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How do you price a SaaS offering?

Marketing, social media, advertising

MJ DeMarco

I followed the science; all I found was money.
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Austin Ogre

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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.

2- The science of pricing. How did you generally work out what price you were going to use for your go-to-market?

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:
  1. All customers are not equally important, but when they all pay the same how can you tell?
  2. If people are buying exclusively off your website you are leaving money on the table.
Ok, that's a lot of generic talk with very little by way of example. So here's a few:

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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MJ DeMarco

I followed the science; all I found was money.
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Well the man has contributed in a variety of posts, so I'm not seeing an alterior motive here.
 
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Austin Ogre

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Well the man has contributed in a variety of posts, so I'm not seeing an alterior motive here.
It's all good. I just want to try an be helpful. I won't say I'll never hold an opinion that is unpopular or argue with someone with 3.2 million in a rep bank. Keeping each other honest is a good thing. And @grindmode is not wrong, I'm not currently in "fast mode" (hell, I haven't even read the book yet, though I plan to this weekend). But I hope that folks won't ignore or discount experience/ advice from folks who have relevant experience just because they may not be on the exact same path.

But when @grindmode or @Scot is trying to figure out how to land a mid 6 figure deal, I'll be glad to share insights into deals I've won, lost and perhaps most importantly to this group.... deals I wish I lost. Am I full of sh*t? Most days if you ask my girlfriend. :) But I've shared enough that anyone who wants to call BS can figure out my true identity (or they can just PM me and ask) to see if I might actually have enough experience to have an opinion worth considering.

XXOOO,
That Ogre in Austin.
 

Austin Ogre

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So:
- Do we price per seat? or per feature?


Short answer? Yes.
I think a large portion of your customer base might only want a single seat. The few who want multiple seats (in the same account) are likely to want some additional auditing, reporting and permissions as well. Is that going to be an individual company or an agency? SEO is really not my area of expertise, but I'd argue you could target agencies with the multi-seat and associated features. So they may become you "legal vertical" customer who is willing to pay more for %something%.

But some customers might want additional features with a single seat. So ideally you should be able to offer some of those features independently or in bundles that make sense for you (sometimes those feature buckets are really arbitrary.. that's OK).

- Do we create price tiers based on the number of pages a website has? Or do we try to distill the "monetary" value of the website (so in your example: legal websites pay more?)

You might charge more based on pages monitored, but rather than risking nickel & dimeing a customer to death a customer I'd argue those should be pretty darn big buckets unless you incur a significant cost per page. But the "free" or lowest paid plan might require the user to enter the URLs manually and limit to 25 pages and a single domain. Higher tier plans could include page crawling to determine links, realtime scans of new content based on contend based on an RSS feed (or something) and the ability to upload a csv file of URLs to monitor... as well as support for managing multiple domains in the same interface.

Keeping with the agency model, you might allow them to "group domains" for report generation so that their customer with foo.com and example.com can be put into one report. And perhaps the ability to do that and to white label the report as an agency is part of that premium tier. If an agency has more than 200 domains maybe that becomes one of your $call for pricing$ levers.

My brain is always looking for associations and jumps from thought-to-though so excuse the scatterbrain however whilst typing this I was wondering the following:

Reading through your sales process outlined above, I was wondering whether you found it worked better to sell clients on their primary need first and then up-selling your other tools over time or whether you would try to solve as much problems as possible in the first call/meeting ?

I usually try to focus on the reason we're having the call in the first place (my current product does like 20 different things). But I want to understand the customer's business, their architecture and the pain they are experiencing directly related to the ting that prompted our current discussion. But I will subtly poke around the edges for related pain during that discovery call.

I'll often then bring up a slide (I hate PPT and only use a deck of 2-3 slides if I can help it).. but one of those slides lists the buckets of things we do at a high level. I tell them we're going to focus on the bucket they care about primarily, but I might touch on other features if i think they will help this specific pain... and that I'm happy to talk about the other items if they care. About 70% of the time the call will start to touch on other aspects/areas beyond just the stated purpose of the call. And I think when that happens it's because I have done a good job of pain discovery and I've demonstrated I can help solve that pain in a meaningful way.... the customer is then open to hearing about how I might help in some of those other areas as well.

That being said, my experience has been that if a customer has purchased a product from me before they are my top prospect for my next (adjacent product). So I am not too worried if they don't buy everything I have on day 1. I will have opportunities to cross sell and upsell if my product (and service) is actually valuable to them.
 
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grindmode

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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?
  • 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:
  1. All customers are not equally important, but when they all pay the same how can you tell?
  2. If people are buying exclusively off your website you are leaving money on the table.
Ok, that's a lot of generic talk with very little by way of example. So here's a few:

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. :)
Damn I posted a LONG a$$ REPLY in your other thread thinking you were LEGIT and genuinely looking for any and all idea's but now I see this and realize your SPAMMING shit...

SMH
 

Austin Ogre

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Damn I posted a LONG a$$ REPLY in your other thread thinking you were LEGIT and genuinely looking for any and all idea's but now I see this and realize your SPAMMING shit...

SMH

Hey sorry if you feel I was spamming, I was just trying to provide some insight to @maverick based on my experience and thought it was a broad enough topic that others might be interested in a separate discussion on SaaS pricing in general.

You're right, I'm not actively trying to build a new personal business at this point and if that should preclude me from offering an opinion in these forums then my apologies to @MJ DeMarco for wasting y'alls time.
 

grindmode

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I must be blind, I don't see any spam.
Quick fingers edited the posted immediately after my response... to bad you can't rewind the forum DVR gone now and whatever but that good info whats flooded with his company and why to choose him...

I'm over it lol...
 
Last edited:

Scot

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Quick fingers edited the posted immediately after my response... to bad you can't rewind the forum DVR gone now and whatever but that good info whats flooded with his company and why to choose him...

I'm over it lol

The post doesn't have an "edited" tag....
 

maverick

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Thanks again @Austin Ogre - the question was intentionally broad so we can hit some interesting content ;-)

You make some interesting points in your answer. Reading your post triggered a couple of follow-ups questions. If you won't mind, I'll post them here for us to discuss.

Let's take an example that everyone can relate to. Let's assume that we're creating a new startup in the SEO space. It will be a site audit tool (e.g. https://raventools.com/site-auditor/ ). Can you talk me through the thought process you would go through to come up with your pricing metrics?

So:
- Do we price per seat? or per feature?
- Do we create price tiers based on the number of pages a website has? Or do we try to distill the "monetary" value of the website (so in your example: legal websites pay more?)

My brain is always looking for associations and jumps from thought-to-though so excuse the scatterbrain however whilst typing this I was wondering the following:

Reading through your sales process outlined above, I was wondering whether you found it worked better to sell clients on their primary need first and then upselling your other tools over time or whether you would try to solve as much problems as possible in the first call/meeting ?
 

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