Hello there!
Software pricing is getting out of hand. With that belief, I want to discuss a few things.
Commodity software charging luxury prices
You see, the cost of software is getting just ridiculous. You start with a freemium plan, and before you know it, you're forced to upgrade to a more expensive tier, and suddenly you're paying a lot more than you expected.
Now, if the software is truly complex, I get that it'll come with a high price tag. But what baffles me is that even when there are several competitors in the market, the prices aren't dropping.
Take scheduling software as an example. By the time I launched NeetoCal, it had 30 competitors. When you have 30 players in a market, and all of them can do the same job, you're in the commodity business. Typically, commodities are priced low. But that's not what's happening here. What I'm seeing is commodity software being priced like it's a luxury item.
NeetoCal, along with the other products we're creating at Neeto, was developed to counter this trend, where commodity software companies feel justified in charging luxury prices.
Growing Neeto with the support of users
Neeto is a startup, and like any business, I want to see it grow and reach more customers. But let's be real—attracting new customers isn't easy. Most companies have entire marketing teams dedicated to running ads on Google, LinkedIn, and other similar sites.
The usual playbook is simple: companies take the money they make from existing customers and funnel it into Google ads to bring in new customers.
I've got two problems with that. First, it never felt right to hand over money to a trillion-dollar company. Second, I'm terrible at marketing. Not only am I not good at it, but I also don't have the energy or interest to keep up with monitoring keyword performance across multiple platforms week after week. It's just exhausting.
So, at Neeto, I decided to do things differently. We're going to price our products in a way that lets our existing customers help us attract new ones, cutting out the middleman. The money that would've gone to Google ads will instead be used to offer our customers lower prices.
Every time a NeetoCal customer shares a booking page, they're helping to spread the word about NeetoCal. Similarly, whenever a NeetoRecord customer shares a video, they're promoting NeetoRecord.
My marketing strategy is simple—offer Neeto products at low prices in exchange for organic, customer-led growth.
Being lean
We are building around 20 products simultaneously. On average, we assign two engineers to work on a Neeto product. Yes only two engineers per product. We do make exceptions as and when needed. For example NeetoCal has four engineers and NeetoDeploy has three.
Why not add more engines to a product and deliver features faster? Adding more engineers can provide features faster, but more engineers mean more meetings and more coordination. Standups will go longer. More engineers also mean more planning to see who will work on what next week. It means more time grooming the features.
At Neeto we are competing on price, so we must keep our costs low. Avoiding meetings helps us keep the cost low. So we put only two engineers on each product.
Being sustianable
At Neeto, we build affordable alternatives. Neeto products are very price-competitive. Our pricing is so competitive that people ask, "Is Neeto sustainable?"
Today, Neeto is not earning enough to sustain itself independently. However, Neeto's financial status can't be fully understood without understanding its relationship with BigBinary.
BigBinary is a Ruby on Rails consulting company that has been in business for over 12 years and is known for delivering high-quality work. For this reason, for the first 10 years of BigBinary, I always hired folks with decent work experience. I didn't hire anyone fresh out of college. Going forward, I would call these fresh-out-of-college folks "freshers" because that's what they are called in India.
A few years ago, I decided to hire freshers. The problem with hiring freshers is that no college teaches Ruby on Rails, so now I have to think of how to teach them. To solve this problem, I created BigBinary Academy . Along with BigBinary team members, I developed courses in Ruby on Rails, JavaScript, React, SQL, HTML, CSS, etc. After creating all these courses, we made them available for everyone for free so that others could learn without paying.
What does all this have to do with "pricing philosophy"? Hang on. I'll explain how all this relates to pricing in a second.
The next challenge is what these freshers will do after learning Ruby on Rails. After some basic training, most consulting companies put these freshers in the client project as "junior engineers" . These consulting companies bill a lower rate for these junior engineers.
BigBinary has a reputation for delivering quality work. Putting freshers on the client project would tarnish the brand. I needed to find a different solution.
The obvious solution was to give these freshers some dummy projects to work on so that they could learn Ruby on Rails. From my personal experience, working on dummy projects does not bring seriousness, and it's not fun. I wanted these freshers to work on real projects. They should see errors. They should have a reason to see the log and hunt for a transaction ID. They should get support questions from our customers. To solve this problem, I invented Neeto.
These freshers will work on Neeto and learn Ruby on Rails, React, and SQL in the real world. I pulled eight senior engineers from consulting work and made them "tech leads" in Neeto. And the work in Neeto began.
Now, the issue was who would be the "product manager." What features should they develop? What products to build? We were using Calendly and Loom, so we started working on NeetoCal and NeetoRecord. We have seen our customers use Zendesk and Intercom, so we started working on NeetoDesk, NeetoChat and NeetoKB.
We used Balsamiq, so we started building NeetoWireframe. We had seen our clients use JIRA and Asana, so we started building NeetoPlanner.
We didn't want to increase our cost by hiring tons of "product managers," so we let our engineers be the PMs. As I mentioned earlier, we assigned two engineers to each product.
These engineers would examine the competitive landscape, decide on the main feature to build, and then go and build it.
Not having many PMs kept our costs low. These engineers also wrote the help articles and answered support questions. They got on calls with our customers to see what problem they were facing, and the engineers decided what the fix should be.
Yes, I expect a lot from my engineers. Engineers working on Neeto products act as the CEO of the product. They have complete autonomy in shaping the product. The nature of the work demands these freshers to mature fast. Dealing with customers makes them understand how the software is produced and maintained.
How pulling senior engineers from client work to Neeto is helping you keep Neeto more affordable. Yes. Now, let's talk about money. All this context was to talk about the money.
Show me the money
When I hire freshers, I typically offer around 25,000 USD as the salary in India. For the first six months of their employment, they are in the "orientation" phase, where they learn various topics from BigBinary Academy.
After six months, they will join the Neeto engineering team, where they will work for 18 months. They have now spent a total of two years in the company, and the total cost of their time in the company is around $50K.
I believe in these two years, the freshers gain experience equivalent to four years of work experience in other companies. Now, I'll try to put these freshers into client projects.
To keep Math simple, let's assume that the salary is the same: $25k. At the end of the third year, the total cost to the company would be around $75K. If I want to recover the full $75K in one year of client work, then let's see what my billing rate needs to be.
Let's assume that the fresher will work 46 weeks out of 52. Each week is 40 hours. So the total working hours in a year are 46 * 40 = 1840 hours.
Now, let's divide 75,000 by the number of hours. 75000/1840 = 40.7
So, if I bill the fresher for the whole third year at $40/hr, the fresher would have paid for their costs at the end of the third year. In this Math, the BigBinary has not made any profit. However, the 18 months of work in Neeto didn't cost BigBinary anything. The whole 18 months of work were a surplus.
Now, let's look at the fourth year. If I can put the fresher in a client project in the fourth year at the same billing rate of $40/hr, then BigBinary will make some profit in the fourth year.
I've kept math simple by keeping the salary at $25K. The salary goes up yearly, but you get the idea.
This is how I've been running both BigBinary and Neeto. In the beginning, I mentioned that Neeto is currently not profitable on its own. Still, if you look at BigBinary and Neeto combined, the joint entity is profitable since BigBinary Consulting is making enough money to pay for Neeto's work.
Since I shared all this information online, I received some comments about why I'm sharing my secret recipe. Well, first of all, there is nothing secret about it. Secondly, execution is everything here.
Building a consulting company is hard. Building a product company is hard. Building 20+ products is even harder. Building 20+ products and running a consulting company is not for everyone. It requires a lot of discipline and a long-term goal. Taking VC money and going all in on one product is much easier.
Fighing on price
All business books say that competing on price is a bad idea. Well, the way I see it, "competing on price" is a core tenant of capitalism. How can you go wrong by "competing on price". I guess we'll find out. In a few years Neeto will either go bust or it will be a success. You know what I'm betting on.
I hope you enjoy using Neeto products, and if you have any questions, feel free to reach out to me at LinkedIn or Twitter.
