SaaS Pricing
Here are some of the parameters I found to be essential when pricing a SaaS product.
Scale When one of your customers’ doubles in size, does revenue from that customer also double? or at least 1.5x? If revenue is not proportional to the growth curve of your customers, the pricing is incorrect.
Habit Is your product becoming a part of daily routine for your customers, at least to a certain section of people? This is important because once it becomes a habit, you don’t have to worry about churn much (the only exception being your product deteriorates in quality) because the thought of unsubscribing from your service will never occur.
This is a great stage to be in because growth is now purely driven by science & logic (put a dedicate account manager to get feedback from customers, iterate, up-sell, etc) than art.
Spreading across teams If team X is using the product, can team Y which is performing a similar function in the company also benefit from your product? And how broad can you define the team? The broader you definition is, the better. For eg: it’s better to say your product will be useful to any developer in the company than being useful just to backend programmers.
How can you expand to be useful to all of them who perform that function? Once this is achieved, the word generally spreads quickly within teams and the land & expand strategy works beautifully within the company. Soon, your product will be adopted by the entire company and it’s a strong foothold to expand to other continents or locations as well.
Right proxy value Some SaaS companies like Box have an advantage – the product will be used by everyone in the company. I’m guessing the time to get a commitment from a potential customer will be high but once landed, it’s smooth sailing from then. This is a perfect example of a company that follows rule #1. If you hire a new employee, you’ll need to get her a box account or else she can’t see or collaborate with anyone in the team.
But not all companies enjoy this luxury. In fact, most don’t. In that case, we should identify a reasonably proxy value to the section of people we are selling to (zendesk => customer support; salesforce => sales; interviewstreet => hiring managers) and map to the size of the company. Eg: If your product is going to benefit recruiters, then figure out the ratio of no. of recruiters : size of company and accordingly price the product/recruiter.
This is a hard one and although I’m working on some models for my startup as well, I haven’t found anything conclusive to determine an accurate proxy value.
