how much and using what model. While pricing is part art and science, most approaches boil down to three common strategies:

1. Cost-Plus Pricing

The simplest model is cost-plus pricing. First, you calculate the total cost of delivering your product to a single customer. That might include the cost of infrastructure, payment processing, customer support, and your own time. Then you add a profit margin on top, typically 50-100%, to arrive at your price.

For example, imagine you‘ve built a web-based code editor. You determine that your AWS hosting and RequireJS fees work out to $2 per month per user. You decide to add a 50% profit margin and charge $5 per user per month.

Cost-plus pricing ensures you have positive cash flow and don‘t lose money on every sale. But it has drawbacks:

• If your costs rise unexpectedly, like a cloud provider hiking rates, your margins can quickly evaporate.
• It optimizes for your costs, not the customer‘s perceived value. $5/month might be a steal if you‘re saving developers hours per day, leaving money on the table.
• It fails to account for competitors prices or broader market demand. Cost-plus pricing works better for stable, commodity goods than innovative new products.

In general, your costs are just one data point in a larger pricing puzzle, not the primary driver.

2. Competitor-Based Pricing

Another common approach, especially when launching into an existing market, is to research competitive offerings and match or slightly undercut their prices. The goal is to win customers through a combination of similar pricing and superior features or branding.

For example, imagine you‘re building a CI/CD tool for GitHub. You might look at the market leader, Travis CI, and see they charge $69/month for their basic plan. You decide to one-up them by charging $49/month for more build minutes and faster support.

Competitive pricing gives you a quick reference point and feels less risky than picking a number out of thin air. "If they can get away with charging $X, so can we!" But this approach has pitfalls too:

• If your feature set or target market differ substantially from competitors, your value will be different too. Following their lead could price you out of your true niche.
• You miss opportunities to stand out with a distinct pricing model, like billing per-user vs. per-repo or offering a self-hosted option.
• You risk a price war that tanks your margins in a race to the bottom. If the only difference is cost, someone can always undercut you.

Competitors‘ pricing can be a useful input, but it should never be the main driver. Focus on your own positioning and value first.

3. Value-Based Pricing

The most powerful but challenging approach is value-based pricing. Instead of looking inward at your costs or sideways at competitors, you look outward at the value you create for customers.

Through a combination of customer interviews, surveys, and actual usage data, you estimate how much each customer segment is willing to pay and what factors influence that number. The infamous Van Westendorp pricing sensitivity meter is one framework for sussing this out by asking customers four simple questions:

1. At what price would you consider the product to be so expensive that you would not consider buying it?
2. At what price would you consider the product to be priced so low that you would feel the quality couldn‘t be very good?
3. At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it?
4. At what price would you consider the product to be a bargain—a great buy for the money?

These questions reveal the range of acceptable prices and the optimal price point for each user profile. You can then devise pricing plans with the right features and value metrics to capture that value.

For example, a hosted Continuous Integration product might have pricing tiers like:

• Hobby: $19/month for 1 user, 1 concurrent build, community support
• Startup: $99/month for up to 5 users, 3 concurrent builds, email support
• Business: $299/month for up to 25 users, 10 concurrent builds, phone support

Each tier is designed to appeal to distinct groups willing to pay a certain amount for the value they get in return. The solo developer can‘t get support on the cheap plan, motivating an upgrade to the Startup plan with a team. The CTO gets enhanced support and more build scale, justifying the big jump to the Business plan.

Value-based pricing tends to align your incentives with customers and makes raising prices easier as you create more value. The downside is it‘s complex and time-consuming to execute well. You need substantial customer insights, not just a SWAGgy formula or competitor scan.

But for most products beyond simple utilities, it‘s the best way to maximize your revenue while delivering great customer outcomes.

Breaking Down Customer Segments

Whichever pricing strategy you use, a key first step is breaking down your potential customers into distinct groups with common needs and behavior. For software products, a good starting point is dividing users into two broad buckets:

1. Individuals – Solo developers, early adopters, and prosumers who use your product for personal projects or small business needs. They tend to be more price-sensitive and have simpler requirements.

2. Teams – Organizations and companies who use your product collaboratively across a group. They can range from small startups to large enterprises, but generally have more sophisticated needs and bigger budgets than individuals.

Within those segments, you might have more targeted personas like:

• Hobbyist Hacker: Builds side projects for fun or learning, not making money
• Freelance Developer: Bills by the hour or project and uses tools to deliver work
• Early Stage Founder: Leads a small startup and needs to move quickly while conserving cash
• Engineering Lead: Manages a dev team at a larger company and has budget for tools
• Enterprise Architect: Deploys new technology across big orgs with strict requirements

Each persona will have varying levels of price sensitivity, feature demands, and support needs. The Engineering Lead might expect dedicated account management and invoicing net-60 terms, while the Hobbyist is fine with a barebones free tier and community forum.

Your pricing should reflect those nuances. Consider an onboarding flow that routes users to different plans and upgrade prompts based on their use case and persona. Offer a mix of self-serve and high-touch purchase options. Structure pricing around value metrics that scale with customer growth, like number of build minutes, API requests, or storage used.

The goal is to have good, better, best pricing that gives customers control while steering them to their ideal tier based on value delivered.

Designing Your Pricing Page

Armed with your customer segments and pricing model, it‘s time to build your pricing page. This is a major conversion point in your funnel, so invest the time to get it right. Avoid the temptation to just copy-paste competitors or cram in every conceivable configuration.

Based on analysis of 50 SaaS pricing pages, the most common and effective structure is displaying three plans side-by-side, with a clear "most popular" or default option. Each plan should have a distinct name reflecting its purpose, like Starter, Pro, or Enterprise.

Via ProfitWell

The plan features build on each other from left to right, making it easy to compare and determine which is the best fit. Key value metrics like number of users, projects, or usage are called out. Clear calls-to-action prompt users to get started or contact sales.

Notice this page uses several persuasion techniques:

• Anchoring the team plan with a high-priced enterprise option
• Highlighting the middle plan as "best value" and placing it in a different color
• Showing each tier is "starting at" to reduce sticker shock
• Offering the enterprise plan price "by quote only" to enable custom deals

Aim to have your pricing and packaging make intuitive sense to customers while maximizing your revenue per user. You might gate certain features or support channels to incentivize upgrades. Or celebrate plan tradeoffs, like having a cheaper email-only support option without feeling nickel and dimed.

Ultimately, your pricing page is a living entity. Experiment with different models, page copy, and designs. Analyze the data on conversion rates and customer growth. Stay in tune with feedback to spot potential objections or points of confusion. Then iterate accordingly.

Avoiding the Race to the Bottom

One of the biggest mistakes I see side project creators make is setting prices unsustainably low to attract customers. When you‘re unknown and unproven, it feels "safe" to compete on price. Why risk losing sales by charging more?

But trying to be the cheapest option is almost always a losing strategy. You attract bargain shoppers who churn the second they find a better deal. You run yourself ragged providing support with thin margins. It‘s a treadmill that burns you out while competitors with a healthy business eat your lunch.

Instead, focus on being the best option for a specific customer set. Deliver unique value aligned with your vision and strengths. Charge a fair price that keeps you well-fed and motivated to make your product amazing. The right customers will pay for great tools and service.

Remember, you can always offer discounts, but it‘s nearly impossible to raise prices substantially without backlash. Better to start a bit high and come down if needed than be stuck at unsustainably low prices forever.

Iterating on Your Pricing

Your initial pricing model doesn‘t need to be perfect. Like your product itself, expect to put something out there, get feedback, and iterate towards better solutions. Grandfathering existing customers on old plans as you go is a great way to experiment.

The key is staying disciplined about tracking the data on your pricing changes:

• What impact does a new package have on conversion rates and revenue per user?
• How does giving a discount code affect customer lifetime value and churn?
• What features or value propositions resonate most during sales calls?

Combine quantitative revenue numbers with qualitative customer feedback. Running quarterly pricing reviews with your team is a good forcing function to collect those learnings.

Over time, develop strong opinions on the best model for your business. Maybe you realize consumption-based pricing like per-seat or per-project works better than a flat subscription. Maybe you find your enterprise sales cycle is too long and you need to beef up self-serve revenue. Strong products evolve their pricing as they grow.

Conclusion

Pricing your side project might never be as fun as coding, but it‘s just as essential to your success. By charging early and anchoring to value created, you‘ll build the foundation for a real business, not just a hobby that drains your nights and weekends.

Start small, charge a little more than feels comfortable, and iterate based on real customer feedback. Your future self stuck maintaining version 3.0 will thank you.

Have thoughts on pricing side projects? Shoot me a message on Twitter @YourName or check out my latest project at YourWebsite.com.