SaaS Startups and Reduced Pricing

For most SaaS apps, you want to at least start with “just right”, Goldilocks pricing:

Too high a price, and you start to add friction to the sales process. Deals take longer, leads shop other vendors, etc. That may be OK if you are the only vendor or in the space, or have the dominant brand. Sales may even push for this. But if you aren’t yet #1, you want to close every deal possible. So too high a price will dramatically increase friction, likely not enough to be worth the additional revenue per deal.

Too low a price also adds friction to sales, and if significant, leaves too much money on the table. Today, the average SaaS customer has purchased 60–100+ apps. They are veterans. And because of that, they sort of already know what your app should cost. How? Based on comparables. Not necessarily competitors, but apps that provide similar amounts of value to similar users at their company. If they pay $10k a year for Intercom, for example, and they see you as equally as valuable … they are probably OK paying $10k for your app. Maybe a bit less, since you are new. But at least $5k-$10k will be fine. If you charge way less, you may send a message your app is not as valuable as the prospect things.

Once the deal size is > $5k-$10k, you do need to leave room for discounting. Customers are going to ask for a discount on a $20k and up deal for sure. If you don’t allow some room, again, you are going to just add friction to the sales and buying process. The answer is simple: mark-up your pricing equal to the average discount.

There are tons of exceptions here. But in the early and even middle days, approach pricing as a potential friction point for sales — but also an accelerator for sales.

Get it just right, and more deals will close faster. The faster deals close, the higher the % of deals that close. And the more money you make. Getting pricing right matters, but usually even more important is increasing sales velocity.

So in the early days, maybe just price your app at the low end of normal, or simply the same as similar apps. That will take one less learning step out of the buying process.

Dynamics pricing story from here: On CRM: Microsoft Changes Its Dynamics 365 Pricing. Yes, Again.

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Published on July 26, 2019

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