Akash Chaudhari

Pricing a SAAS Software ?.

When you Make any SAAS Product and Customers Talking about your Price Then Probably We are in Wrong Bucket. It does not matter you had a Great Product but Your Pricing have done a Pretty tearable Job then.

Saas Software Takes fortune to make but nothing to run it.

It Takes lot of hard work and team work perfect execution and specially listening and answering to customer problems and providing solutions to make a perfect solution. After bringing value to the product and solving problems when it comes to pricing we are always confused. What really happens when i had a first experience is We come to a price and stick it to people and see what happens. I Think Pricing is something needs to be figured out first because if nobody is ready to pay then it doesn't matter what you do it will not create a business around you or you need to come up with some fremium pricing model which requires scale to get profitable.

When we stick price to Customer some will buy some won't that want goes with pricing always. The Customer who are not going to buy your product because of your pricing are not gona tell you that it's pricing. Also if you drop your price for a customer you need to drop for all and then Your Startup World have lot of key matrics that will drop.

If You reduce pricing You Loose Revenue, If you Raise Pricing you loose customers. A Double Ended Sward maybe !!

Generally This is How Pricing is done at Most of the Place

  1. Cost of Goods : 20
  2. Indirect Expense: 40
  3. Other Expenses: 20

Total is 80

Price is 100 so basically 20% in Profit Margin

A Single For All Pricing is Terrable idea when it comes to Saas. Saas Software tend to Solve problem and it is something which is not tossed in term of Comfort Level but Level of Need. There will be Always Peoples with Three Level of Need

  1. Absolute Need
  2. Good Need
  3. Some Need

Now We have to keep one thing in Mind. You can't Make money from People who have money but can't Pay for your solution. So i also Create a Division of Peoples based on Capacity to Pay

  1. Rich
  2. Poor
  3. One in Middle

Now This Creates Some Combination of Peoples

  1. Absolute Need and Rich
  2. Absolute Need and Poor
  3. Absolute Need and One in Middle
  4. Good Need and Rich
  5. Good Need and Poor
  6. Good Need and One in Middle
  7. Some Need and Rich
  8. Some Need and Poor
  9. Some Need and One in Middle

Now we will keep this thing in matrix and See how we can structure the pricing.

So Here is the Thing

  1. Rich Will Pay if He have Any Need and Good to Convert
  2. Middle Will Only Pay you to Some Extent and Have Good Expectations towards your product.
  3. Poor May or May not Pay you Depending upon Need and what product you have.

Your Overall Pricing Formula

Concept: What You Pick ?

  1. Low Margin High Volume
  2. High Margin Superior Quality
  3. Low Production Cost High Volume High Margin

Concept: Unit Economics

  1. CAC: Customer Acquisition Cost
  2. CLTV: Customer Life Time Value
  3. DDC: Delivery Development Cost
  4. ARPA: Average Revenue Per Account

A Good Things is Recover CAC in 12 Months to 18 Months and CLTV >> 3 * CAC.

Concept: Customer Value to You

  1. Linear: Your Unit Economics Becomes Better as customer Joins
  2. Quadratic: Your Unit Economics Becomes Better after Certain Percentage of Customers Joins you. Usually in Network Effect
  3. Steap Curve: After Cetain Point Unit Economics Don't Improve Much

Concept: What Users Mean to You ?

  1. Your User is Your Customer
  2. Your User is Your Product Eg. Facebook
  3. Your User is your Distributor Eg. Github

Here is the Key Takeaway.

If User is Customer Things are Good!!

If user is Product it should be free

If User is Distributor it should be paid.

Packaging

Now Our Plan is to create a Box of Packages. Each Package will Try to Suffice or Solve a Single Problem Customer Should be able to Buy a Single Package and Solve Their Problems

  1. Package Your Product. Value your Each Package
  2. Provide Adons
  3. Provide Services

For Saas softwares Like B2B Service Provides a Major Chunk of Business

  1. Package Product That Suits Different Market. Education, Research, B2B etc.

    1. You can Package for Single user
    2. You Can Package Same for B2B

  2. Package your Product based on Real Terms not Something like Small Medium Big

    1. Eg. AeroSpace industry Pricing is $$
    2. Food Company $$
    3. B2B Clients etc.

  3. Packaging Should Cater Customer Needs. Always Start with One Problem which is easily to be sold to customer and then Create a Axis of Ladder Your Customer can take and buy more packages

    1. Eg. We Host your Code
    2. We Also Let you Manage Bugs etc.
    3. We also Let you Manage Projects

    Always Start with Something which is easy to sell and then Expand it to Multiple Solutions that your customer can buy

Now Let's Come to Pricing Here are the Things your Customer Basically Looks at

  1. What he is Going to Pay
  2. What are some Alternatives

Always Pricing is a Tool which changes a lot of things also weather customer is going to stick with you even if you have a better solution in market. These are General Rule of Thumb

  1. Every customer is not Same so don't Price them Equally
  2. Have your Unit Economics Clear with Data you have

If you are selling to a Single Customer Pricing should be Simple

If you Selling to Group of Customers Don't Let it be Simple

So Here is a Example for a Group of Customer

  1. $1000 One time Setup Price
  2. $10 per user per month

if Group is 100 Peoples it's around $2000 so around $20 per user for them

If Group is 500 Peoples it's $6000 so around $12 per user for them

Now This is Attractive to Larger Group of Peoples Your Pricing is Letting Them Discount a Lot of Stuff.

Rule: Higher the ACV Higher Should be the Complexity

The Models of Pricing Structure

  1. Transaction Fees
    1. Setup Fees
    2. Ad-hoc on-off Fees
    3. Exit Fees
  2. Flat Fees
    1. Flat Fees Which are Not Tied to Matrics
  3. Metrics Based Fees
    1. Based on User
    2. Based on Consumption-based
    3. Credit based

Rule: For Low ACV Large Portion Should be from Matrics

Rule: For Low ACV Large Portion Should be from Consumption