Welcome to the eighth edition of our transparency report! Like you probably know by now, this series is all about sharing everything going on at CodeinWP that’s interesting from a business point of view. More or less, here you can find out what our current goings-on are, our strategies, methods, results, and whatever else is happening on a day-to-day basis. (Check out the previous reports here.) In this edition, I talk about everything that happened at CodeinWP in September 2015:
How much is a theme store business actually worth?
Just like I mentioned a month ago, I want to start this edition of the report by sharing my thoughts on the current condition of the WordPress theme store market, and how much the businesses in it are worth.
I have to disappoint you, though. There will be no name-dropping here; just looking into the categories of businesses based on how they market themselves and where they sell most of their product.
But let’s hold off on that for a moment, and start somewhere else.
Have you noticed that not a lot of theme store businesses change hands (at least as far as the public is informed, and apart from WooThemes)?
Let’s face it, buying a theme store is a whole lot different than buying any other website-based business. For a niche site, or a news site, for example, the only technical difficulty involves learning how the site itself works, and that’s only if the new owner wants to run it like the previous owner did. For example, sites acquired through Flippa often get re-built using other CMS systems.
With a theme store, however, things are not that simple. Setting aside the price tag itself, the new owner has to invest additional funds and work hours in learning the code base of the themes, the store itself, and even taking over the support work (which is the most challenging part).
All of this adds up, and becomes significant compared to the overall business value in terms of customer base and revenue. I believe this is the main reason we don’t see that many transactions in this industry.
Now back to the valuations. Looking back at my discussions with the people in the industry (plus some research), the sad truth is that theme stores are usually quite low valued (for all the reasons listed above, and probably a handful more).
For instance, my estimates:
- Theme stores based only on ThemeForest are worth around 6-9 times their monthly revenue.
- Independent stores, but relying only on one marketing/acquisition channel = 10-12x monthly revenue.
- Independent stores relying on 5-10 channels (like SEO, AdWords, social, WordPress.org, etc.) = 12-17x monthly revenue.
Of course, there are exceptions. For example, we can imagine a deal where a store is acquired at 30x revenue, but the new owner is able to grow the monthly revenue by 3x right away. In this case, they actually paid 10x, and not 30x. But let’s not get into that. You get the point.
Then, there’s one big hole in all those evaluations. Or two holes, actually:
- A business is only worth a certain amount – say, 3x, 10x, or even 30x – if it manages to find a buyer willing to pay that amount. Before that, it’s just numbers on a piece of paper.
- The owner’s bias. For example, objectively, as a potential buyer, I would evaluate ThemeIsle at around 12x monthly revenue. But as the owner – attached to the whole thing – I would evaluate it much higher. For example, my personal evaluation of our Revive Old Post plugin is 50x monthly. Take it or leave it. 🙂
Want to grow your business without any additional marketing cost? Renewals!
Writing about this will be a bit tough on me.
I mean, I know that there’s value in the advice I’m just about to share, but at the same time, I know that we – our business – is doing an awful job at it.
So basically, the simplest way (don’t mistake simple for easy) of making more money is to reach out to your existing customers, and do something to convince them to buy from you again.
For instance, renewals.
Renewals are something that every subscription-based business is all about. Technically, you can grow and operate for years without worrying too much about renewals, and instead just going after new customers, but you’re leaving a lot of money on the table that way.
WordPress theme stores could really benefit from mastering their renewal game. However, this is easier said than done. Our renewals:
Yep, you’re reading this right. July: 4 renewals, August: 7, September: 9. So not a lot.
Comparing to our total number of sales over the period:
Right now, we send a couple of emails about the renewal coming up: 2 months before, 1 month before, and 1 week before, plus there’s a notification in the dashboard. Obviously, that’s not enough.
So long story short, we’re planning to improve in the coming months. Some things I’m brainstorming on:
- Adding more links in the user panel at ThemeIsle, so everybody can easily expand/upgrade/renew their plan. We’d also make the change log more visible and better articulated – in a way that convinces the customer that renewing is worth it.
- Sending more emails about product progress, new additions, etc. That way, our customers know that good stuff is coming, so they can see the value of renewing.
- Sending extra perks or discounts – making the renewal cheaper than the asking price on the site would suggest.
- Testing auto-renewals, maybe. Like ElegantThemes does it. Anyway, this would require some big changes to our model, so I’m not sure if it makes sense.
That being said, I’m aware that not every user updates their themes once they set everything up, and that some people switch to different themes further down the road. So I don’t really expect a huge increase, unless we introduce a new kind of product.
The main difficulty I see is that bringing people back after a year or two, and somehow convincing them that they should renew their subscription is a tough thing. If it’s been a year already, and you didn’t stay in touch, then it’s basically like selling to a new person. (Although the marketing cost of that is still zero.)
Think that niche themes are the direction the industry is heading? Think again
There are basically two trends in the WordPress premium theme industry. Developers either:
- build huge monster/framework themes (e.g. X, Divi, Monstroid),
- build niche themes (e.g. for medical offices, lawyers, etc.).
When it comes to monster themes (is that a name?), some people love them, others not so much. I’m in the second camp … not a fan.
However, the alternative solution – niche themes – isn’t actually that great if you want to build a sustainable business. (Examples coming in a minute.)
From my point of view, finding a good middle ground can be a better long-term solution. For example, our main theme – Zerif PRO – is a multipurpose theme that can be used for a lot of website/business types. Instead of making it niche-driven, we’ve made it appearance-driven. In other words, you download it not because it’s something built specifically for your niche, but because you like the looks and think that the style could perform well for you.
“So what’s not cool about niche themes?” – you ask.
Well, building your business around them just doesn’t add up.
The issue is quite complex … there’s more than one problematic aspect here. Specifically, there are problems related to distribution, pricing, and partly the GPL license itself.
I did start ThemeIsle around the idea of building specific niche themes. I wanted to use my SEO experience, affiliate marketing and freemium distribution to promote them. But the numbers simply don’t add up.
Let’s look at Lawyeria, which is the most popular free lawyers theme in the WordPress repository.
Google likes us too. If you search for:
free lawyer WordPress themes, you’ll find us on spot #2.
best lawyer WordPress themes, we’re #1 and also have some ads there.
We’re doing whatever we can to promote this theme. However, we sell less than $1000 / month through it.
If you consider a two-years lifetime, add commissions, affiliates, marketing costs, development, support … the profit is close to zero.
And again, this is our best-performing niche theme.
Considering all this, we can’t really invest that much in its development. And we’re not even getting down the list to our least popular niche themes…
In summary, niche themes aren’t as good as multipurpose themes in most cases. That’s due to the simple fact that you cannot make enough money to actually invest in development and keep them viable over the long haul.
The behavior of some of the bigger players on the market seems to confirm this. For instance, TemplateMonster and ElegantThemes both started to invest more and more resources in building up and developing their flagship non-niche themes – Monstroid and Divi … just because it’s a better path for everybody involved, including the customers.
Now, if you still want to try your luck with niche themes, you could experiment with these methods, although don’t take my word for it:
- Increase the price of your niche themes to around $199 a piece. This way, the business will probably be sustainable.
- Build a good ThemeForest / WordPress.org / Mojo Themes presence and optimize the hell out of your niche themes’ listings.
- Use a proprietary license to better protect your work against freelancers/agencies, and be ready to deal with the consequences.
About this last thing. Nowadays, my gut feeling is that around 30% of paid GPL products are used for free. This is basically also what forces developers to give out unlimited site access as their base license (after all, what’s stopping the customer from using the theme on multiple sites anyway … it’s GPL).
Another very big issue is that with niche themes, you kind of need stock photos right from the get-go – stock photos that illustrate the niche, and that can be given away along with the theme. Not always easy to do with GPL.
I mean, you can find some nice free photos on the web, but if you need something specific, like pics for a plumbing theme then it’s a bit tough (we know).
Speaking of stock photos, we’ve actually launched a small new project a month ago. It’s called MyStock.photos and it’s our spin on sites like Unsplash. In short, we have 4 passionate photographers on the CodeinWP team right now, so why not make our photos available to everyone under CC0, right?
Again, every photo on MyStock comes from us, so it’s not stuff you can find elsewhere on the web.
Now to the part you came here for … 🙂
How we lost $30,000 over the last 6 months due to a single line of CSS
We’ve been doing some tests with VWO on our sites for a while.
You know, stuff like, add a border here, change the font there … etc.
But then we tested something a bit more radical.
If you go to our sales page for Zerif PRO, you’ll see the standard offering:
Three options: single theme, Treasure Chest (all themes), Pirate Club (everything).
We’ve changed it to this:
So there’s no single-theme option; each customer can either get the Treasure Chest or the Pirate Club.
Guess what, after the change, pretty much everyone gets Treasure Chest.
The overall conversions on the page are only slightly lower (dropped by 6.3%; from 4.49% to 4.20%), but the value per customer has gone up massively. After all, the difference between Treasure Chest and the single-theme license is $32 a piece.
Adding up the numbers from the previous 6 months, and comparing how much we could have made if we hadn’t offered a single-theme license, this totals to $30,000. Now, if you look at our renewal rates shared a couple of paragraphs above, this means that the amount of money we get from a customer initially is basically what we get from them long term. This makes the $30,000 loss quite accurate in our case.
(Note. The test is still kind of in its early stage. We’re continuing to gather data, so we can make sure this is going to work over the long haul. Will keep you posted.)
Revenue breakdown (Sep 1st – Oct 1st)
Mixpanel is still acting a bit wonky for us (there are inconsistencies), so I can’t calculate any comparisons (the differences between this and the previous month), but I can give you some raw numbers.
Mixpanel reports this:
While our in-house tracking reports this (for the same period):
I’m thinking about offering consulting for businesses looking to improve/grow/optimize their operations. More on that next month, along with the current state of Parallax One – our top-of-the-line free theme.
Oh, and I almost forgot … we have a new plugin in our family.
Let me say it this way … “Are you tired of everyone using Contact Form 7? Do you want something simpler, something basic, just offering the essential functionality? Try out our Pirate Forms plugin!” 🙂
Okay, that’s it for now. As always, thanks for reading and for supporting CodeinWP!
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All edits and witty rewrites by Karol K.