Austin Ogre
New Contributor
In my intro thread @maverick asked a couple of questions I thought deserved their own discussion. Hopefully this is the right forum to have the pricing discussion as it relates to SaaS.
This is an incredibly broad topic. I promise that plenty of insightful people like @Scot will be able to come in and both disagree with my positions on specific points as well as drive a truck through the scenarios I've failed to consider. These are my thoughts and opinions, they don't always match what we've done at different companies and what worked well for me may not work well for you... especially since we are talking generically and not about a specific offering.
Before I start, let's be clear that in the SaaS realm there are a broad set of players and services. I have generally been focused on selling solutions to businesses directly and to MSPs rather than selling to consumers. I think some of this still applies to consumers, but I have much less personal experience in that realm.
What is your solution?
If your answer to those two questions is yes, you need to go back and take a hard look in the mirror. Your product is too generic to be useful and your business model won't scale. Bold claim? Feel free to tell me why I'm wrong in the comments.
Having been through a few SaaS start-ups and knowing folks from a bunch of others, I think it's useful to start by reviewing the 80/20 rule as it relates to business/enterprise sales. 80% of your revenue will (should) come from 20% of your customers. That doesn't mean you should only go after whales, but by pursuing a good mix of smaller and larger accounts across your key target verticals you'll feed a consistent pipeline and over time you'll figure out what customers find you the most valuable and are willing to pay for it. If you have a couple of fixed tiers of pricing I don't believe you can ever get to this type of revenue run rate... and that's a problem for two reasons:
1. At one of my SaaS start-ups we offered a solution to customers who were heavy users of email. Some companies put a much higher premium on email than others. And we identified a couple of verticals where not only were they almost always heavy users of email, but the solution we offered provided value that could pretty easily be translated to $ savings/earnings for them. The best example of this was law firms. They use email heavily and they bill their customers for every email they send and receive. So we showed them how our product could help them send and receive more emails resulting in more billable hours.
So we actually had a "legal list price" and a list price for everyone else. The legal list price was 20% higher. We priced and discounted for that vertical (and a couple of other key verticals) from the higher price list. Customers were willing to pay it and as an added bonus saw the higher price as an indication of value of the solution. Now we did make sure that we prioritized their support when we could, but we did that for our 20% anyway (see the 80/20 discussion above).
2. I believe in solution selling/ value selling. I want to know what problems you are trying to solve and what the impact of those problems is before I offer up a solution. If my product doesn't solve your problem then even if it's 'free' it's too expensive. Most of the SaaS products I've worked on have a couple of dials to work with on price.. one is features and the other is users. I want to get as many users for a company on my SaaS offering as possible. I think it makes the solution stickier. The other dial is features. So if you've done a good job of understanding the customer's pain you can recommend they skip features they haven't identified a need for (getting a customer to pay for something thy don't need is a short term win, SaaS is about relationships) and for the ones which do match a need I can go back to that pain discovery and say "yes we can skip feature X and save you Y%, but remember when you told me the impact that Z was having on your business? This solves for Z." With good initial discovery you can often uncover an opportunity that is much larger than if you just answer the inbound request of "How much is your service for 10,000 seats?"
3. Getting to no. My solution is not for everyone. If you don't have a pain I can solve or if you don't ascribe enough value to the pain you do have to make it worth my while to provide a solution to you. Then let's find that out as quickly as possible. So the customer has to be willing to have na open discussion. If they won't tell me anything about how they are solving the problem today, what issues they have with the current solution, what their long term plans are... I take that to mean we won't be a good fit. There are only so many phone calls I can make/take in a day. No need to waste time on a deal that won't close.
Does this mean you shouldn't have a list price? Well sure. You might offer a couple of paid tiers on the website. But I'd argue there are a set of features which should fall under the "Call for pricing" banner. And then the things I mentioned above apply.
How do you price those lower tiers? Start high, you can always discount. It's very hard to raise the price later. If you are going to have a free tier, I'd recommend giving them all the features of your highest self serve paid tier for 60-90 days to get them hooked and then remove those to return to the free tier of features.
Hope this was a useful discussion. Please take what you can use and leave the rest.
This is an incredibly broad topic. I promise that plenty of insightful people like @Scot will be able to come in and both disagree with my positions on specific points as well as drive a truck through the scenarios I've failed to consider. These are my thoughts and opinions, they don't always match what we've done at different companies and what worked well for me may not work well for you... especially since we are talking generically and not about a specific offering.
Before I start, let's be clear that in the SaaS realm there are a broad set of players and services. I have generally been focused on selling solutions to businesses directly and to MSPs rather than selling to consumers. I think some of this still applies to consumers, but I have much less personal experience in that realm.
What is your solution?
- Is it a SaaS offering every company will want or need?
- Are you planning to offer fixed pricing for every tier on your website?
If your answer to those two questions is yes, you need to go back and take a hard look in the mirror. Your product is too generic to be useful and your business model won't scale. Bold claim? Feel free to tell me why I'm wrong in the comments.
Having been through a few SaaS start-ups and knowing folks from a bunch of others, I think it's useful to start by reviewing the 80/20 rule as it relates to business/enterprise sales. 80% of your revenue will (should) come from 20% of your customers. That doesn't mean you should only go after whales, but by pursuing a good mix of smaller and larger accounts across your key target verticals you'll feed a consistent pipeline and over time you'll figure out what customers find you the most valuable and are willing to pay for it. If you have a couple of fixed tiers of pricing I don't believe you can ever get to this type of revenue run rate... and that's a problem for two reasons:
- All customers are not equally important, but when they all pay the same how can you tell?
- If people are buying exclusively off your website you are leaving money on the table.
1. At one of my SaaS start-ups we offered a solution to customers who were heavy users of email. Some companies put a much higher premium on email than others. And we identified a couple of verticals where not only were they almost always heavy users of email, but the solution we offered provided value that could pretty easily be translated to $ savings/earnings for them. The best example of this was law firms. They use email heavily and they bill their customers for every email they send and receive. So we showed them how our product could help them send and receive more emails resulting in more billable hours.
So we actually had a "legal list price" and a list price for everyone else. The legal list price was 20% higher. We priced and discounted for that vertical (and a couple of other key verticals) from the higher price list. Customers were willing to pay it and as an added bonus saw the higher price as an indication of value of the solution. Now we did make sure that we prioritized their support when we could, but we did that for our 20% anyway (see the 80/20 discussion above).
2. I believe in solution selling/ value selling. I want to know what problems you are trying to solve and what the impact of those problems is before I offer up a solution. If my product doesn't solve your problem then even if it's 'free' it's too expensive. Most of the SaaS products I've worked on have a couple of dials to work with on price.. one is features and the other is users. I want to get as many users for a company on my SaaS offering as possible. I think it makes the solution stickier. The other dial is features. So if you've done a good job of understanding the customer's pain you can recommend they skip features they haven't identified a need for (getting a customer to pay for something thy don't need is a short term win, SaaS is about relationships) and for the ones which do match a need I can go back to that pain discovery and say "yes we can skip feature X and save you Y%, but remember when you told me the impact that Z was having on your business? This solves for Z." With good initial discovery you can often uncover an opportunity that is much larger than if you just answer the inbound request of "How much is your service for 10,000 seats?"
3. Getting to no. My solution is not for everyone. If you don't have a pain I can solve or if you don't ascribe enough value to the pain you do have to make it worth my while to provide a solution to you. Then let's find that out as quickly as possible. So the customer has to be willing to have na open discussion. If they won't tell me anything about how they are solving the problem today, what issues they have with the current solution, what their long term plans are... I take that to mean we won't be a good fit. There are only so many phone calls I can make/take in a day. No need to waste time on a deal that won't close.
Does this mean you shouldn't have a list price? Well sure. You might offer a couple of paid tiers on the website. But I'd argue there are a set of features which should fall under the "Call for pricing" banner. And then the things I mentioned above apply.
How do you price those lower tiers? Start high, you can always discount. It's very hard to raise the price later. If you are going to have a free tier, I'd recommend giving them all the features of your highest self serve paid tier for 60-90 days to get them hooked and then remove those to return to the free tier of features.
Hope this was a useful discussion. Please take what you can use and leave the rest.
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