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Introducing Transparent Pricing: What Your Money is Used for When you Purchase a Buffer Subscription

13 min read
Joel Gascoigne
Joel Gascoigne CEO / co-founder @ Buffer
Introducing Transparent Pricing: What Your Money is Used for When you Purchase a Buffer Subscription

One of the things we’re incredibly excited about at Buffer is transparency. A big part of that is because being transparent simply feels like the right thing to do, intuitively. That by itself, seems reason enough to pursue it.

We’ve seen some incredible things happen since we started to focus more on transparency in the last few years. Transparency breeds trust, and trust is the foundation of great teamwork.

To put things into perspective, here are a number of things that we’ve made transparent so far:

Right here on the Open blog, we also share openly about many other areas that you can browse and read through at any time.

If we think about all the things we’ve made transparent, they oftentimes largely affected team members and partners directly. And we’ve been absolutely overwhelmed by the kind encouragement from customers and anyone who came across our transparency changes.

Extending transparency to customers and people using Buffer

Extending transparency directly to our customers, by making it very easy to understand why something costs as much as it costs, hasn’t been something we’ve done before. And exploring that idea always got many of us very excited.

A quotefrom Semco, deeply resonates with me and a lot of other team members:

“On several occasions I have taken our internal profit calculations out of one of the director’s briefcases and given the customer a copy. Here is what we plan to make as a profit, I’ve said. Do you think it’s too much? What do you suggest? What should we do? Many times this is the first occasion in which a customer has seen a profit calculation, and he’ll pinch himself. But this strategy almost always succeeds.” – Ricardo Semler, CEO of Semco, Inc.

What’s even more interesting is that some amazing companies have already started to do this even more pro-actively. One great example is Everlane, which shares very explicitly how their prices for their clothes come about. Check out their Slim Sweater Blazer for example (which I really like btw!).

What’s interesting with both Semco and Everlane is that they have clear fixed costs – they produce physical goods and how a price comes together is very helpful to have broken down.

With building software, it’s often more obscure with what goes into producing an app or a product. With every new “unit” that you produce, you don’t necessarily incur more costs, so setting a price can often seem arbitrary.

We tried to change this and think hard about what someone pays for when they purchase a Buffer subscription.

What your money is used for when you purchase a Buffer subscription

Breakdown of the costs which your paid Buffer plan helps us to cover:

blog-postnew

The table below breaks down our monthly costs and equates each cost to the portion of the $10 Awesome Plan subscription payment. So we can see below how much of the $10 goes to each of our costs:

Monthly Cost Percentage of Monthly Cost Cost as portion of $10 Awesome Plan Payment 
Team Member Salaries $223,939.74 65.6% $6.56
Servers $22,890.76 6.7% $0.67
Retreat $17,588.15 5.2% $0.52
Fees to Stripe $13,885.42 4.1% $0.41
Advertising & Marketing $6,302.40 1.8% $0.18
The Tools We Use $14,161.79 4.2% $0.42
Health Insurance / Workers Comp $6,635.93 1.9% $0.19
Office Rent $7,175.53 2.1% $0.21
Payroll, Legal, Accounting $5,883.06 1.7% $0.17
Computer and Equipment $2,577.81 .8% $0.08
Kindle books & Culture $1,593.5 0.5% $0.05
Internet $1,292.58 .4% $0.04
Office Supplies & Community $1,120.48 .3% $0.03
Other $488.79 .1% $0.01
Profit $15,666.63 4.6% $0.46
Total $341,202.56 100% $10.00

Let’s break it down a bit further and talk about what each item contains and amounts to. Here we go:

Team member salaries: $6.56 = 65.6%

As you can see from above, team member salaries makes up 65.6% of any $10 that we receive from an Awesome plan payment. Our total monthly cost for salaries is $233,939.74.

The way we come up with salaries is that we have a simple salary formula to determine each person’s salary when they join Buffer. Here is a breakdown of how this works out for individual team members:

salaries

If we break this down even further and group the individual people by the area that they work in, we would get this breakdown:

salary area

You can see that 32% of our total salary costs are for support, 60% are for product development and 8% of the cost goes towards marketing.

It will be interesting to observe how this split changes over time as we grow the team based on various needs we see emerging.

Servers and Hosting: $0.67 = 6.7%

The Buffer product is built on top of many services hosted on Amazon Web Services. Here are some of the AWS tools we use:

  • Elastic Beanstalk
  • EC2
  • SQS
  • Redshift
  • Elastic Map Reduce
  • Route53
  • S3

We have about 60 of our own EC2 servers continuously running. We use Compose to help host and maintain our production application database.

Our AWS bill for October was $10,740. Our Compose bill has grown considerably since the start as our user base has grown. Our production database is the core of what we’ve built, we make sure this is provisioned to scale. With the help of MongoHQ’s expertise we’re able to ensure our database scales as our usage grows, is speedy and highly available (through the use of replication and backups). If an unforeseen circumstance occurs, we have options to automatically fail over or recover with backups. We look at them as our database ops team so we can focus on Buffer. So to break it down into the main two expenses that make up “hosting”, we get:

  • Compose.io: $13,486/mo
  • Amazon Web Services: $10,740/mo

Our monthly cost for servers and hosting is $22,890.76 on average per month, which is 6.7% of our total costs

Retreats and Culture: $0.56 = 5.6%

As Buffer is a fully distributed team, a lot of the traditional and oftentimes great ideas to make team members’ lives easier don’t quite work for us.

Instead, we’re doing a number of things to help us build a stronger team and great working environment that work well for distributed teams. Here is a rough breakdown:

  • Retreats: Every 5 months we go on a team retreat. The whole team gets together for about 10 days, works on fun projects and also gets a chance to bond in person. More about retreats here. Here is a breakdown of the cost of our most recent retreat in New York City in September:
Category Expense
Hotels $55,000
Flights $25,000
Lunches $3,500
Dinners $7,000
Activities $15,000
Co-working Space $8,000
Total $113,500

Since we don’t go on a retreat every month, we’ve averaged out the amount, and it comes out at around $15,775.94 (that’s about 88.5% of the total culture and employee perks breakdown).

We have two more unique Buffer perks that account for a smaller percentage of the total:

  • Free Amazon Kindle and the Kindle Books program: Everyone at Buffer gets a Kindle at the start of their journey with us and they can then can request any Kindle book at any time and Buffer will gift it to them for free. We’re roughly spending $400 on this every month, and it’s been incredible valuable.
  • Jawbone UP: Whenever someone joins the company, they will get a free Jawbone UP wristband, to help them track sleep, steps, weight and more. We also share stats with internally with the team. Each Jawbone is about $150, and there’s some wear and tear so people roughly replace theirs once a year through this program.

Averaged out, this comes to $19,181.65 per month, which is 5.6% of our total monthly costs.

We work with some fantastic teams outside of Buffer who help us with some key tasks, such as legal, accounting and payroll, and health care benefits.

Here’s how it breaks down roughly:

  • Accounting, payroll, expenses, finance – cost: $3,428: We feel very grateful to be working with the team at Foresight, who take away a huge amount of work when it comes to these tasks. They do a fantastic job and are very responsive. I would say the work they do is the equivalent of at least 1-2 full-time team members.
  • Legal – cost: $2,455: Another crucial amount of help we get is on the legal front from the team at Wilson and Sonsini. We’ve been working with Yokum and his team for over 3 years (he writes a phenomenal blog with help on fundraising and any questions about legal and startups). As you can imagine, because we’re so transparent, being able to work with someone that helps us figure out some of these changes to a more open and transparent company from a legal perspective is incredibly helpful.
  • Health care and workers comp – cost: $6,635.93: We offer all team members health benefits that we cover 100% (and 50% for dependents). What’s interesting about this is that the amounts we pay for health care per team member varies greatly by country and even state. Within the US, it’s around $400-500 per team member, and for Steven, who lives in Taipei, it’s only around $35/mo to cover his health care costs. Truly fascinating how systems work around the world!

Averaged out, this comes to $12,518.99 per month and makes up a total of 3.6% of our monthly spending.

Merchant Fees to Stripe: $0.41 = 4.1%

One of the services we’re incredibly grateful for is Stripe. They make it super easy for us to handle payments coming in, changing plans, providing refunds and more.

As you can see, they make up about 4.6% of the total amount of any $10/mo payment (or any other payment) we receive from our awesome customers. Stripe’s standard fee’s are 2.9% + $0.30 and luckily, since we’re processing a larger amount (~$450k/mo), they gave us a discount. Right now, this is what we’re paying Stripe:

2.2% + $0.30. On a regular $10/mo payment, that would mean that Stripe takes around $0.56.

Averaged out, this comes to $13,885.42 per month, which is 4.1% of our total monthly spend.

Distributed team and office costs: $0.36 = 3.6%

Office expense is a very interesting one, as the Buffer team is completely distributed. We rely on a lot of amazing tools that help us create a vibrant place to work and live for everyone. Here is how it breaks down

  • Office in San Francisco – cost: $7,175.53: San Francisco is the only place, where naturally about 6 people of the team have chosen to live, which we felt makes it worthwhile to maintain a small office in the SoMa area. Even so, only about 2-3 people work from the office at any given time and it might be up for discussion soon whether keeping an office going is the right thing to do.
  • Computer and equipment – cost: $2,577.81: Buffer provides every team member with any computer or laptop of their choice as well as any additional equipment such as keyboard, phones for testing, etc.
  • Office supplies and community – cost: $1,120.48: Our amazing Community Champion Nicole works with the Buffer community and sends them amazing, hand-written thank you cards, as well as T-shirts and stickers.
  • Internet – cost: $1,292.58: Buffer team members can expense their internet bill for their house or flat, as most of them work from home, which makes up this part of the cost.

Averaged out, this comes to $12,166.40 per month, which is 3.6% of our total monthly costs.

Advertising and Marketing (mostly Google Ads): $0.18 = 1.8%

We spend a bit on marketing, although we’ve cut back on paid marketing the last few months. We might get back into it a bit more in the future. Earlier in 2014, we experimented with much more money that went towards paid marketing, including Google Ads, Facebook Ads and Twitter Ads. We couldn’t quite make them work to be profitable so we scaled back.

Since then we have switched our focus mostly to our own brand terms and we’re spending around $4,500/mo for the last few months. I believe that some team members are quite excited to experiment with it again more soon. Excited to see what we learn here!

Averaged out, this is $6,302.40 per month, 1.8% of our costs.

The Tools We Use: $0.42 = 4.2%

We’re grateful to rely on so many amazing tools to keep us running here at Buffer. The tools and subscriptions we pay for help with everything from managing our customers’ happiness to staying connected as a distributed team—and everything in between.

All told, in October, we counted 33 wonderful tools and subscriptions into our expenses.

Before we get to the individual breakdown of the tools we use (and how they fit in our pricing puzzle), we thought it’d be neat to share how the use of tools is spread out among four main areas at Buffer.

Here’s the breakdown of tools and subscription expenses among technology and engineering, marketing, customer happiness, and distributed team tools.

tools

Tech gets a big piece of the pie due to some of our larger reporting and management tools like Looker, Mortar Data, and New Relic. Mortar data is something we’re experimenting with to power our ability to quickly analyze and transform large amounts of data. Our Mortar bill is split between using their service and the actual AWS EC2 server instances we use.

New Relic is used particularly as a compliment to AWS monitoring. It provides us a deep way to monitor application response times and up-times, transaction traces in case we need to dig in further and will help alert us if we see a rise in error rates. This ensures we’re proactive and on the case at the slightest inkling of an issue.

Marketing’s most significant chunk comes from our subscription with the SendGrid email service, which powers all of our transactional emails as well as the marketing emails that we send to Buffer users.

Here is the complete breakdown of the tools and subscriptions we paid for in October. In addition to the services below, there is also a handful of services we use that wished for us not to disclose pricing information. The total monthly expense on those services is $5,200.

Service Expense
New Relic $4,389.40
Mortar $3,231.48
SendGrid $1,451.07
Qualaroo $747.00
Pusher $399.00
Help Scout $375.00
Digicert $299.00
Google $287.33
Sqwiggle $209.73
Mailchimp $204.00
Eudaemonic $199.00
Olark $151.00
Pagerduty $124.80
Github $100.00
Digicert $83.00
Uservoice $80.00
Statuspage.io $79.00
Cloud app $76.35
Wufoo $69.95
Hipchat $50.00
1Password $49.99
Citrix $49.00
Hively $49.00
Zapier $49.00
Bill.com $48.34
Freshbooks $29.95
Xero $25.50
TypeForm $25.00
Zapier $15.00
Sidekick $10.00
Adobe Systems $9.99
Askmt $5.00
Undisclosed Tools $5,200.00

Note: Most of the dollar amounts above are monthly rates. A few, like 1Password, are annual or one-time fees.

Averaged out, this comes to $14,161.79 per month, 4.2% of our total monthly costs.

Profit: $0.46 = 4.6%

One of the most interesting numbers that we can show to customers, I believe, is how much profit we’re making. Through running Buffer, from a financial standpoint, we want to accomplish a few things:

  • Offer a fair price to our customers
  • Build a sustainable business that can fuel its own growth
  • Give back a fair return to our investors over time

We feel that with the current profit numbers we’re achieving almost all of our goals very well and are excited to keep doing what we’re doing for a long time. I’m particularly interested to hear from you in the comments how our amount of profit makes you feel!

Our average monthly profit is $15,666.63, which is 4.6% of total costs..

Where do we go from here?

Other than for accounting purposes, this is the first time we’ve ever broken down every cent of our costs and made it easy to understand, both for ourselves and for you, our customers and followers. Until we spent this time to clearly outline the costs and breakdown, we really didn’t have a good idea of how our money was spent. This now puts things into perspective. Here’s the same graphic now with percentage breakdowns:

blog-post-percentage

One of the things we’re really excited about is to charge our customers a price that is fair and that allows us to keep working hard on Buffer. Knowing the exact breakdown and tracking it over time consistently might help us to adjust prices, so we can offer Buffer’s tools to the widest audience possible.

It’d be also great to hear from you on what things might stand out about our costs and how we operate and whether there’re things you see we could improve on.

Thanks for being part of this incredible journey with us, exploring a new way to do business and making things as transparent and accessible as possible.

You can check out our transparent pricing in action on the Awesome Plan and on our Business plans.

—————-

PS: Final note and details on the method used for our calculations::
We had a few options on how we could break down a single $10/mo payment and we considered the following:

  • Our true SaaS MRR (currently at $410k/mo), which simply combines the monthly payments of all currently paying customers. More on this here.
  • Our Bookings Revenue (currently at $470k/mo), which is the total money we receive on a monthly basis, which includes full yearly payments.
  • Our accounting MRR (currently at around $405k/mo): which is total money received, with yearly payments evened out, as well as “half” payments, of people switching between plans, etc.

For this calculation, we went with our accounting MRR, and we took the last 6 months (June-November of 2014) and then averaged out the payments, which ended up at $341,202.56. This way, we can also show a better reflection of things like retreats, or other one-off or more rare payments. When they are evened out, they show a more holistic picture of everything that’s going on inside Buffer.

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