Dear SaaStr: Should We Over-Charge or Under-Charge our First Customers?

Q: Dear SaaStr: Should We Over-Charge or Under-Charge our First Customers?

Overcharge if the customer is big, i.e., >$50k-$100k a year or so in ACV.

Undercharge if the customer is small by revenue.

Why?

You’re learning very quickly here if you are enterprise or mass-market in the early days, where your sweet spot is, and most important, whatever segment of customers you can actually serve and close. You need to learn quickly if you are going to do fewer big deals, or tons of smaller deals.

  • If your product and business is a volume game, get the volume going. Charge a super cheap price early to take friction out of sales, and to get to 100, 200, 500+ customers fast.  You want to remove friction.  Charging the low end of normal works best here.  Look at the apps out there most similar to you, and just stay in that range. Maybe the low end of that rage, but that range.
  • But if you’re going truly enterprise and BigCo early — don’t sell too cheap. Here, you’re selling a solution to a big problem. Not just a tool or a cheap fix. Here, you need to understand how much value you can provide. So go in high. And overdeliver when you win. This will drag you upmarket, and you’ll learn. Which is key. You want to learn as quickly as possible.  Price way too cheap, and you will just confuse the prospects.  And you’ll end up with false signals.

Don’t be crazy.  Don’t ask for $1m a year unless you have the track record to prove it (some have done this, see, e.g. Veeva below).  And don’t charge $4 a month for an SMB product.  That’s too low and doesn’t remove friction.  It adds it.

A deeper dive here.

(note: an updated SaaStr Classic answer)

Published on August 26, 2021

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