SaaS Pricing: Lessons from Changes

The one thing I've learned from our pricing inquiries over the last year, is that customers will often pay far more than you suspect, provided the product is packaged correctly.

I'll do a write-up once we are more settled in our pricing about our pricing journey, but in a nutshell.

1) early 'customers' said they wouldn't pay anything, or maybe $50/year - we have no business

2) giving them pricing < $100/year for x number users where they would likely spend $200 / year was a no go.

3) giving them pricing of $800/year with more users than they would likely ever have was interesting to them

4) telling them it was $800/year without limitations on the number of users, and they think it's too cheap.

5) tell them that it's $800 per x number of users so they would need to spend $5000 per year where they are currently spending $3000 on their alternative, and they are still interested.

This is one of our customer segments, the thing is, many of these customers would likely only have paid $150 on a per-use plan. But they want to pay more, and not have to think about per use.

The challenge for us, is our cost for each of their users is high, and as this is a new market, it is very difficult for any of us to forecast usage. We're learning.

Don't undersell yourself, and I've learned that focusing on the packaging is as important as the actual $$.

Also, how many people are charging the same amount in $ and €? We give the same dollar amount to both groups, don't undersell on exchange rate either (I don't think).

I recommend anyone trying to decide pricing for their SaaS, or any product in general, to study a bit about Consumer Surplus.

There is a very classical paper "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly" that discusses, amongst other things, two part "tariffs" (admission + ride) which allow "the sellers to capture part of the residual surplus through an appropriately chosen fixed fee."

Which is exactly what the Article has ended up rediscovering at the end.

Quite a few economists and companies have given this problem a lot of thought, so it might very beneficial to study the body of literature that developed over the decades.

This article really resonates with me because we're going through the exact same problem. The most profound thing we've learned is the value of anchoring the users expectations. Our initial price for a consumer product was $2/month. It really only was a finger-in-the-air decision. Now we've grown and companies are starting to use our product. We had a large company with 5000+ employees, ask for the price for 200 users on our product. Since the only price available was the consumer pricing they were expecting a discount on that. Between 25%-50%. 200 employees using our tool daily, for only $200 per month! Now that we have introduced a business option at $15/month per seat, it's impossible to convince them otherwise.

Another learning is that some customers are just not meant for you.

Personally I think you're pricing is too high for startups.

UseResponse costs $15/month. And other SAAS products which are at the $50/month mark are products like Intercom (which actually is three products) and are further ahead in terms of more features and polish.

I just don't feel the value proposition is all that great. And for $600 (cost of a year) I could feasibly someone get offshore to replicate your product.

And I am literally right now looking for a product like yours.

Nice post (and beautiful charts!). One other quick comment: really appreciate that you never excluded single sign-on from your base plan.

I'm always disappointed when I see SaaS where you have to upgrade to an "enterprise" account just to get reasonable security. Props to you and your team for not forcing customers into that dilemma!

That's some interesting insight. We trialled £7 per user per month for https://usebx.com, but found our corporate clients were our main income source (paying >£500 per month for customised deployments). We've recently decided that we'll try offering the hosted service for free to single users in the hope that it attracts more corporate customers. Pricing really is an art that I didn't give much consideration to before I started trying to run a SaaS! Glad you are finding your optimal pricing structure... I feel we still have a long way to go yet!

Glad to see this! Really stoked to see you guys share all of this with so much depth.

Fantastic write up, and definitely helping me as I'm due to launch my MVP in the coming month or two. Subscribed to the blog, interested in both business thoughts and digital nomad experiences :D

I am going to ask a slightly off topic question. I hope someone could point me some direction.

How do different industry price things? Is there a book or other resources on the subject on how to price different items? Clothes, Disk washers, Food, Software, Services.. etc. Or Phones.

Because different industry and products have different way to do cost calculation, and different margins. Or depends on companies etc. Just wondering if i could learn more on the subject.

I'm interested to know, how did you guys handle pricing changes for existing customers? Did you change their pricing structure too? Or were they left on the old plans?

Might just be me but I'm finding the axes on most of those charts not quite correct.