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How do you price a Saas which generates revenue for the customer?

echojason@gmail.com'

JASON LEMKIN

Comps.

At least to start — use Comparables.

Most software has no clear reason to cost anything. Why should Salesforce Unlimited Edition be $300/month and up per user … and Gmail free, or $5/month if part of Google Apps for Work? Why?

Both cost the same to build and ship and serve (if not sell and market). In fact, given Google’s scale, it’s likely more engineers work on Gmail than all Sales Cloud. Yes, one difference is scale. But that’s not the real answer.

The real answer is enterprise software traditionally costs a certain amount. Which enterprises understand. And budget for. And it’s OK if it costs That Much. But not so OK if it costs a lot more.

Your customers need a clear signal of if the price is fair. What customers want if a product isn’t fungible, if it isn’t a commodity — is Fair pricing.

Comps are where to start. If you are Box but Better … that’s your comp. If you are JIRA but Better … that’s your comp. Etc. etc.

Then, anchor high or low against your comp. Everyone starts off feature poor, but more important is positioning in the market. Are you “more enterprise” than Dropbox? Then charge more. Or are you just “easier to use”? Then charge less. To start.

Start at comps. The customers will get it. It won’t confuse them. It will take friction out of the buying process.

And it will be “fair”.

View original question on quora

Published on September 15, 2016
  • Jason,
    to continue this question, what is your opinion on pricing differentiation per usage vs. more features?

    • sunil*j

      I think you can do both, and having two axes to scale revenue is useful. If I understand your question correctly, one axis could be per user/per month, while the other axis is a step jump among packages like you see in the examples above. This gives you a way of achieving negative churn as your customer grows and gains more value from your product, and makes your job one of bundling the features appropriately into packages and prices that reflect the incremental value fairly.

      • Thanks man,
        the argument for usage based pricing is that you give ALL the features, whereas in feature-based pricing you tell the customer: “Hey, for a lesser price I’m giving you a lesser solution” – I know that as a customer I don’t like this type of proposition

        • sunil*j

          I hear you, but having worked at a pricing company for a decade now, I can’t tell you how many times we’ve seen overall lift in our customers’ businesses when they segment the customer base and package appropriate to that segment. For example, consider a SaaS product that let you email reports to a distribution group. If the customer is small, they may bite if they don’t have to pay for that feature which they may not need, and grow into the next version when they’re business grows. Without proper packaging, they may choose a competitor. If you are starting out, just try something and get more aggressive as you grow – you’ll figure out where the price value tradeoff is.

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