Dear SaaStr: How does a SaaS company find its initial price point?
It’s pretty simple.
First, you anchor around a “comp”, another product that either does something somewhat similar, or that provides somewhat similar value in the market. The comp could be a direct competitor, an indirect competitor, or merely something in another market that provides somewhat similar value.
You then can Anchor High or Anchor Low. If you are more valuable than the comp, and are confident selling that value — pricing higher than your comp can work well. By contrast, if your main value prop is that you are easier to use, better in Just One Way than a direct comp … many start off as Anchoring Low, or cheaper, than the comp.
Anchoring has downsides — in particular, at least in theory, it can limit your pricing, at least at first — but in the early days, it has huge upside. Your customers will understand it. Anchoring thus usually, 9/10, provides the least friction in acquiring your early and mid-stage customers.
But if you are redefining a market, and providing 10–100x the value of your competitors and what has come before — then maybe “expensive” Workday or Salesforce can be your anchors. Not “cheap” Dropbox and Evernote.
And don’t be fearful of redefining your “comp” annually. If you started off low-end, but have moved up-market … don’t be scared to totally redo your pricing each year. Just consider grandfathering in your earlier customers.
(Good Price image from here)