Pricing is one of the most challenging elements to get right for SaaS companies. How much should you charge, and what pricing model works best? HackerOne CEO Marten Mickos shares advice based on his years of experience with pricing, both successful and unsuccessful, to help give clarity for businesses trying to pinpoint their pricing model.
Tip One: Make It Easy For Customers to Make the First Purchase
In an era of empowered buyers, vendors should take care to remove obstacles from the pricing process or risk losing the customer to a competitor. Price certainly factors as a potential roadblock if it isn’t set correctly. As Mickos says, “In today’s world, we need to make it easy to make the first purchase, and many times we don’t. Making it easy requires many different things, and pricing is one…you need to remove any hurdles for the customer to sign up.”
Note that easy purchasing doesn’t mean a low price; that will depend on your target market.
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Tip Two: Set Up Pricing That Scales While You Sleep
Reasonable pricing, a helpful product, and excellent customer relationships will win lots of business. But as your company grows, can you sustain that momentum?
Your pricing must scale with you as your business expands. Customers should take it upon themselves to upgrade tiers, purchase more storage, invest in another product line and other expansions without an aggressive sales strategy from your end. It should be something customers do of their own accord.
Tip Three: Be Sure Your Pricing is Straightforward to Justify for the Economic Buyer
There is always a buyer who is most concerned with budget, particularly in B2B. Mickos describes this type of buyer in the following way: “Every purchase has an economic buyer in the background who is not excited about the product, who doesn’t care about the vendor and doesn’t have a personal relationship necessarily. So your pricing should be such that when it’s taken to the economic buyer, it will go through.”
Tip Four: Make it Painful For Competitors to Match Your Price
When your pricing outstrips all the others on the market, customers will run to you, and if your product and customer experience are strong, you’ll emerge as the winner. However, setting competitive pricing isn’t always easy, especially early on in the life of your company. Mickos explains, “Many times when you make pricing painful for competitors to match, it is because you take the long-term view and you compromise on some short-term benefits because you know in the long run you will win.”
More Helpful SaaS Pricing Advice
Customers look for convenience and predictability of cost. The more convenience you bring, the higher you can charge. You can even get creative with the basis of your pricing, like the company Databricks. Databricks is a data and AI company that operates a data lakehouse. They invented the metric “DBU” as the basis for their pricing. This simple structure appeals to customers, yet retains lots of elasticity and range for the seller.
When your NRR (Net Revenue Retention) is very high, you know your pricing is working. When you examine your recurring revenue (accounting for expansions and churn), and it grows consistently, it’s a sign that your current customers are staying with you and expanding their revenue with you.
Pricing that works for early customers may not suit the mainstream market. This pricing shift doesn’t always happen, but it can be painful to transition when it does. However, you must be ready to do so if you have realized your pricing structure is no longer attracting customers. Mickos elaborates on this situation, “It’s possible that the pricing model you picked [early on] doesn’t lend itself to a wider audience. It doesn’t lend itself to the established market you’re now going after, so you must have the readiness to change your pricing model mid-flight.” This might mean grandfathering in your original clients and updating the pricing for new customers only, or it might mean changing it for everyone. If you do need to change your pricing model, be sure to strategize the rollout carefully and handle customers with care.
- Remove as many purchasing hurdles as possible for your buyers.
- Consider the perspective of the economic buyer and cater to them through predictable, stable pricing.
- You’ll know your pricing model is working when you see high NRR retention.