SaaS Pricing Strategy: The 10x Rule | Hacker News Reader

SaaS Pricing Strategy: The 10x Rule

sixteenventures.com

45 pointsbrissmyr16 comments

I agree that the pricing for B2B apps should be "a no brainer" for your customers. Although sometimes it's hard to quantify (put into dollars) the value you provide. Maybe you just remove frustration, without saving much time or money. I wrote an article the other day about all the paid services I use and how little correlation there is between the amount I pay for each and the value I get: http://www.manuelflara.com/thoughts-on-pricing-for-developer...

Apologies for the blatant plug but for anyone interested, I also just wrote about another SaaS pricing strategy yesterday here: http://technicalmarketing.io/cro/saas-pricing-technique-deco... I figured it might be helpful for some people here.

It's pretty impressive the Decoy Effect practically doubled choice selection. Thank you for this.

Two questions:

(1) would trying this with products that don't include anything physical alter the effect?

(2) how ethical is it to use the Decoy Effect?

Decoy is unnecessarily pejorative here. This is known as price anchoring. Anchoring is an influence tactic based on human psychological bias.

I am not really sure why ethics would come into this discussion. Do ethics come into picture when you are considering/selecting databases or programming languages?

edit: rephrased.

can you help me explain how this might work for metered pricing? for example generating 1000 reports costs $100 so 1/10 of that would be $10. What would a decoy pricing plan look like?

FYI with Ghostery your article is completely empty, I had to pause it to see the text

The key message is not the 10x rule, it's quantifying the value you create for your user. Further, the supporting message is to actively price anchor against that value.

Very well put, which is why it is extremely important for startups to actually figure out the value which they can create for their customers.

This is easy said than done though, depending upon what business you do.

Normally, I like to test pretty much everything (start with 10x, compare with 9x/11x maybe) but when it comes to prices, I personally feel A/B testing them is a bad idea.

can someone help me understand this? does it mean to simply charge 10x the cost, thus 10x the margin?

does a metered pricing fall into value? meaning if someone generates 1000 reports should it cost them 100 dollars? what if it's an all or nothing situation. the value comes from when they receive most of the 1000 and no value when it falls lower than 300? does a metered pricing make sense in this case or does a monthly subscription makes sense?

It's not 10x the cost. To make it simpler, what you charge is 1/10th the value which you create for your user.

So if your user benefits by making an additional $100 by using your product, you charge him $10.

Yup. You're selling profits/revenue/cost - savings at a discount. In this case, a 90% discount.

what if the value differs for each user? a user might find generating 10000 reports will save them $60 while another user generating 1000 reports will save them $100? what if they don't know how reports they generate will save them any money at all or claim so?

Doesn't that mean that the second user is in a niche that will pay more for the service? Could there be a different way to charge, so that people are paying according to the value to them (instead of the # of reports, which may be your metric, but apparently may not be really relevant to value)

yes! I highly suspect that is the case. It seems like the number of reports is not important but the user's ROI goal from the collection of reports is where the value is.

So in this scenario, say you don't know what the end user is planning to do with the collection of reports and that the user themselves might not have a clear idea of ROI until the report is in their hands and they are able to extract some value from it. Simply having more of it does not necessarily guarantee value but rather what they do afterwards that determine the value of the reports and the quality of the reports (which they choose the data source).

Does this make sense? Basically the issue I'm raising is, what if you can't predict a positive ROI from the reports generated by the user of your software until their intentions with the report is known and after they take action?

...but someone will argue the act of generating the reports automatically and the volume of reports generated IS the value. This argument also has merit because if they were to hire someone to do this, it would cost them X amount of money and using software saves them X amount of dollar and time. The quality of the data source they chose to generate the reports is outside of the software's control.

Maybe I'm just overthinking this...but it does seem like metered billing makes sense because in order to generate the same number of reports, it would cost time and money. If somebody determines that they can do it better and faster and cheaper but still wants to use the software and not pay for even 1/10 of the cost of hiring someone to do it, then maybe they are a niche to not pay attention to. Maybe there's no money in that niche, and it should be ignored altogether. Perhaps even targeting this niche that is resistant to paying for even 1/10 of the cost of generating reports without the software should not play a factor in pricing.

1) Use industry averages for your target market based on studies or your own surveys

2) Show how you've worked out the value (e.g. 1000 reports = 20 hours saved. 20 hours x $100 (wage of target users) = $2000 value generated)

3) Use conservative figures and say 'get value from X' OR use higher figures and say 'get up to X value'

He's saying.. Figure out how much value the customer gets from your SaaS app. Then divide that by 10.

For example, if you have an accounting app that saves the customer $2000 a month in manual bookkeeping, then your app should cost $200/month.

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