So SaaStr itself is a little funky — we only have 9 team members but a fair amount of scale in terms of reach, revenue, and in some cases, software utilization. We don’t need many CRM seats for example but we do a ton of marketing.
So it was interesting when we tried to migrate off an existing enterprise-focused marketing tool we use. We mainly use it for legacy reasons, and no one on our current team really wants to use it. So we reached out to the leading SMB vendor.
The price? 5x more for the SMB vendor! $50k plus a migration fee (almost $100k total, really) for the SMB Vendor vs. $15k a year today for The Enterprise Vendor.
What’s happening here? To some extent, it’s just a natural output of how enterprises price. They are focused on pricing per units that scale organically in the enterprise — seats, workflows, etc. From that perspective, we’re tiny. So we pay close to the lowest price for the Enterprise vendor — $15,000 a year. That’s likely in the Bottom 5% of all of their customers.
But the SMB vendor is pushing hard to monetize its biggest SMBs the most. So for them, we are a whale. We send 750,000 emails a week and have 500,000 records in our database (roughly), and 20,000+ pieces of content. That’s huge for an SMB. So they want us to pay in the Top 5% of so of their customers.
We would have paid more for the SMB vendor, but not that much more. Not given all the other switching costs. So we passed after putting a lot of time in.
I’m not saying there’s anything right or wrong here, but it’s worth being cognizant of how your pricing tiers and packages truly impacts customers.
Variants of this are also common in luxury goods. The cheapest Porsche can end up being a better deal than the most expensive Kia. The cheapest Rolex … well I don’t know watches, but you get my point. Etc. Etc.
I was the first U.S. investor in Algolia, now at $200m+ in ARR, and they went through something similar. They had packaged their long tail very inexpensively, but they had big jumps up in pricing at certain tiers. It seems to work, but when they dug deeper, it led to lots of customers quietly not buying around those price tiers. They changed up the pricing, and revenue literally went up in one quarter. More on that convo with CEO Bernadette Nixon here:
If nothing else, it’s worth several times a year benchmarking your pricing vs both the competition and adjacent apps for each category of customer. Not just overall.
You may be fine overpricing in certain segments and losing customers there. But at least be aware of it and do some modeling, like Algolia did. You may find some mis-pricing across segments.
(Expensive v cheap image from here)