February 10, 2024
Disclaimer: Everything I write here is my thoughts on working with SaaS over the years. I hope it resonates with you.
Pricing is a fundamental decision in every SaaS.
I have seen people taking a lot of approaches in pricing - there is no one way.
When I talk about pricing, it is not just the price but also what features come with it.
During my last startup and in Novu, I encountered a few things.
Developers don’t act like most audiences - they don’t see a demo webinar and decide to buy something or act from an emotional decision.
They use the trial / free tier of the software, play with it, and buy when they are 100% sure it will fit the business.
That’s why I usually recommend putting all the features in the free tier but limiting the usage, like (X amount of events, Y amount of bandwidth.), so they can thoroughly check the product. In the next tier, you can remove some of the features.
Pricing should be changed according to the company's maturity.
Here is what I mean: No matter what company you build - for dev tools or just an average B2B - there is a:
No-touch funnel (bottom-up) - everyone can put in their credit card and start to play with the software.
High-touch funnel - schedule a call with you to start (usually enterprise, but not always).
The main question usually is: Should you show the enterprise price?
This is where company maturity comes into place. You can show a high ticket price if you have a lot of maturity and word-of-mouth - You can filter many irrelevant customers.
But if you are not a mature company, many people will churn before you talk to them. Since customer discovery and calls are essential in the early stage, do not show enterprise prices (unless they are super low, which I don’t recommend.)
We are all afraid of our competitors and the market, so we tend to set a lower price than our competitors. There are usually three options:
Lowest price in the market - you take the approach of being the lowest, and in return, you drop some of the features, maybe support, and so on, so you can still be profitable.
The second cheapest - The stupidest mistake you can ever make; being the second cheapest makes no sense because you haven’t used any advantage. You are just avarage.
Being the most expensive - that’s usually my favorite option. You brand yourself as a premium/luxury and sell your stuff at a higher price - you might get fewer customers, but you will make more money. I suggest you watch this video by Rob Walling.
I would also recommend you read the book $100m offers to make an irresistible offer.
Upselling is making customers buy additional things after purchasing one thing.
LTV, aka Lifetime value, is the average amount customers pay you in their entire lifetime. Package price * the number of months they stay with you.
In my startup, I have made the mistake of having two packages (free and pro), and I have also seen a lot of other people doing that - that’s usually a bad idea. Here is why:
You are forced to put a high price unless you plan on making a low-profit business.
You can’t grow your customer LTV once they have a package - this is what they will pay you forever (well, you can increase it for all your customers as a part of a price upgrade, but it will be meager.)
The biggest mistake I have seen people make is pricing multiple tiers according to one metric: the number of users, total events, etc.
That means they will never upgrade their package unless they reach their limit - which can be a prolonged growth. That’s usually why you also want to put more and more features in each package so your customers will upgrade once they need those features.
For every customer who wants to use a product - the first thing they do is check the pricing page.
Having no pricing page might make you
a Hobby project - just testing things out.
It’s not a professional product.
Shadey - they are hiding the prices to show them later.
Non-credible - will we use the product, and then tomorrow morning, they will tell us that the price is $10000 per month? Too risky.
“But I am not ready to charge money.”
That’s okay. Create a pricing page, add your prices, and write that, at the moment, we are not charging any money. That’s what we have done in Novu for almost two years.
There is no way your company will not change its pricing over the years; furthermore, if you don’t adjust your pricing in the future, you will probably do something wrong. Try to experiment, but roll it out as fast as you can.
I hope you like this one!
See you next week! :)