Pricing is one of the most important part of your SaaS journey, yet it is estimated that companies spend less than 8 hours, yes only 8 hours on building out their pricing strategy. This haphazard manner of setting the price without giving serious though results in either companies not being able to convey the value of their product or simply leaving money on the table — both of which can turn out to be fatal for your SaaS company’s growth.
So what are the things that you need to keep in mind while deciding the pricing for your SaaS app.
Building your pricing strategy from a cost-up point of view is simply going the wrong way and you should be instead thinking what is the value in terms of dollars that your SaaS app will provide to the customer and then work backwards from there. One simple rule is 10x rule, which means that your app should provide 10x the value in terms of dollars to your customer as compared to price you charge. So lets say your app provides $1000 of value to the customer then you should charge around $100.
It is the most common advice that you must have received for almost all the business challenges , but it is in fact the most important thing to consider when it comes to pricing your product. Having a clearly outlined customer persona and understanding their nuances is critical to even start with your pricing strategy. Should you have a flat rate structure, a tiered pricing structure or should have a pricing page at all — all of these questions can be answered once a target customer persona is clearly defined. Is your customer a SMB or a mid market company or is a fortune 500 enterprise, what sectors are they in, what are their pain points, how will they find your product etc — these are the kind of questions you should be asking yourself to get a nuanced and textured understanding of your ideal customer profile which will inturn feed into your pricing strategy.
There are various ways that you can set your pricing based on your customer profile, your product etc.
It simply means that there is one price point for your product for all the customers. It is simple to communicate but it becomes very difficult to extract value from different types of customers and you might end up leaving money on the table.
This kind of structure works well when there is quantifiable way of tracking user’s usage of your product or/and if it is resource heavy for you to provide the service. Customers also like it because they only have to pay for what they use. API based or transaction based products usually have this kind of pricing structure.
This is one of most common pricing structure wherein company offers multiple packages with different set of features at different price points.
Companies that have collaboration based products where the value derived is function of how many user’s within customer’s company join the product usually charge based on per user basis. This helps in driving expansion revenue as the adoption of the product increases.
In this pricing plan — companies offer a free to use version of the product and has additional paid packages with more features. Freemium is usually coupled with tiered pricing structure.
Setting up pricing plan is not a one-off job, but requires constant analysis and doing A/B tests with different user cohorts. It is also natural for SaaS companies to increase their pricing as the product mature, but they have to do in a way which is empathetic to their old customers — even if that means grandfathering them for the old pricing for long while. It is even advisable that SaaS companies should change their pricing every 6–9 months. Salesforce never started charging thousands of dollars per user, but they consistently reached that point by improving their product ecosystem and value delivered.
So there is no one size fits all advise for pricing your SaaS app and it is more of a journey of systematic tweaking and testing. Pricing is one of the most important levers that SaaS companies have in boosting their revenue and yet it remains a big blind spot for many. So keep all of the above points in mind while you sit down to build your product’s pricing strategy.