Pricing your SaaS product optimally can mean the difference between success and failure for your business. Even a great team that’s building a great product can fail if they get their pricing wrong.
The more you think about pricing, the more confusing it can get. There are so many different roads you could go down, and it seems like there’s a good argument to be made for why you should go down each and every one of them.
What you can expect from this post isn’t the ultimate truth of SaaS pricing – there is no such thing. It’s a simple framework that we’ve successfully used for our own SaaS sales product and have also seen many other early-stage SaaS startups successfully implement.
Value-based pricing vs market-based pricing
It’s easy to just look at the pricing of competing vendors and match your pricing to theirs.
However, we don’t suggest you do this. Instead, base your product price on the value that it created for your customers.
Read more on charging your users:
The most common SaaS pricing is based on number of users in a multi-tiered pricing grid. If you do this, how do you decide which features to include in which pricing tier? What’s the right price point for each tier?
And then there are plenty of other options. Should you charge based on usage? Should you offer freemium? (Listen to my freemium discussion with Hiten Shah from KISSmetrics).
Get out of the building
One of the great advantages you have when you’re starting out is that you can aggressively test different pricing strategies. Your prospective customers are the only people who can truly give you insights into how much you should charge. Offer them your product with different price points and keep track of their responses.
Don’t be cheap
Product-focused founders often underprice their products. As a SaaS startup, you want to be slightly tilted towards premium pricing Read more on charging your users: http://blog.close.io/charge-your-users
Responding to price pressure
What do you do if a competitor drops their prices, or a new low-priced alternative takes away market share from you?
The best way to win a price war is to not get into a price war. Think how you can differentiate yourself and provide more value than your lower priced competitors.
Premium pricing doesn’t ‘feel right’
Do you know which person will complain the most about pricing if you position your product in a premium segment? It’s you! Charging high prices for your own product forces many founders out of their comfort zone – which is exactly the place where most growth occurs.
Remember that it’s about creating the most value in the long run – and ramen profitability isn’t the best foundation for creating more and more value for an ever increasing customer base.
Read more on premium pricing:
How to raise prices without alienating customers
If you’ve already have an existing customer base and want to raise prices, it’s important not to hit them over the head with a price hike (the 2011 Netflix price increase disaster is a lesson we should all heed). Instead, turn your price increase announcement into a sales opportunity by offering to grandfather their new seats for a limited time.
Read more on raising your prices:
How to deal with pricing objections
Prospects will always try to push back about pricing. It’s important that you differentiate when pricing is the real issue and when not. Read more on pricing objections: http://blog.close.io/what-is-usually-hidden-behind-the-price-objection-in-sales
There’s no definite truth in SaaS pricing
It’s complex. That’s one of the reasons why building successful startups is hard – because you’re dealing with complexities on all levels. It’s key to simplify it as much as possible, move fast and learn a lot. Use the guidelines laid out in this post to get closer to your optimal price point in minimum time.
Don’t allow anxiety or perfectionism to slow you down – instead, proactively seek out customer feedback by listening to what they say, but also by observing their behavior and how it affects your bottom line.
About the author: Steli Efti is the co-founder & CEO of Close.io, a sales CRM with integrated calling and emailing that minimizes manual data entry, so your sales team can focus on what matters most: communicating with prospects, making sales and closing deals. Sign up for his free startup sales course and check out the Close.io blog for more sales hacks.