Part 1 of 5 post series on – DIY on Pricing for your SaaS product
Companies have woken up to the fact that people want outcomes, not ownership. They want customized experiences, and they want continuous improvement, not planned obsolescence.
– Tien Tzuo (Founder & CEO, Zuora)
SaaS (Software as a Service) has singlehandedly emerged as the single largest business model disruption in the last decade. SaaS companies suddenly made available enterprise quality technology to people (and businesses) across the world. SaaS public companies made ~$70Bn (at a ~70% gross profit) while adding ~$700Bn in MCap on the Nasdaq.
But there is one thing that sets SaaS apart. A 70% gross profit means that the every $1 of revenue can add $0.70 to your profits & $9.5 to your enterprise value. Which makes for – Pricing, the single largest needle spinner (after the product and service, of course) in a SaaS companies life. Looking for that one small thing that makes a big change?
First of all, is re-evaluating pricing today really a good idea for us?
Every business has certain levers that are some of the most important areas that the business needs to consider. For a manufacturing company, it could be scale-up costs, raw material costs and marginal cost. In a SaaS business, it becomes a lot more complex as the marginal cost could be as low as 0 with the initial outlay in the millions of dollars. Lets challenge some fundamental assumptions that SaaS companies don’t follow.
Let’s play a game of Myth/Truth.
Which of these statements are a Myth and which are the Truth?
Credits: OpenView Partners: 2018 Expansion SaaS Benchmarks Survey | Price Intelligently: The Anatomy of SaaS pricing
Ok. I’m open to the idea. Why should I re-evaluate my pricing for my SaaS product though?
That makes sense. So what are the others doing then?
We do the same thing too. Is there something we should be doing differently then?
Wow! Really? Guess I’m not alone.
What should I do instead?
Answer: VALUE BASED PRICING
Instead of looking inside, Value Based Pricing looks at the inherent value of the solution to the customer. While this takes more dedicated effort to achieve, it could significantly improve the speed of adoption and retention of the solution in the long run.
Is this worth the effort though?
Wish to navigate to the other articles in this series? These links will help.
Part 1: Pricing, why so important? How are the others doing it? [ This one! ]
Part 2: Value based pricing, what, when, how, why [ links to be updated ]
Part 3: Start pricing you SaaS product in these steps [ links to be updated ]
Part 4: 2 great examples of SaaS pricing pages with some resources you need to have[ links to be updated ]
Part 5: Looking to price your SaaS product? What can I do? [ links to be updated ]
Go right ahead and download the full whitepaper: [ Download ]
Credits and special thanks to:
1/ Price Intelligently, The Anatomy of SaaS Pricing Strategy
2/ OpenView Partners, 2018 Expansion SaaS Benchmarks
3/ Chargify Blog, How Innovative SaaS Companies Leverage Pricing And Packaging To Beat The Competition
Disclaimer: Please note that these are our views are based on our experience in being advisors and working with 300+ organizations across 20+ industries in 20+ countries. They are for the limited purpose of educating the leaders of a company. The rationale and the procedure to be followed can vary significantly based on the context, exact nature & size of the business.
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