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The full story of why Less Annoying CRM is changing prices for new customers

Written by Tyler King

Note: In case you missed it, Less Annoying CRM will be increasing prices for new customers starting on July 22nd, 2020. This price increase will only impact new customers. Nothing will change for our current customers.

If you’re interested in the specifics of how the price change will impact you, you should read our blog post announcing the change. This post is meant more as a deep dive into why we decided to take this approach.

If you aren’t a customer yet, you can start a free trial prior to July 22nd, 2020 to lock in our lower price.

Hi, my name is Tyler, and I’m the CEO of Less Annoying CRM. My brother and I started LACRM in 2009 based out of my tiny studio apartment in San Francisco. I was 24 years old at the time, and to say I didn’t know what I was doing would be an enormous understatement (we seriously picked $10/month as the price because it was a nice round number). I can’t express how lucky I feel to have been a part of this company since then as we’ve grown to a team of 18 employees, moved to St. Louis, and taken over an entire floor of an office building. This has been an amazing ride, and I feel more committed than ever to continuing for decades to come.

None of our success up to this point would have been possible without our amazing customers. We now have over 22,000 users across almost 10,000 accounts trusting us to help run their small businesses. One of the reasons we’ve never wavered from our focus on serving small businesses is that you couldn’t ask for a nicer group of people to work with. I feel truly indebted to all of our customers for getting us to this point, and that’s why I want to be totally transparent (maybe too transparent, I have a habit of over-explaining things, sorry) about this pricing change. Additionally, since many of you run your own businesses, I thought you might be interested in a deep dive into what went on behind the scenes.

Our goal with this price change

Over the years, we’ve had countless customers reach out to tell us how happy they are with Less Annoying CRM. Sometimes they compliment the product. Sometimes they compliment the customer service. But no matter what specific aspect of LACRM they enjoy, all of the positive feedback has something in common: Customers are relieved to find a software company they can trust.

Anyone who’s been in business for long enough has been burned by a software vendor closing down because their business model wasn’t sustainable, getting acquired and abandoning their old customers, jacking up prices to the point of being unaffordable, or offshoring customer service to cut costs. Most of the positive feedback we get from customers in one way or another is an expression of the fact that they finally believe they can trust one of their software vendors.

I take that very seriously. I recently decided that I want the word “trust” to define the rest of my career. 30 years from now when I’m approaching retirement age, I’m going to judge whether or not the whole thing was a success by asking one question: Were customers right to trust Less Annoying CRM?

That question underpins this decision to raise prices. We have three main goals with this price increase, all of which are designed to build even more trust with our customers:

  1. Trust means reliability. Once someone starts using LACRM, they need to be able to rely on us indefinitely. As I’ll explain below, while we’ve been able to get to this point with our $10/month price point, we have low margins, which makes us more fragile than I’d like to be. The primary goal of this price increase is to make our business model more sustainable so that we’re sure we can stay committed to serving all of you for decades to come.
  2. Trust means predictability. I believe customers will benefit from LACRM having better margins, but no one wants to deal with constant price fluctuations. We wanted to pick a price that isn’t just appropriate for 2020, but that we can grow into. It took us over a decade before our first price increase, and I’m hoping we can make it that long again before our next one.
  3. Trust means honoring existing commitments. While we haven’t explicitly promised our existing customers that we’d never raise prices, they signed on with us at $10/month, and it would feel like a bait and switch to raise prices on them now.

I believe that this price increase will strike the right balance, and align interests between LACRM, our existing customers, and our customers of the future. This puts us in a position to deliver on the trust you’ve placed in us.

Read on to learn more about why.

Why $10 isn’t enough

We’ve taken great pride in never having a price increase in over a decade in business. Most of our competitors who used to be in our price range are now either out of business or significantly more expensive, because the reality is that building and hosting software is expensive, and pricing it at $10 per user per month doesn’t leave a lot of room for error. As we transition from a scrappy startup to a stable, (hopefully) multi-generational business, it’s time for us to improve our margins and make the business more sustainable.

Here are some reasons our margins were a bit tight at $10:

Inflation

The most obvious thing that always forces price changes over the long term is inflation. It’s slow, but after a decade in business, it does add up. The $10 price we originally chose in 2009 is now worth more like $8.37. That might not seem like a huge difference, but a 16% decrease in revenue eats into our already thin margins.

As I explained above, our goal with this price increase isn’t just to find the right price for 2020. We want a price that will allow LACRM to thrive and continue serving our customers for years to come. A $15 price point will make up for the margin we’ve already lost due to inflation, and build a bit of buffer for us to grow into as inflation continues.

Our biggest cost: Payroll

Software is an interesting business because the“costs of goods sold” are almost zero. Sure, we have some costs associated with hosting, backing up the database, etc. but the marginal cost of each new customer is pretty low.

The reason software is expensive to make is the people. Everyone knows that hiring programmers is expensive, but that’s actually not our biggest cost. It turns out, offering really good customer service is also expensive. You have to hire good people, pay them well, and have large enough of a team that they can spend time on each and every customer interaction instead of flying through them as quickly as possible. Believe it or not, we spend more on the customer service team than we do the product team.

Not only are people expensive, but those costs increase as the team becomes more experienced. It’s really important to me that we have continuity among our staff so that customers can rely on a consistent experience. I’m proud to say that of our 18 employees (counting the two co-founders), seven have been here for more than five years. But of course, more senior employees mean higher payroll costs. As the average tenure on the team increases, it becomes harder to give them the raises they deserve while still investing in growth.

Product improvements

For those of you who have been using LACRM for a long time, you know how much the product has evolved over the years. When we initially launched, we didn’t have tasks, a calendar, custom fields, an API, a workspace, or any integrations. I honestly can’t believe anyone was willing to pay for it!

Fun facts: 1) This is what the original version of our software looked like. 2) Our oldest customer that’s still paying us signed up January 21st, 2010. He’s seen some changes.

Whenever someone buys a product, in theory they receive some value from it, and they pay for it so both parties benefit. The question is how much of the value goes to the buyer, and how much goes to the seller. It’s always been our goal for the vast majority of the value go to our customers.

If our product was worth $10 when we first launched, it must be worth a lot more than that now. And since we’ve never raised prices, 100% of that increase in value has gone to customers. If we had more money to invest in product improvements, customers would be even better off, but with our slim margins, it’s been a long, slow journey growing our product team.

By claiming just a small amount of that extra value in the form of slightly higher prices, we’ll be able to invest even more in the product. I’m confident that with the extra $5 in revenue, we can provide significantly more than $5 in extra value to customers, so this should be a win-win.

We don’t monetize you in other ways

In preparing for this price increase, I took a look at our competition to see how they’re priced. On the surface, it looks like there are a few products with free tiers, almost all of the cheapest CRMs cost exactly $12/user/month (did they have a price fixing meeting and forget to invite me?), and everyone else is $19/user/month or above. So on the surface, we’d be going from a bit below the cheapest tier to a bit above.

But if you look a bit deeper, there’s more to it than that. First off, literally every single CRM I looked at uses the same trick: They list a monthly price, but they actually require you to pay annually to get that price. If you switch over to the real month-to-month prices, they all end up being significantly more expensive than what they list on their website.

Additionally, all of the lower-priced CRMs have multiple pricing tiers, and you can tell they view the cheapest one as a second-class citizen. They really want people to sign up for the more expensive plans. This is especially true with the free CRMs. Obviously they can’t make money off something that’s free, so those are loss leaders to drive more leads to their real product which is in most cases significantly more expensive than LACRM.

What I realized is that all of these other CRMs have other ways to monetize their customers. The base price is just the starting point for them. For us, we have to charge enough to support our business, because that base price is the only money we make.

I feel like being at roughly the same price as our cheapest competition before factoring in all their upsells and pricing tricks is the right place for us. It’s enough for us to have a sustainable business, but it keeps us as one of the best values in the industry.

Options we considered before landing on this plan

When we first decided that we’d need a way to charge more than $10/month, it was natural to consider adding a higher pricing tier. This was appealing because while many of our new customers will be fine paying more (we’ve literally had customers ask us to raise prices so they know we won’t go out of business), there are some businesses out there that really need to keep their costs low, and we’ve always felt proud to serve them. By adding a second tier, we’d let the price sensitive customers keep their low price, and that would be subsidized by the less price sensitive customers.

We must have brainstormed a million different permutations of this. Should we have two or three tiers? Or maybe we should charge per “product” so if we add other things like invoicing or web forms, people could buy those a la carte. What should the extra tiers be priced at? Should the CRM even be required, or will people be able to buy stand-alone versions of each additional product?

While we had a lot of interesting ideas, we kept getting stuck on something: Everything we were coming up with was complicated. Even moving from one tier to two introduces friction that would undermine our focus on simplicity. For starters, customers would have to pick which tier to buy. And for multi-user accounts, there might be an issue if some users need advanced features and others don’t. And what if someone wants to downgrade? Do they lose data linked to the premium features?

It wouldn’t just make the pricing more complicated, it would make the product more complicated. If you could buy different pieces of our functionality separately, that would mean each feature would have to be able to operate without the presence of other features, so it would be more like using a bunch of different integrated products rather than one unified product. Looking at our long-term roadmap, we decided that a key to keeping the software simple is making sure that every user has access to every feature so they can all work together in harmony.

There’s also the issue that our name is“Less Annoying CRM” and, let’s face it, multiple pricing tiers are annoying. We don’t want to feel like we’re constantly nickel and diming you, and we don’t want you to be confronted with a dilemma about what features you’re really willing to pay for. Life is simpler when there’s just one price.

Finally, and this might actually be the most important point, it was clear that adding additional pricing tiers would pull our focus away from our core product. Think about the math: If most customers are still paying us $10/month, and let’s say 25% of people would choose to upgrade to the higher pricing tier, that means we’d need to charge $30 for the higher tier to make the same as we’d make by charging everyone $15. $30 is three times the price of our product we’ve spent a decade on. We’d need to build something really different from our core CRM to justify a 3x price increase, and as we brainstormed that possibility, it kept leading us to a future where we lose our focus on building a simple CRM for small businesses.

So while it hurts a bit to raise prices on all new users knowing that for some people, every dollar really matters, it ultimately was the only way for us to achieve the goal of improving our margins without losing focus on serving our existing customers.

What this means for the future

That last point is the perfect segue into talking about the future. The beauty of this price increase is that it will give us the margins we need to continue investing in LACRM, and since it will apply to all new customers, we won’t have to invest any extra time in trying to justify the higher price with gimmicky features that aren’t really what our core customers need. Instead, we can stay laser focused on doing what we’ve been doing this whole time: making simple CRM software to help small businesses succeed.

Current customers will keep their existing price indefinitely. New customers will still be paying among the lowest prices in the industry. We’ll be able to continue offering the best customer service in the industry. Our product team will be able to accelerate its investment in improving the product.

All of this means that you’ll be able to trust us to serve you for decades to come. I can’t wait.

Posted on Jun 22, 2020
Filed under Company Blog
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