ThemeForest: Return on Investment

Friday 22nd February 2013

In this second part of “ThemeForest Thoughts”, I’ll be looking at some of the factors to consider before deciding to sell on the popular template marketplace.

To determine if a marketplace is right for you, one must assess a number of different factors. I’ll look at the following in context of the ThemeForest marketplace:

Product pricing
Sales volume vs. number of products
Commission rates
Who are your customers?

1. Product pricing

I’m interested in selling HTML templates and WordPress themes so I’ll focus on those for this post. Here’s are some rough statistics I collected after totalling up the publicly available figures on ThemeForest, both for HTML templates and WordPress themes:

HTML templates

As of 22nd Feb 2013, there were 3560 HTML templates on ThemeForest.
The lowest priced templates are $3 (vCards and 404 page templates mainly)
The highest priced templates are $25 (sophisticated multi-page website themes)
The mean average item price is $13.14 while the median average is $15

WordPress themes

As of 22nd Feb 2013, there were 2662 WordPress Themes on ThemeForest.
The lowest priced themes are $20 (landing page themes and similar)
The highest priced templates are $60 (generally eCommerce themes)
The mean average item price is $41.13 while the median average is $40

These price points are incredibly low, and don’t reflect the nature of the effort that goes into top quality web design and development by professional web designers.

A complex eCommerce theme may take a few weeks to a couple of months for one person to plan, design, build and test and if the market place decides they don’t like the end product, there’s no compensation for that developer. That’s two months work down the drain with no reward. Quite a risk!

These marketplaces use the “pile it high, sell it cheap” mentality. The cost of the products is not based on the amount of effort and experience it took to create, it’s based purely on an arbitrary price point that the market will bear. Some of the themes selling on TF would cost many thousands of dollars if sold as a custom job to a single client.

You can make decent money, but it can be a risky proposition. There are no guarantees and success seems to be based on a combination of adding excessive features & options, adding useless bling, excellent timing and a little bit of good luck.

2. Sales volume vs. number of products

HTML templates

The mean average number of sales per item is 174.7
The median average number of sales per item is 89
The best selling item has 4623 sales at $15 per sale ($69,345)

WordPress themes

The mean average number of sales per item is 489.27
The median average number of sales per item is 210
The best selling item has 25100 sales at $55 per sale. This is the famous U-Design, which has been selling for over 2.5 years! If you multiply number of sales by the current sales price, you get an impressive total sales value of $1,380,500, however this figure is not accurate as U-Design used to be sold at a lower price point. But however you look at it, that’s a lot of dosh!

It’s easy to see from these figures that a top selling item can net a very tidy return. And you might imagine that the top theme designers have a lot of themes in their portfolio to capitalise on the success of their top theme. But it’s not so!

I looked at the top 5 WordPress themes, and here’s a few interesting things revealed:

Internq7 is the author of the top selling theme (the mighty U-Design) and has just THREE themes spread over multiple product types.
TrueThemes sell the second most popular theme and have just FIVE products in their portfolio, though really it’s only TWO themes over multiple formats.
Kaptinlin sells the third top selling theme, and has a portfolio of just TWO items.
ThemeFusion sell the fourth most popular theme and it’s their ONLY product.
WebTreats sell the fifth most popular theme and have just TWO products, although that’s four items as they have HTML and WordPress versions of both.

Compare this with authors doing more modest sales: they have more products but sell fewer of each. I’d personally prefer to have more products sell modestly, than just one doing great sales. As a creative person I’d be utterly bored by simply selling the same thing over and over again and never creating anything new!

Perhaps the top sellers don’t have more products because they’re permanently on holiday spending all their cash… But no, the reality is that customer support requests are so great, these developers don’t have time to work on new products.

It’s a finite business model to sell ONLY one product again and again. You therefore need to have more products and continually innovate, something that the top authors don’t seem to be doing.

Food for thought.

3. Commission rates

In early 2011 there was a post by theme author Mike McAllister, criticising the low cost to customers of “premium” themes and how it had devalued the marketplace in general. You can still read that post here, and all the comments: A Hypercritical Analysis of $35 WordPress Themes.

With complex web themes being sold for $35 or less, at low commission rates, you can understand why professional designers were unhappy that their work seemed to be undervalued. Luckily such blog posts galvanised things a bit and themes prices were increased a couple of times in the last 18 months. Better sale price = better commission, so let’s look at those figures: ThemeForest Payment Rates.

If you sell your work exclusively on ThemeForest, you’ll start by making 50% of every sale. The commission table shows that once you start selling more, you take a bigger % home for yourself, up to a maximum of 70% once you’ve made at least $75,000 in sales.

That’s a great return if you’re selling hundreds or thousands of items, but if you end up with more modest sales you may not see the returns that you hoped for.

You also must consider issues such as:

conversion to your local currency
the transaction deduction by the payment provider (PayPal, Skrill, etc.)
the small issue of paying taxes on your earnings

It’s easy to get seduced by the big numbers that some of the authors have made, but the reality is that it’s a saturated marketplace and very few authors make that sort of money. And you also have to look at the history: a lot of the big money was made more than two years ago when ThemeForest was much smaller. More wise words from Mike McAlister should give you some food for thought:

The commercial theme sales boom of two years ago is over. Smarten up and start creating products that solve problems, not create them

Mike McAlister

Some things you might want to consider:

The amount of time it takes you to design and develop a custom theme, and what you would charge a client for it if you were selling it as a custom job just once.
Can you reasonably expect to make the same amount of money over the same period of time by selling the template at a low rate many times?
If you can’t make the same money in the same time scale, what’s the probability of long tail sales? Will your theme be popular in 6 months? Or another year? Or is it a fashion item (based on a trend) and effectively only good for a short shelf life?

4. Who are your customers?

In my early career I got no say in who I worked with because it was determined by the people above me: whatever projects were chased and won by the sales teams were what I would eventually work on. Most of the time the projects were great; very rarely you’d get a duff client who was a nightmare to work with.

When I went freelance in 2007, I was finally able to choose who I wanted to work with. I said “no” to more clients than I said “yes”. I was able make decisions based on a client’s history, their product, their personality and whether or not I actually like what their business did.

You don’t have to accept every piece of work that comes your way, and I’m very choosy about who I work with, especially if there’s any doubt over the moral or ethical nature of the business in question.

My previous approach to choosing clients makes it hard to rationalise selling to a larger global audience. It would be good to know then who exactly are the customers buying themes on ThemeForest? I’ve no scientific data on this, but based on being a buyer there for a few years, and reading many of the support threads, I think the market is comprised primarily of:

Other developers who are building client sites and using templates as a “starting point” for a more complex site.
Experienced users of WordPress (bloggers, etc) who are not developers, but who know a bit about WP and like to tinker with themes. Maybe they swap their own site’s theme on a regular basis, and play around with plugins and a bit of CSS.
Newbies to WordPress (and running a website in general).

I think it would be fair to say that the amount of support these different customers require would increase as you go down the list. There are also potential problems when you have a large customer base to support. Too much support can leave no time for the development of new products.

I would prefer to work with customers who are little more savvy and who have specific use cases for a template, maybe even those who are looking for paid-for customisation. I’ve no problem giving support to enthusiastic, smart newbies, but I’m very wary of giving out unlimited support to customers who bought solely because of the low price point. Those sorts of customers typically account for 90% of support requests and are a massive drain on the limited resources of a solo developer.

Let’s face it, at a mean average price of $41 for a WordPress theme, a customer can’t really expect unlimited, top quality premium support.

The learning point here “Price your products according to your preferred customer.” Of course, on ThemeForest that’s not possible. They set the prices, so as a seller you have very little control over the the types of customers that you will ultimately attract.

Final thoughts

I hope that this post has outlined some of the issues regarding product pricing, sales volumes, commissions and customer base that you might want to consider before selling on ThemeForest.

Next time I’ll be looking at factors around product quality, fitness for purpose and marketplace reputation:

What is the standard of the products sold?
Do the competitive products meet my own standards?
Will marketplace reputation affect my own reputation?
How clear is the product approval process?